Question 1

In the simplified circular flow diagram, leakage can occur when consumers save some income.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following shows the relationship between national income (GDP) and total spending?

Accepted Answer

A) Demand schedule 
B) Consumption curve 
C) Expenditure schedule 
D) Balance schedule 
A) Demand schedule 
B) Consumption curve 
C) Expenditure schedule 
D) Balance schedule

Question 3

Assume that the MPC is 0.85 and investment spending rises by $100 million.How much consumption spending will this generate in the second round of spending?

Accepted Answer

A) $15 million 
B) $85 million 
C) $100 million 
D) $118 million 
E) $185 million 
A) $15 million 
B) $85 million 
C) $100 million 
D) $118 million 
E) $185 million

Question 4

The multiplier is the

Accepted Answer

A) impact that investment has on the physical capital. 
B) concept that the interest rate will induce consumption and investment spending. 
C) concept that increases in spending will cause a larger increase in equilibrium GDP. 
D) impact that expansionary fiscal policy has on recessions. 
A) impact that investment has on the physical capital. 
B) concept that the interest rate will induce consumption and investment spending. 
C) concept that increases in spending will cause a larger increase in equilibrium GDP. 
D) impact that expansionary fiscal policy has on recessions.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

An increase in investment spending will be multiplied into a larger increase in GDP illustrates the concept of

Accepted Answer

A) expansionary fiscal policy. 
B) the multiplier. 
C) an inflationary boom. 
D) international trade. 
A) expansionary fiscal policy. 
B) the multiplier. 
C) an inflationary boom. 
D) international trade.

Question 8

Suppose the economy is suffering in a recessionary period.Firms are facing increasing inventories and individual consumers are increasing their saving to prepare for hard times ahead.What is likely to happen to the economy and can it correct itself and grow toward full employment in the short run?

Accepted Answer

The Keynesian view of the economy would

Question 9

Realistically, the impact of the multiplier is _______ the oversimplified multiplier formula.

Accepted Answer

A) lower than 
B) greater than 
C) equal to 
D) higher if taxes are included. 
A) lower than 
B) greater than 
C) equal to 
D) higher if taxes are included.

Question 10

In a simple economy (no government sector), the equilibrium level of GDP will be less than the full employment level of income if, at the full employment level of income, the

Accepted Answer

A) saving that consumers want to do is less than investing that businesses want to do. 
B) saving that consumers want to do is greater than investing that businesses want to do. 
C) saving that consumers want to do is less than spending that consumers want to do. 
D) inventories are being depleted. 
A) saving that consumers want to do is less than investing that businesses want to do. 
B) saving that consumers want to do is greater than investing that businesses want to do. 
C) saving that consumers want to do is less than spending that consumers want to do. 
D) inventories are being depleted.

Question 11

Table 9-1   ​
-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 12

For a given price level, a downward 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 13

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 14

In the standard 45° line expenditure model, the C + I line and the C line are parallel because

Accepted Answer

A) all I is assumed to be autonomous. 
B) all I is assumed to be induced. 
C) consumption depends on disposable income. 
D) I rises with GDP at the same rate as C. 
A) all I is assumed to be autonomous. 
B) all I is assumed to be induced. 
C) consumption depends on disposable income. 
D) I rises with GDP at the same rate as C.

Question 15

If the MPC is 0.67, then the oversimplified multiplier is

Accepted Answer

A) 7.60. 
B) 6.70. 
C) 3.00. 
D) 33 
A) 7.60. 
B) 6.70. 
C) 3.00. 
D) 33

Question 16

When GDP decreases, consumption spending increases.

Accepted Answer

A) True 
 B)False

Question 17

If the economy is in equilibrium, it must be

Accepted Answer

A) on the 45° line. 
B) on the 60° line. 
C) below the 45° line. 
D) below the 60° line. 
A) on the 45° line. 
B) on the 60° line. 
C) below the 45° line. 
D) below the 60° line.

Question 18

A decrease in the price level causes a lower equilibrium quantity demanded.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) about 10. 
B) approximately 5. 
C) between 3 and 4. 
D) less than 2. 
A) about 10. 
B) approximately 5. 
C) between 3 and 4. 
D) less than 2.

Question 20

The equilibrium level of GDP is the level at which

Accepted Answer

A) aggregate demand exceeds output. 
B) aggregate demand equals output. 
C) aggregate demand is less than output. 
D) inventories are being depleted to meet demand. 
A) aggregate demand exceeds output. 
B) aggregate demand equals output. 
C) aggregate demand is less than output. 
D) inventories are being depleted to meet demand.

Exam 25: Demand-Side Equilibrium: Unemployment or Inflation

In the simplified circular flow diagram, leakage can occur when consumers save some income.

Which of the following shows the relationship between national income (GDP) and total spending?

Assume that the MPC is 0.85 and investment spending rises by $100 million.How much consumption spending will this generate in the second round of spending?

The multiplier is the

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?

An increase in investment spending will be multiplied into a larger increase in GDP illustrates the concept of

Suppose the economy is suffering in a recessionary period.Firms are facing increasing inventories and individual consumers are increasing their saving to prepare for hard times ahead.What is likely to happen to the economy and can it correct itself and grow toward full employment in the short run?

Realistically, the impact of the multiplier is _______ the oversimplified multiplier formula.

In a simple economy (no government sector), the equilibrium level of GDP will be less than the full employment level of income if, at the full employment level of income, the

Table 9-1 ​ -In Table 9-1, inventories will be increasing as long as output is above

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

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 the standard 45° line expenditure model, the C + I line and the C line are parallel because

If the MPC is 0.67, then the oversimplified multiplier is

When GDP decreases, consumption spending increases.

If the economy is in equilibrium, it must be

A decrease in the price level causes a lower equilibrium quantity demanded.

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

The equilibrium level of GDP is the level at which

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

Filters

Table 9-1 -In Table 9-1, inventories will be increasing as long as output is above