Question 1

Government stabilization policy

Accepted Answer

A)  cannot influence investment spending. 
B)  can stimulate aggregate demand and thereby induce businesses to invest, but the amount is not totally predictable. 
C)  can stimulate aggregate demand, but investment spending will not be affected. 
D)  can stimulate aggregate demand, but only in the long run. 
A)  cannot influence investment spending. 
B)  can stimulate aggregate demand and thereby induce businesses to invest, but the amount is not totally predictable. 
C)  can stimulate aggregate demand, but investment spending will not be affected. 
D)  can stimulate aggregate demand, but only in the long run.

Question 2

According to Baumol and Blinder, from the demand side an increase 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 3

The total expenditure schedule in Macroland begins with these initial levels (in billions of dollars): Income = 1,000; Consumption = 900; Investment = 200; Government = 300; Net Exports = -100.If the MPC = 0.75 and income increases in increments of 200, find the equilibrium level of income.If full employment requires an income level of 2,000, what (if anything) should the government do? Indicate both the direction of the spending change and the size of the spending change.

Accepted Answer

Initially, total expenditures equal 1,30

Question 4

Using the standard 45-degree line diagram, how does a decrease in investment spending effect the expenditure schedule?

Accepted Answer

A)  It increases the slope of the expenditure schedule. 
B)  It decreases the slope of the expenditure schedule. 
C)  It shifts the expenditure schedule downward. 
D)  It shifts the expenditure schedule upward. 
A)  It increases the slope of the expenditure schedule. 
B)  It decreases the slope of the expenditure schedule. 
C)  It shifts the expenditure schedule downward. 
D)  It shifts the expenditure schedule upward.

Question 5

Total output equals total income

Accepted Answer

A)  only at equilibrium. 
B)  always. 
C)  only at non-equilibrium levels of income. 
D)  never. 
A)  only at equilibrium. 
B)  always. 
C)  only at non-equilibrium levels of income. 
D)  never.

Question 6

As the multiplier process works through time, the size of the multiplier effect becomes

Accepted Answer

A)  larger. 
B)  smaller. 
C)  constant. 
D)  explosive. 
A)  larger. 
B)  smaller. 
C)  constant. 
D)  explosive.

Question 7

Government stabilization policy would be unnecessary if the economy automatically gravitated toward

Accepted Answer

A)  full inflation. 
B)  full employment. 
C)  full recession. 
D)  an inflationary gap. 
A)  full inflation. 
B)  full employment. 
C)  full recession. 
D)  an inflationary gap.

Question 8

Figure 9-3
  
-In Figure 9-3, at $3,000 billion GDP,

Accepted Answer

A)  inventories will be falling, signaling businesses to decrease production. 
B)  inventories will be falling, signaling businesses to increase production. 
C)  planned saving increases planned investment. 
D)  inventories will be accumulating, signaling businesses to increase production. 
A)  inventories will be falling, signaling businesses to decrease production. 
B)  inventories will be falling, signaling businesses to increase production. 
C)  planned saving increases planned investment. 
D)  inventories will be accumulating, signaling businesses to increase production.

Question 9

The equilibrium level of GDP is always accompanied by full employment and stable prices.

Accepted Answer

A) True 
 B)False

Question 10

If businesses spend an additional $150 billion for investment projects in 2010, what will be the impact on national income (Y) if the multiplier is 2?

Accepted Answer

A)  Y will increase by $50 billion. 
B)  Y will increase by $150 billion. 
C)  Y will increase by $300 billion. 
D)  Y will increase by $450 billion. 
A)  Y will increase by $50 billion. 
B)  Y will increase by $150 billion. 
C)  Y will increase by $300 billion. 
D)  Y will increase by $450 billion.

Question 11

The price level effects consumer spending through changes in real

Accepted Answer

A)  disposable income. 
B)  interest rates. 
C)  wealth. 
D)  GDP. 
A)  disposable income. 
B)  interest rates. 
C)  wealth. 
D)  GDP.

Question 12

Total expenditures can be written as C + I + G + (X - IM).

Accepted Answer

A) True 
 B)False

Question 13

Carefully define the following terms and explain their importance in the study of macroeconomics:
a.expenditure schedule
b.saving schedule
c.equilibrium GDP
d.leakages schedule
e.injections schedule

Accepted Answer

a.The expenditure schedule shows the rel

Question 14

When spending falls short of output, additional inventories are created.

Accepted Answer

A) True 
 B)False

Question 15

In comparison to the oversimplified formula for the multiplier, the real-world multiplier is

Accepted Answer

A)  lower. 
B)  higher. 
C)  almost equal to it. 
D)  higher if taxes are included. 
A)  lower. 
B)  higher. 
C)  almost equal to it. 
D)  higher if taxes are included.

Question 16

Why does an increase in the price level cause a decrease in real GDP demanded?

Accepted Answer

A)  Consumer wealth increases. 
B)  Net exports will increase. 
C)  Interest rates decrease and cause higher investment. 
D)  Net exports will decrease. 
A)  Consumer wealth increases. 
B)  Net exports will increase. 
C)  Interest rates decrease and cause higher investment. 
D)  Net exports will decrease.

Question 17

Investment spending

Accepted Answer

A)  cannot be stimulated by decreasing the interest rate. 
B)  is often the cause of business fluctuations in the United States. 
C)  is a remarkably stable function of the level of real GDP. 
D)  is the primary solution to recessions and inflations, according to John Maynard Keynes. 
A)  cannot be stimulated by decreasing the interest rate. 
B)  is often the cause of business fluctuations in the United States. 
C)  is a remarkably stable function of the level of real GDP. 
D)  is the primary solution to recessions and inflations, according to John Maynard Keynes.

Question 18

When equilibrium real GDP falls short of potential GDP, there is a(n)

Accepted Answer

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

Question 19

Businesses in the United States cut their investment projects by $30 billion.If the MPC is 2, what will be the impact on the national income (Y)?

Accepted Answer

A)  Y will fall by $15 billion. 
B)  Y will fall by $30 billion. 
C)  Y will fall by $60 billion. 
D)  Y will fall by $120 billion. 
A)  Y will fall by $15 billion. 
B)  Y will fall by $30 billion. 
C)  Y will fall by $60 billion. 
D)  Y will fall by $120 billion.

Question 20

Assume that the MPC is 0.80 and investment rises by $50 million.How much additional saving will this generate in the second round of spending?

Accepted Answer

A)  $10 million 
B)  $40 million 
C)  $50 million 
D)  $62.5 million 
E)  $250 million 
A)  $10 million 
B)  $40 million 
C)  $50 million 
D)  $62.5 million 
E)  $250 million

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

Government stabilization policy

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

Using the standard 45-degree line diagram, how does a decrease in investment spending effect the expenditure schedule?

Total output equals total income

As the multiplier process works through time, the size of the multiplier effect becomes

Government stabilization policy would be unnecessary if the economy automatically gravitated toward

Figure 9-3 -In Figure 9-3, at $3,000 billion GDP,

The equilibrium level of GDP is always accompanied by full employment and stable prices.

If businesses spend an additional $150 billion for investment projects in 2010, what will be the impact on national income (Y) if the multiplier is 2?

The price level effects consumer spending through changes in real

Total expenditures can be written as C + I + G + (X - IM).

Carefully define the following terms and explain their importance in the study of macroeconomics: a.expenditure schedule b.saving schedule c.equilibrium GDP d.leakages schedule e.injections schedule

When spending falls short of output, additional inventories are created.

In comparison to the oversimplified formula for the multiplier, the real-world multiplier is

Why does an increase in the price level cause a decrease in real GDP demanded?

Investment spending

When equilibrium real GDP falls short of potential GDP, there is a(n)

Businesses in the United States cut their investment projects by $30 billion.If the MPC is 2, what will be the impact on the national income (Y)?

Assume that the MPC is 0.80 and investment rises by $50 million.How much additional saving will this generate in the second round of spending?

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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