Question 1

Using the standard 45° 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

A given income-expenditure diagram always assumes a variable price level.

Accepted Answer

A) True 
 B)False

Question 3

A recessionary gap occurs when

Accepted Answer

A) the price level is too low. 
B) equilibrium real GDP is greater than potential GDP. 
C) equilibrium real GDP falls short of potential GDP. 
D) the government does not stimulate investment spending. 
A) the price level is too low. 
B) equilibrium real GDP is greater than potential GDP. 
C) equilibrium real GDP falls short of potential GDP. 
D) the government does not stimulate investment spending.

Question 4

A change in the price level will cause a shift in the expenditure schedule.

Accepted Answer

A) True 
 B)False

Question 5

If we observe that every increase in income of $120 million generates an increase in consumption of $80 million, then the simple multiplier is

Accepted Answer

A) 2/3. 
B) 3/2. 
C) 2 
D) 3 
E) 8 
A) 2/3. 
B) 3/2. 
C) 2 
D) 3 
E) 8

Question 6

A major Internet service provider decides to spend $70 million to purchase new server equipment.If the marginal propensity to consume is 0.8, the eventual change in GDP will be

Accepted Answer

A) $40 million. 
B) $50 million. 
C) $90 million. 
D) $350 million. 
E) $850 million. 
A) $40 million. 
B) $50 million. 
C) $90 million. 
D) $350 million. 
E) $850 million.

Question 7

Government stabilization policy would be unnecessary if the economy automatically gravitated toward

Accepted Answer

A) full inflation. 
B) full employment. 
C) full recession. 
D) an inflationary gap. 
A) full inflation. 
B) full employment. 
C) full recession. 
D) an inflationary gap.

Question 8

Savings and taxes are considered leakages in the circular flow model.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

According to Baumol and Blinder, from the demand side a decrease in the price level causes aggregate expenditures to

Accepted Answer

A) fall, resulting in a lower level of equilibrium income. 
B) fall, resulting in a higher level of equilibrium income. 
C) rise, resulting in a higher level of equilibrium income. 
D) rise, resulting in a lower level of equilibrium income. 
A) fall, resulting in a lower level of equilibrium income. 
B) fall, resulting in a higher level of equilibrium income. 
C) rise, resulting in a higher level of equilibrium income. 
D) rise, resulting in a lower level of equilibrium income.

Question 11

An expenditure schedule that lies below the full employment level of GDP will cause

Accepted Answer

A) rising prices. 
B) increasing output. 
C) falling inventories. 
D) falling prices. 
A) rising prices. 
B) increasing output. 
C) falling inventories. 
D) falling prices.

Question 12

The multiplier principle explains how

Accepted Answer

A) any change in the economy has a one-time impact. 
B) $1 invested will increase GDP by more than $1. 
C) expenditures and incomes decrease as investment increases. 
D) $1 invested will decrease GDP by less than $1. 
A) any change in the economy has a one-time impact. 
B) $1 invested will increase GDP by more than $1. 
C) expenditures and incomes decrease as investment increases. 
D) $1 invested will decrease GDP by less than $1.

Question 13

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 14

Figure 9-3
​  
-In Figure 9-3, saving at equilibrium GDP is

Accepted Answer

A) $1,200 billion. 
B) $1,000 billion. 
C) $800 billion. 
D) $600 billion. 
E) $400 billion. 
A) $1,200 billion. 
B) $1,000 billion. 
C) $800 billion. 
D) $600 billion. 
E) $400 billion.

Question 15

A recessionary gap exists when the equilibrium level of GDP exceeds potential GDP.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

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

Question 17

Figure 9-4
​  
-In Figure 9-4, if the economy is in a recessionary gap, what must happen to reach potential GDP?

Accepted Answer

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

Question 18

When net exports increase,

Accepted Answer

A) the expenditures schedule increases. 
B) the expenditures schedule decreases. 
C) there is a corresponding increase along the aggregate demand curve. 
D) there is a corresponding decrease along the aggregate demand curve. 
A) the expenditures schedule increases. 
B) the expenditures schedule decreases. 
C) there is a corresponding increase along the aggregate demand curve. 
D) there is a corresponding decrease along the aggregate demand curve.

Question 19

One of the main conclusions of Keynes in The General Theory of Employment, Interest, and Money is that the economy

Accepted Answer

A) will usually be at full employment. 
B) will not automatically gravitate to full employment. 
C) will automatically move quickly toward full employment without inflation. 
D) is usually on the verge of a major depression or hyperinflation. 
A) will usually be at full employment. 
B) will not automatically gravitate to full employment. 
C) will automatically move quickly toward full employment without inflation. 
D) is usually on the verge of a major depression or hyperinflation.

Question 20

Economists before Keynes assumed that equilibrium GDP occurred

Accepted Answer

A) automatically. 
B) only with the help of government stabilization. 
C) if spending was generally greater than output. 
D) only in socialist economies with central planning. 
A) automatically. 
B) only with the help of government stabilization. 
C) if spending was generally greater than output. 
D) only in socialist economies with central planning.

Exam 25: Demand-Side Equilibrium: Unemployment or Inflation

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

A given income-expenditure diagram always assumes a variable price level.

A recessionary gap occurs when

A change in the price level will cause a shift in the expenditure schedule.

If we observe that every increase in income of $120 million generates an increase in consumption of $80 million, then the simple multiplier is

A major Internet service provider decides to spend $70 million to purchase new server equipment.If the marginal propensity to consume is 0.8, the eventual change in GDP will be

Government stabilization policy would be unnecessary if the economy automatically gravitated toward

Savings and taxes are considered leakages in the circular flow model.

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

According to Baumol and Blinder, from the demand side a decrease in the price level causes aggregate expenditures to

An expenditure schedule that lies below the full employment level of GDP will cause

The multiplier principle explains how

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

Figure 9-3 ​ -In Figure 9-3, saving at equilibrium GDP is

A recessionary gap exists when the equilibrium level of GDP exceeds potential GDP.

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

Figure 9-4 ​ -In Figure 9-4, if the economy is in a recessionary gap, what must happen to reach potential GDP?

When net exports increase,

One of the main conclusions of Keynes in The General Theory of Employment, Interest, and Money is that the economy

Economists before Keynes assumed that equilibrium GDP occurred

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

Figure 9-3 -In Figure 9-3, saving at equilibrium GDP is

Figure 9-4 -In Figure 9-4, if the economy is in a recessionary gap, what must happen to reach potential GDP?