Question 1

The multiplier principle illustrates that

Accepted Answer

A)  an increase in investment spending will be multiplied into a larger increase in GDP. 
B)  an increase in GDP will be multiplied into a larger amount of investment spending. 
C)  an increase in GDP will be multiplied into a larger increase in consumer spending. 
D)  investment spending is always a multiple of consumer spending. 
A)  an increase in investment spending will be multiplied into a larger increase in GDP. 
B)  an increase in GDP will be multiplied into a larger amount of investment spending. 
C)  an increase in GDP will be multiplied into a larger increase in consumer spending. 
D)  investment spending is always a multiple of consumer spending.

Question 2

The aggregate demand curve has an upward slope due to the positive relationship between the price level and aggregate quantity demanded.

Accepted Answer

A) True 
 B)False

Question 3

If total spending is less than the value of total output, firms

Accepted Answer

A)  may decide to cut prices. 
B)  may increase production levels. 
C)  will tend to raise prices. 
D)  will notice inventories falling. 
A)  may decide to cut prices. 
B)  may increase production levels. 
C)  will tend to raise prices. 
D)  will notice inventories falling.

Question 4

The formula for the multiplier can be written as change in

Accepted Answer

A)  Y/change in I. 
B)  I/change in Y. 
C)  Y/change in C. 
D)  Y/change in GDP. 
A)  Y/change in I. 
B)  I/change in Y. 
C)  Y/change in C. 
D)  Y/change in GDP.

Question 5

The economic impact of the multiplier is ____, and then becomes ____.

Accepted Answer

A)  slow, faster 
B)  small, tiny 
C)  large, smaller 
D)  small, larger 
A)  slow, faster 
B)  small, tiny 
C)  large, smaller 
D)  small, larger

Question 6

Differentiate between an induced increase in consumption and an autonomous increase in consumption.How are they represented on a graph?

Accepted Answer

An induced increase in consumption is an

Question 7

Given the slope of the aggregate demand curve, real GDP demanded will decrease when

Accepted Answer

A)  real income rises. 
B)  real income falls. 
C)  the price level falls. 
D)  the price level rises. 
A)  real income rises. 
B)  real income falls. 
C)  the price level falls. 
D)  the price level rises.

Question 8

The multiplier principle is built on the premise that one person's spending is another person's

Accepted Answer

A)  debt. 
B)  obligation. 
C)  income. 
D)  saving. 
A)  debt. 
B)  obligation. 
C)  income. 
D)  saving.

Question 9

In a simplified circular flow model with no government, in equilibrium, S = I + (X - IM).

Accepted Answer

A) True 
 B)False

Question 10

Each C + I + G + (X - IM) expenditure schedule is drawn assuming a specific

Accepted Answer

A)  income level. 
B)  spending level. 
C)  production level. 
D)  price level. 
A)  income level. 
B)  spending level. 
C)  production level. 
D)  price level.

Question 11

Using the saving-investment approach, which of the following describes an equilibrium condition of GDP?

Accepted Answer

A)  I = X - IM 
B)  S = X - IM 
C)  I = S + (X - IM) 
D)  S = I + (X - IM) 
A)  I = X - IM 
B)  S = X - IM 
C)  I = S + (X - IM) 
D)  S = I + (X - IM)

Question 12

Movements along the consumption function are called

Accepted Answer

A)  autonomous consumption. 
B)  leakage consumption. 
C)  induced consumption. 
D)  injected consumption. 
A)  autonomous consumption. 
B)  leakage consumption. 
C)  induced consumption. 
D)  injected consumption.

Question 13

Figure 9-4
  
-In Figure 9-4, if the economy faces an inflationary gap, what must happen to reach potential GDP?

Accepted Answer

A)  The expenditure level must rise and/or the price level must rise. 
B)  The expenditure level must rise and/or the price level must fall. 
C)  The expenditure level must fall and/or the price level must fall. 
D)  The expenditure level must fall and/or the price level must rise. 
A)  The expenditure level must rise and/or the price level must rise. 
B)  The expenditure level must rise and/or the price level must fall. 
C)  The expenditure level must fall and/or the price level must fall. 
D)  The expenditure level must fall and/or the price level must rise.

Question 14

When businesses are cutting back production, then it probably true that

Accepted Answer

A)  total spending is greater than total output. 
B)  total output is greater than total income. 
C)  total spending is less than total output. 
D)  inventory levels are decreasing. 
A)  total spending is greater than total output. 
B)  total output is greater than total income. 
C)  total spending is less than total output. 
D)  inventory levels are decreasing.

Question 15

Leakages from the circular flow include saving and imports.

Accepted Answer

A) True 
 B)False

Question 16

Equilibrium GDP on the demand side occurs when total spending

Accepted Answer

A)  equals total production, and inventories are zero. 
B)  equals total production, and firms are unable to adjust inventories. 
C)  exceeds total production, and inventories are rising. 
D)  equals total production, and inventories remain at desired levels. 
E)  is less than total production, and inventories are falling. 
A)  equals total production, and inventories are zero. 
B)  equals total production, and firms are unable to adjust inventories. 
C)  exceeds total production, and inventories are rising. 
D)  equals total production, and inventories remain at desired levels. 
E)  is less than total production, and inventories are falling.

Question 17

Writing during the Great Depression, Keynes naturally focused on problems of

Accepted Answer

A)  hyperinflation. 
B)  budget deficits. 
C)  trade deficits. 
D)  unemployment. 
A)  hyperinflation. 
B)  budget deficits. 
C)  trade deficits. 
D)  unemployment.

Question 18

The U.S.fiscal stimulus in 2009 did not increase GDP substantially because

Accepted Answer

A)  the Federal Reserve was decreasing interest rates and real world estimates for the multiplier might be less than one. 
B)  the Federal Reserve was increasing interest rates and real world estimates for the multiplier might be less than one. 
C)  state governments were decreasing spending and real world estimates for the multiplier might be less than one. 
D)  state governments were increasing spending and real world estimates for the multiplier might be less than one. 
A)  the Federal Reserve was decreasing interest rates and real world estimates for the multiplier might be less than one. 
B)  the Federal Reserve was increasing interest rates and real world estimates for the multiplier might be less than one. 
C)  state governments were decreasing spending and real world estimates for the multiplier might be less than one. 
D)  state governments were increasing spending and real world estimates for the multiplier might be less than one.

Question 19

Figure 9-4
  
-In Figure 9-4, which expenditure level will cause an inflationary gap?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  There will be no inflationary gap. 
A)  1 
B)  2 
C)  3 
D)  There will be no inflationary gap.

Question 20

Investment spending might be larger when GDP is higher.Such added investment as GDP rises is called

Accepted Answer

A)  mutual investment. 
B)  induced investment. 
C)  positive investment. 
D)  net investment. 
A)  mutual investment. 
B)  induced investment. 
C)  positive investment. 
D)  net investment.

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

The multiplier principle illustrates that

The aggregate demand curve has an upward slope due to the positive relationship between the price level and aggregate quantity demanded.

If total spending is less than the value of total output, firms

The formula for the multiplier can be written as change in

The economic impact of the multiplier is ____, and then becomes ____.

Differentiate between an induced increase in consumption and an autonomous increase in consumption.How are they represented on a graph?

Given the slope of the aggregate demand curve, real GDP demanded will decrease when

The multiplier principle is built on the premise that one person's spending is another person's

In a simplified circular flow model with no government, in equilibrium, S = I + (X - IM).

Each C + I + G + (X - IM) expenditure schedule is drawn assuming a specific

Using the saving-investment approach, which of the following describes an equilibrium condition of GDP?

Movements along the consumption function are called

Figure 9-4 -In Figure 9-4, if the economy faces an inflationary gap, what must happen to reach potential GDP?

When businesses are cutting back production, then it probably true that

Leakages from the circular flow include saving and imports.

Equilibrium GDP on the demand side occurs when total spending

Writing during the Great Depression, Keynes naturally focused on problems of

The U.S.fiscal stimulus in 2009 did not increase GDP substantially because

Figure 9-4 -In Figure 9-4, which expenditure level will cause an inflationary gap?

Investment spending might be larger when GDP is higher.Such added investment as GDP rises is called

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

Filters

The economic impact of the multiplier is , and then becomes .