Question 1

If an increase in investment of $100 billion generates an increase of $500 billion in real GDP, the multiplier is

Accepted Answer

A)  20. 
B)  50. 
C)  1.50. 
D)  5.00. 
A)  20. 
B)  50. 
C)  1.50. 
D)  5.00.

Question 2

When the expenditure level is above the full employment level of GDP, a possible consequence is

Accepted Answer

A)  falling prices. 
B)  rising prices. 
C)  falling disposable income. 
D)  high levels of unemployment. 
A)  falling prices. 
B)  rising prices. 
C)  falling disposable income. 
D)  high levels of unemployment.

Question 3

Equilibrium is the point where total spending equals total output, or GDP.

Accepted Answer

A) True 
 B)False

Question 4

For a given price level, an upward shift of the expenditures schedule corresponds to an

Accepted Answer

A)  inward shift of the aggregate demand curve. 
B)  outward shift of the aggregate demand curve 
C)  outward shift of the aggregate supply curve. 
D)  inward shift of the aggregate supply curve. 
A)  inward shift of the aggregate demand curve. 
B)  outward shift of the aggregate demand curve 
C)  outward shift of the aggregate supply curve. 
D)  inward shift of the aggregate supply curve.

Question 5

High unemployment and high rates of inflation are examples of coordination successes.

Accepted Answer

A) True 
 B)False

Question 6

The economy will reach equilibrium in a simple economy only if saving is

Accepted Answer

A)  greater than investment. 
B)  less than investment. 
C)  equal to investment. 
D)  equal to disposable income. 
A)  greater than investment. 
B)  less than investment. 
C)  equal to investment. 
D)  equal to disposable income.

Question 7

Describe the role of business inventory change in determining the equilibrium level of GDP and changes in the level of GDP.

Accepted Answer

Inventories work as buffers in the econo

Question 8

The main examples of macroeconomic coordination failures are

Accepted Answer

A)  profit declines. 
B)  relative price changes. 
C)  recessions and depressions. 
D)  consumer taste changes. 
A)  profit declines. 
B)  relative price changes. 
C)  recessions and depressions. 
D)  consumer taste changes.

Question 9

A recessionary gap exists when the equilibrium level of GDP

Accepted Answer

A)  falls short of potential GDP. 
B)  equals potential GDP. 
C)  exceeds potential GDP. 
D)  causes inventory levels to fall. 
A)  falls short of potential GDP. 
B)  equals potential GDP. 
C)  exceeds potential GDP. 
D)  causes inventory levels to fall.

Question 10

Assume that the MPC is .75, and investment spending rises by $25 billion.How much will real GDP change?

Accepted Answer

A)  $25 billion 
B)  $75 billion 
C)  $100 billion 
D)  $175 billion 
A)  $25 billion 
B)  $75 billion 
C)  $100 billion 
D)  $175 billion

Question 11

Why does the aggregate demand curve slope downward?

Accepted Answer

The effect of higher prices on consumer

Question 12

A higher price level would mean ____ for a person who has a bank deposit of $2 million.

Accepted Answer

A)  an increase in real income 
B)  a decrease in real wealth 
C)  a decrease in nominal income 
D)  an increase in nominal income 
A)  an increase in real income 
B)  a decrease in real wealth 
C)  a decrease in nominal income 
D)  an increase in nominal income

Question 13

Workers in a nearby pizza restaurant may indirectly enjoy income increases from a nearby construction process.

Accepted Answer

A) True 
 B)False

Question 14

If the expenditure schedule lies above the level of potential GDP, then there is a(n)

Accepted Answer

A)  recessionary gap. 
B)  precautionary gap. 
C)  deflationary gap. 
D)  inflationary gap. 
A)  recessionary gap. 
B)  precautionary gap. 
C)  deflationary gap. 
D)  inflationary gap.

Question 15

If, at the full employment level of income, the amount that businesses plan to invest is greater than the amount that consumers plan to save, then

Accepted Answer

A)  there will be an inflationary gap. 
B)  there will be a deflationary gap. 
C)  total demand will fall short of potential GDP. 
D)  the economy will suffer from increasing unemployment. 
A)  there will be an inflationary gap. 
B)  there will be a deflationary gap. 
C)  total demand will fall short of potential GDP. 
D)  the economy will suffer from increasing unemployment.

Question 16

The MPC in the U.S.economy has been estimated to be near 0.95.If this is an accurate measure, then the numerical value for the multiplier would be

Accepted Answer

A)  0.9. 
B)  1.8. 
C)  9.5. 
D)  10.0. 
E)  20.0. 
A)  0.9. 
B)  1.8. 
C)  9.5. 
D)  10.0. 
E)  20.0.

Question 17

If we observe that every increase in income of $120 million generates an increase in consumption of $80 million, then the simple multiplier is

Accepted Answer

A)  2/3. 
B)  3/2. 
C)  2. 
D)  3. 
E)  8. 
A)  2/3. 
B)  3/2. 
C)  2. 
D)  3. 
E)  8.

Question 18

What is a multiplier? How does the multiplier effect occur?

Accepted Answer

The multiplier is the ratio of the chang

Question 19

According to Baumol and Blinder, from the demand side a decrease in the price level causes aggregate expenditures to

Accepted Answer

A)  fall, resulting in a lower level of equilibrium income. 
B)  fall, resulting in a higher level of equilibrium income. 
C)  rise, resulting in a higher level of equilibrium income. 
D)  rise, resulting in a lower level of equilibrium income. 
A)  fall, resulting in a lower level of equilibrium income. 
B)  fall, resulting in a higher level of equilibrium income. 
C)  rise, resulting in a higher level of equilibrium income. 
D)  rise, resulting in a lower level of equilibrium income.

Question 20

Figure 9-5
  
-If the shift in the C + I + (X - IM) in Figure 9-5 was caused by a 80 dollar increase in investment, then the multiplier is

Accepted Answer

A)  0. 
B)  2. 
C)  3. 
D)  4. 
E)  5. 
A)  0. 
B)  2. 
C)  3. 
D)  4. 
E)  5.

Exam 26: Demand-Side Equilibrium: Unemployment or Inflation?

If an increase in investment of $100 billion generates an increase of $500 billion in real GDP, the multiplier is

When the expenditure level is above the full employment level of GDP, a possible consequence is

Equilibrium is the point where total spending equals total output, or GDP.

For a given price level, an upward shift of the expenditures schedule corresponds to an

High unemployment and high rates of inflation are examples of coordination successes.

The economy will reach equilibrium in a simple economy only if saving is

Describe the role of business inventory change in determining the equilibrium level of GDP and changes in the level of GDP.

The main examples of macroeconomic coordination failures are

A recessionary gap exists when the equilibrium level of GDP

Assume that the MPC is .75, and investment spending rises by $25 billion.How much will real GDP change?

Why does the aggregate demand curve slope downward?

A higher price level would mean ____ for a person who has a bank deposit of $2 million.

Workers in a nearby pizza restaurant may indirectly enjoy income increases from a nearby construction process.

If the expenditure schedule lies above the level of potential GDP, then there is a(n)

If, at the full employment level of income, the amount that businesses plan to invest is greater than the amount that consumers plan to save, then

The MPC in the U.S.economy has been estimated to be near 0.95.If this is an accurate measure, then the numerical value for the multiplier would be

If we observe that every increase in income of $120 million generates an increase in consumption of $80 million, then the simple multiplier is

What is a multiplier? How does the multiplier effect occur?

According to Baumol and Blinder, from the demand side a decrease in the price level causes aggregate expenditures to

Figure 9-5 -If the shift in the C + I + (X - IM) in Figure 9-5 was caused by a 80 dollar increase in investment, then the multiplier is

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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