Question 1

Using the standard 45-degree line diagram, how does a decrease in net exports 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 upward. 
D)  It shifts the expenditure schedule downward. 
A)  It increases the slope of the expenditure schedule. 
B)  It decreases the slope of the expenditure schedule. 
C)  It shifts the expenditure schedule upward. 
D)  It shifts the expenditure schedule downward.

Question 2

In the real world, the actual multiplier is ____ the simplified multiplier.

Accepted Answer

A)  much larger than 
B)  slightly larger than 
C)  equal to 
D)  slightly smaller than 
E)  much smaller than 
A)  much larger than 
B)  slightly larger than 
C)  equal to 
D)  slightly smaller than 
E)  much smaller than

Question 3

Two variables that affect the slope of the aggregate demand curve are

Accepted Answer

A)  government purchases and real taxes. 
B)  tax rates and interest rates. 
C)  government purchases and interest rates. 
D)  exchange rates and income rates. 
A)  government purchases and real taxes. 
B)  tax rates and interest rates. 
C)  government purchases and interest rates. 
D)  exchange rates and income rates.

Question 4

Because of a recession in Japan, net exports from the United States decrease by $10 billion.If the MPC is 0.75, how much less spending will occur in the U.S.economy in the second "round" of spending?

Accepted Answer

A)  $17.5 billion 
B)  $10 billion 
C)  $7.5 billion 
D)  $5.0 billion 
A)  $17.5 billion 
B)  $10 billion 
C)  $7.5 billion 
D)  $5.0 billion

Question 5

In a market economy, the decisions about what to produce and how much of each good or service to produce are made by

Accepted Answer

A)  government officials. 
B)  economic planners. 
C)  central bankers. 
D)  consumers and producers. 
A)  government officials. 
B)  economic planners. 
C)  central bankers. 
D)  consumers and producers.

Question 6

A level of GDP cannot be at equilibrium when aggregate demand exceeds output because firms will notice that

Accepted Answer

A)  inventory stocks are building up. 
B)  inventory stocks are being depleted. 
C)  their profits are negative. 
D)  many of their workers have little to do. 
A)  inventory stocks are building up. 
B)  inventory stocks are being depleted. 
C)  their profits are negative. 
D)  many of their workers have little to do.

Question 7

Which of the following would be associated with an inflationary gap?

Accepted Answer

A)  interest rates too low 
B)  business expectations pessimistic 
C)  inventory levels too low 
D)  stock market crash 
E)  All of the above. 
A)  interest rates too low 
B)  business expectations pessimistic 
C)  inventory levels too low 
D)  stock market crash 
E)  All of the above.

Question 8

The economic impact of a change in spending, working through the multiplier, takes effect

Accepted Answer

A)  immediately. 
B)  very quickly, with a small number of rounds of spending. 
C)  after a very long period of time. 
D)  after multiple rounds of spending occur. 
A)  immediately. 
B)  very quickly, with a small number of rounds of spending. 
C)  after a very long period of time. 
D)  after multiple rounds of spending occur.

Question 9

An increase in the U.S.price level (foreign prices held constant) will cause a leftward shift in the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 10

Table 9-1
 $\begin{array}{cccc}
 \underline {\text { Outgut} } &  \underline {\text { Consumption} } &  \underline {\text { Investment }} &  \underline {\text { Net Exports} } \
1000 & 800 & 500 & 100 \
1500 & 1200 & 500 & 100 \
2000 & 1600 & 500 & 100 \
2500 & 2000 & 500 & 100 \
3000 & 2400 & 500 & 100 \
3500 & 2800 & 500 & 100 \
4000& 3200& 500 & 100
\end{array}$
-In Table 9-1, inventories will be increasing as long as output is above

Accepted Answer

A)  1,000. 
B)  1,500. 
C)  2,000. 
D)  3,000. 
A)  1,000. 
B)  1,500. 
C)  2,000. 
D)  3,000.

Question 11

If total spending is less than total output, then price levels will

Accepted Answer

A)  rise and output will increase. 
B)  rise and output will decrease. 
C)  fall and output will increase. 
D)  fall and output will decrease. 
A)  rise and output will increase. 
B)  rise and output will decrease. 
C)  fall and output will increase. 
D)  fall and output will decrease.

Question 12

When the price level in the United States rises, then net exports should

Accepted Answer

A)  rise and equilibrium real GDP should increase. 
B)  fall and equilibrium real GDP should increase. 
C)  fall and equilibrium real GDP should decrease. 
D)  rise and equilibrium real GDP should decrease. 
A)  rise and equilibrium real GDP should increase. 
B)  fall and equilibrium real GDP should increase. 
C)  fall and equilibrium real GDP should decrease. 
D)  rise and equilibrium real GDP should decrease.

Question 13

The expenditure schedule and the aggregate demand curve show much the same thing, with one crucial difference-the price level.How does the price level affect the two schedules?

Accepted Answer

The expenditure schedule is drawn assumi

Question 14

Recessionary gaps are most likely to be accompanied by

Accepted Answer

A)  inflation. 
B)  inventory reductions. 
C)  unemployment. 
D)  expanding output. 
A)  inflation. 
B)  inventory reductions. 
C)  unemployment. 
D)  expanding output.

Question 15

Define the terms recessionary gap and inflationary gap.Why do they occur?

Accepted Answer

A recessionary gap exists when the expen

Question 16

When equilibrium GDP falls below potential GDP, an inflationary gap exists.

Accepted Answer

A) True 
 B)False

Question 17

The basic reason for the multiplier effect is that, when you spend money,

Accepted Answer

A)  another person receives income. 
B)  another person must pay for it. 
C)  your money balances are reduced. 
D)  your net worth decreases. 
A)  another person receives income. 
B)  another person must pay for it. 
C)  your money balances are reduced. 
D)  your net worth decreases.

Question 18

If the expenditure schedule must be shifted upward to reach potential GDP, then the economy is experiencing a(n)

Accepted Answer

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

Question 19

Figure 9-3
  
-In Figure 9-3, at $5,000 billion GDP, inventories will be

Accepted Answer

A)  falling, signaling businesses to increase production. 
B)  accumulating, signaling businesses to increase production. 
C)  accumulating, signaling businesses to cut production. 
D)  falling, signaling businesses to cut production. 
A)  falling, signaling businesses to increase production. 
B)  accumulating, signaling businesses to increase production. 
C)  accumulating, signaling businesses to cut production. 
D)  falling, signaling businesses to cut production.

Question 20

Table 9-1
 $\begin{array}{cccc}
 \underline {\text { Outgut} } &  \underline {\text { Consumption} } &  \underline {\text { Investment }} &  \underline {\text { Net Exports} } \
1000 & 800 & 500 & 100 \
1500 & 1200 & 500 & 100 \
2000 & 1600 & 500 & 100 \
2500 & 2000 & 500 & 100 \
3000 & 2400 & 500 & 100 \
3500 & 2800 & 500 & 100 \
4000& 3200& 500 & 100
\end{array}$
-In Table 9-1, inventories are being depleted as long as output is below

Accepted Answer

A)  2,000. 
B)  2,500. 
C)  3,000. 
D)  3,500. 
A)  2,000. 
B)  2,500. 
C)  3,000. 
D)  3,500.

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

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

In the real world, the actual multiplier is ____ the simplified multiplier.

Two variables that affect the slope of the aggregate demand curve are

Because of a recession in Japan, net exports from the United States decrease by $10 billion.If the MPC is 0.75, how much less spending will occur in the U.S.economy in the second "round" of spending?

In a market economy, the decisions about what to produce and how much of each good or service to produce are made by

A level of GDP cannot be at equilibrium when aggregate demand exceeds output because firms will notice that

Which of the following would be associated with an inflationary gap?

The economic impact of a change in spending, working through the multiplier, takes effect

An increase in the U.S.price level (foreign prices held constant) will cause a leftward shift in the aggregate demand curve.

Table 9-1 1000 800 500 100 1500 1200 500 100 2000 1600 500 100 2500 2000 500 100 3000 2400 500 100 3500 2800 500 100 4000 3200 500 100 -In Table 9-1, inventories will be increasing as long as output is above

If total spending is less than total output, then price levels will

When the price level in the United States rises, then net exports should

The expenditure schedule and the aggregate demand curve show much the same thing, with one crucial difference-the price level.How does the price level affect the two schedules?

Recessionary gaps are most likely to be accompanied by

Define the terms recessionary gap and inflationary gap.Why do they occur?

When equilibrium GDP falls below potential GDP, an inflationary gap exists.

The basic reason for the multiplier effect is that, when you spend money,

If the expenditure schedule must be shifted upward to reach potential GDP, then the economy is experiencing a(n)

Figure 9-3 -In Figure 9-3, at $5,000 billion GDP, inventories will be

Table 9-1 1000 800 500 100 1500 1200 500 100 2000 1600 500 100 2500 2000 500 100 3000 2400 500 100 3500 2800 500 100 4000 3200 500 100 -In Table 9-1, inventories are being depleted as long as output is below

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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