Question 1

A higher price level leads to

Accepted Answer

A) lower real wealth. 
B) higher level of debt. 
C) a higher consumption function. 
D) higher aggregate demand. 
A) lower real wealth. 
B) higher level of debt. 
C) a higher consumption function. 
D) higher aggregate demand.

Question 2

According to the income-expenditure diagram, total production must always equal total

Accepted Answer

A) inventories. 
B) aggregate demand. 
C) wages, profit, rents. 
D) income. 
A) inventories. 
B) aggregate demand. 
C) wages, profit, rents. 
D) income.

Question 3

If net exports are reduced, the expenditure schedule will shift

Accepted Answer

A) downward and equilibrium real GDP will rise. 
B) upward and equilibrium real GDP will rise. 
C) downward and equilibrium real GDP will fall. 
D) upward and equilibrium real GDP will fall. 
A) downward and equilibrium real GDP will rise. 
B) upward and equilibrium real GDP will rise. 
C) downward and equilibrium real GDP will fall. 
D) upward and equilibrium real GDP will fall.

Question 4

If the U.S.economy is experiencing falling price levels, the

Accepted Answer

A) expenditure schedule will shift downward. 
B) expenditure schedule will shift upward. 
C) slope of the expenditure schedule increases. 
D) slope of the expenditure schedule decreases. 
A) expenditure schedule will shift downward. 
B) expenditure schedule will shift upward. 
C) slope of the expenditure schedule increases. 
D) slope of the expenditure schedule decreases.

Question 5

Equilibrium is the point where total spending equals total output, or GDP.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) depleted, causing firms to cut production. 
B) accumulated, causing firms to cut production. 
C) depleted, causing firms to increase production. 
D) accumulated, causing firms to expand production. 
A) depleted, causing firms to cut production. 
B) accumulated, causing firms to cut production. 
C) depleted, causing firms to increase production. 
D) accumulated, causing firms to expand production.

Question 7

Investment spending is a leakage from the circular flow model.

Accepted Answer

A) True 
 B)False

Question 8

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 9

The federal government could stimulate investment spending by

Accepted Answer

A) phasing out the depreciation allowance on corporate income taxes. 
B) reducing subsidies to businesses. 
C) reinstating the windfall profits tax. 
D) reducing the tax rate on capital gains. 
A) phasing out the depreciation allowance on corporate income taxes. 
B) reducing subsidies to businesses. 
C) reinstating the windfall profits tax. 
D) reducing the tax rate on capital gains.

Question 10

If total spending is greater than current output, GDP will rise.

Accepted Answer

A) True 
 B)False

Question 11

Equilibrium GDP occurs when total spending equals total output.

Accepted Answer

A) True 
 B)False

Question 12

A rising price level should shift the expenditure schedule

Accepted Answer

A) upward and decrease equilibrium real GDP. 
B) downward and increase equilibrium real GDP. 
C) downward and decrease equilibrium real GDP. 
D) upward and increase equilibrium real GDP. 
A) upward and decrease equilibrium real GDP. 
B) downward and increase equilibrium real GDP. 
C) downward and decrease equilibrium real GDP. 
D) upward and increase equilibrium real GDP.

Question 13

Coordination failures can exist in both capitalist and socialist economies.

Accepted Answer

A) True 
 B)False

Question 14

The reason for the multiplier effect is that

Accepted Answer

A) businesses make decisions about investment projects based on anticipated profits. 
B) one person's additional expenditure creates a new source of income for another person, and this additional income leads to still more spending. 
C) changes in government spending typically deepen recessions and exacerbate inflationary conditions in the economy. 
D) additional spending lowers the rate of interest and leads to further borrowing and spending. 
A) businesses make decisions about investment projects based on anticipated profits. 
B) one person's additional expenditure creates a new source of income for another person, and this additional income leads to still more spending. 
C) changes in government spending typically deepen recessions and exacerbate inflationary conditions in the economy. 
D) additional spending lowers the rate of interest and leads to further borrowing and spending.

Question 15

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

Accepted Answer

A) $480 billion. 
B) $320 billion. 
C) $240 billion. 
D) $84 billion. 
E) $48 billion. 
A) $480 billion. 
B) $320 billion. 
C) $240 billion. 
D) $84 billion. 
E) $48 billion.

Question 16

The amount by which equilibrium real GDP exceeds full-employment GDP is known as

Accepted Answer

A) stagflation. 
B) employment. 
C) a recessionary gap. 
D) an inflationary gap. 
A) stagflation. 
B) employment. 
C) a recessionary gap. 
D) an inflationary gap.

Question 17

Market economies are likely to suffer from recessions and inflation because the government plans all economic activity.

Accepted Answer

A) True 
 B)False

Question 18

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 19

U.S.exports

Accepted Answer

A) rise as our GDP rises, and fall as our GDP falls. 
B) fall as our GDP rises, and rise as our GDP falls. 
C) are insensitive to our GDP. 
D) have no relation to our GDP. 
A) rise as our GDP rises, and fall as our GDP falls. 
B) fall as our GDP rises, and rise as our GDP falls. 
C) are insensitive to our GDP. 
D) have no relation to our GDP.

Question 20

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.

Exam 25: Demand-Side Equilibrium: Unemployment or Inflation

A higher price level leads to

According to the income-expenditure diagram, total production must always equal total

If net exports are reduced, the expenditure schedule will shift

If the U.S.economy is experiencing falling price levels, the

Equilibrium is the point where total spending equals total output, or GDP.

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

Investment spending is a leakage from the circular flow model.

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

The federal government could stimulate investment spending by

If total spending is greater than current output, GDP will rise.

Equilibrium GDP occurs when total spending equals total output.

A rising price level should shift the expenditure schedule

Coordination failures can exist in both capitalist and socialist economies.

The reason for the multiplier effect is that

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

The amount by which equilibrium real GDP exceeds full-employment GDP is known as

Market economies are likely to suffer from recessions and inflation because the government plans all economic activity.

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

U.S.exports

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

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

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