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

Which one of the following could cause a recessionary gap?

To eliminate a recessionary gap, the expenditure schedule should be

In the 2007-2009 period, the expenditure level in the United States intersected the 45-degree line below potential GDP, causing

If an economy at the equilibrium level of GDP experiences an increase in the amount of investment spending, then inventories will be

If investment spending depends on GDP, this is called induced investment.

If inventories are being depleted, firms may respond by cutting prices.

An expenditure schedule that lies below the full employment level of GDP will cause

If firms are experiencing falling inventories, one can expect that firms will cut production.

The oversimplified multiplier formula assumes that the

The equilibrium level of GDP is the level at which

Injections include saving and taxes.

The concept that increases in spending cause larger increases in equilibrium GDP is known as the

In a simple economy (no government), the vertical distance between the consumption function and the expenditure schedule measures

By definition, total production must always equal total

Economists before Keynes assumed that equilibrium GDP occurred

If the government increases defense spending by $1 billion and the MPC is 0.8, how much additional spending will occur in the third "round" of spending?

Figure 9-1 -In Figure 9-1,

From the demand side, the equilibrium level of GDP is one at which

The actual multiplier for the U.S.economy is estimated to be

If the multiplier is 4, a decrease in spending equal to $80 billion will be accompanied by a decrease in GDP of