Question 1

If total spending is greater than the value of output, firms will

Accepted Answer

A) cut prices. 
B) decrease production levels. 
C) tend to raise prices. 
D) see inventories rise. 
A) cut prices. 
B) decrease production levels. 
C) tend to raise prices. 
D) see inventories rise.

Question 2

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 3

A recessionary gap exists when the equilibrium level of GDP

Accepted Answer

A) falls short of potential GDP. 
B) equals potential GDP. 
C) exceeds potential GDP. 
D) causes inventory levels to fall. 
A) falls short of potential GDP. 
B) equals potential GDP. 
C) exceeds potential GDP. 
D) causes inventory levels to fall.

Question 4

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 5

If the economy is suffering a recession, inventories are probably falling.

Accepted Answer

A) True 
 B)False

Question 6

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 7

When the expenditure level is above the full employment level of GDP, a possible consequence is

Accepted Answer

A) falling prices. 
B) rising prices. 
C) falling disposable income. 
D) high levels of unemployment. 
A) falling prices. 
B) rising prices. 
C) falling disposable income. 
D) high levels of unemployment.

Question 8

For a given price level, an upward 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 9

Which of the following questions can be answered by the process of demand side GDP determination?

Accepted Answer

A) How large is equilibrium GDP? 
B) What can cause unemployment? 
C) Is demand side equilibrium consistent with supply side equilibrium? 
D) Does the economy have inflation? 
A) How large is equilibrium GDP? 
B) What can cause unemployment? 
C) Is demand side equilibrium consistent with supply side equilibrium? 
D) Does the economy have inflation?

Question 10

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 11

An economic recession in Japan will cause the aggregate demand curve in the United States to shift to the right.

Accepted Answer

A) True 
 B)False

Question 12

Government stabilization policy

Accepted Answer

A) cannot influence investment spending. 
B) can stimulate aggregate demand and thereby induce businesses to invest, but the amount is not totally predictable. 
C) can stimulate aggregate demand, but investment spending will not be affected. 
D) can stimulate aggregate demand, but only in the long run. 
A) cannot influence investment spending. 
B) can stimulate aggregate demand and thereby induce businesses to invest, but the amount is not totally predictable. 
C) can stimulate aggregate demand, but investment spending will not be affected. 
D) can stimulate aggregate demand, but only in the long run.

Question 13

As the price level decreases real GDP demanded increases because

Accepted Answer

A) consumer wealth increases. 
B) net exports decrease. 
C) interest rates decrease and cause lower investment. 
D) net exports are indeterminant . 
A) consumer wealth increases. 
B) net exports decrease. 
C) interest rates decrease and cause lower investment. 
D) net exports are indeterminant .

Question 14

Figure 9-1
​  
-In Figure 9-1, the economy is

Accepted Answer

A) experiencing an inflationary gap, shown by the horizontal distance EB. 
B) at full employment without inflation. 
C) experiencing a recessionary gap, shown by the horizontal distance EB. 
D) experiencing a recessionary gap, shown by the distance between EF. 
A) experiencing an inflationary gap, shown by the horizontal distance EB. 
B) at full employment without inflation. 
C) experiencing a recessionary gap, shown by the horizontal distance EB. 
D) experiencing a recessionary gap, shown by the distance between EF.

Question 15

In the basic 45° line model, what is the effect of a decrease in the price level?

Accepted Answer

A) The expenditure line will shift downward. 
B) The expenditure line will shift upward. 
C) There will be movement to the left on the expenditure line. 
D) There will be movement to the right on the expenditure line. 
A) The expenditure line will shift downward. 
B) The expenditure line will shift upward. 
C) There will be movement to the left on the expenditure line. 
D) There will be movement to the right on the expenditure line.

Question 16

Free markets coordinate economic activity in such a way as to eliminate the possibility of inflation or unemployment.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) undesired inventory depletion. 
B) planned investment 
C) undesired investment. 
D) unintended investment. 
A) undesired inventory depletion. 
B) planned investment 
C) undesired investment. 
D) unintended investment.

Question 18

Assume that the MPC is 0.9 and investment falls by $30 billion.What is the change in real GDP?

Accepted Answer

A) −$300 billion 
B) −$270 billion 
C) −$93 billion 
D) −$39 billion 
A) −$300 billion 
B) −$270 billion 
C) −$93 billion 
D) −$39 billion

Question 19

The aggregate demand curve is directly derived from the expenditures schedule.

Accepted Answer

A) True 
 B)False

Question 20

Equilibrium GDP will not exist where output exceeds aggregate demand because businesses will notice that

Accepted Answer

A) their profits are positive. 
B) inventory stocks are building up. 
C) inventory stocks are being depleted. 
D) their level of depreciation is rising. 
A) their profits are positive. 
B) inventory stocks are building up. 
C) inventory stocks are being depleted. 
D) their level of depreciation is rising.

Exam 25: Demand-Side Equilibrium: Unemployment or Inflation

If total spending is greater than the value of output, firms will

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

A recessionary gap exists when the equilibrium level of GDP

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

If the economy is suffering a recession, inventories are probably falling.

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

When the expenditure level is above the full employment level of GDP, a possible consequence is

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

Which of the following questions can be answered by the process of demand side GDP determination?

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

An economic recession in Japan will cause the aggregate demand curve in the United States to shift to the right.

Government stabilization policy

As the price level decreases real GDP demanded increases because

Figure 9-1 ​ -In Figure 9-1, the economy is

In the basic 45° line model, what is the effect of a decrease in the price level?

Free markets coordinate economic activity in such a way as to eliminate the possibility of inflation or unemployment.

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

Assume that the MPC is 0.9 and investment falls by $30 billion.What is the change in real GDP?

The aggregate demand curve is directly derived from the expenditures schedule.

Equilibrium GDP will not exist where output exceeds aggregate demand because businesses 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

Filters

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

Figure 9-1 -In Figure 9-1, the economy is