Question 1

Savings are good for a family. If all families increase savings, the economy is better off. This fallacy of composition is called:

Accepted Answer

A)  the paradox of time. 
B)  the paradox of dissaving. 
C)  the paradox of thrift. 
D)  the paradox of value. 
E)  the paradox of choice. 
A)  the paradox of time. 
B)  the paradox of dissaving. 
C)  the paradox of thrift. 
D)  the paradox of value. 
E)  the paradox of choice.

Question 2

Foreign repercussions of changes in domestic imports cause the true domestic spending multiplier to be less than 1/(MPS+MPI)

Accepted Answer

A) True 
 B)False

Question 3

A change in the price level in an economy will be depicted by a movement along the AE curve and not by a leftward or rightward movement of the curve.

Accepted Answer

A) True 
 B)False

Question 4

The table given below reports the value of real GDP and its components consumption (C), investment (I), exports, and imports for two consecutive years.
Table 10.3
 $\begin{array}{l}
\begin{array}{|c|c|c|c|c|c|}
\hline & \text { Equilibrium } & & & & \
\hline & \text { Real GDP } & \text { C } & \text { I } & \text { Exports } & \text { Imports } \
\hline \text { Year 1 } & \$ 9,350 & \$ 7,500 & \$ 1,350 & \$ 1,800 & - \
\hline \text { Year 2 } & \$ 11,450 & \$ 8,900 & - & \$ 2,350 & \$ 1,600 \
\hline
\end{array}\
\text { Assume that government spending is zero for this economy. }
\end{array}$
-Refer to Table 10.3. To increase equilibrium real GDP in an open economy to $12,000 in year 3, all else equal to that in year 2, investment would have to increase by:

Accepted Answer

A)  $258. 
B)  $550. 
C)  $2,262. 
D)  $1,100. 
E)  $1,155. 
A)  $258. 
B)  $550. 
C)  $2,262. 
D)  $1,100. 
E)  $1,155.

Question 5

Assume that an increase of $300 in exports leads to an increase of $750 in equilibrium income. If the marginal propensity to import equals 1/10, the marginal propensity to save must be _____.

Accepted Answer

A)  0.60 
B)  0.50 
C)  0.40 
D)  0.30 
E)  0.25 
A)  0.60 
B)  0.50 
C)  0.40 
D)  0.30 
E)  0.25

Question 6

Everything else constant, the international trade effect indicates that aggregate expenditures in the domestic economy fall when:

Accepted Answer

A)  domestic prices fall relative to foreign prices. 
B)  domestic interest rates fall relative to foreign interest rates. 
C)  domestic prices rise relative to foreign prices. 
D)  domestic purchasing power rises relative to foreign purchasing power. 
E)  domestic interest rates rise relative to foreign interest rates. 
A)  domestic prices fall relative to foreign prices. 
B)  domestic interest rates fall relative to foreign interest rates. 
C)  domestic prices rise relative to foreign prices. 
D)  domestic purchasing power rises relative to foreign purchasing power. 
E)  domestic interest rates rise relative to foreign interest rates.

Question 7

If aggregate expenditures are less than real GDP, then:

Accepted Answer

A)  both inventories and real GDP will decline. 
B)  inventories will decline but real GDP will increase. 
C)  inventories will increase and real GDP will decline. 
D)  both inventories and real GDP will increase. 
E)  inventories will increase but real GDP will remain unchanged. 
A)  both inventories and real GDP will decline. 
B)  inventories will decline but real GDP will increase. 
C)  inventories will increase and real GDP will decline. 
D)  both inventories and real GDP will increase. 
E)  inventories will increase but real GDP will remain unchanged.

Question 8

The portion of the aggregate supply curve that is a positive function of the general price level represents excess capacity and unemployed resources.

Accepted Answer

A) True 
 B)False

Question 9

The figure given below represents the leakages and injections in an economy.
Figure 10.2
   In the figure:
I, I1: Investment;
G: Government spending;
EX, EX1: Exports;
T: Taxes; and
M: Imports.
-According to Figure 10.2, real GDP of $200 indicates a point where:

Accepted Answer

A)  total leakages exceed total injections. 
B)  aggregate expenditures exceed total output. 
C)  consumers engage in dissaving. 
D)  the economy is in macroeconomic equilibrium. 
E)  unplanned inventory changes will be positive. 
A)  total leakages exceed total injections. 
B)  aggregate expenditures exceed total output. 
C)  consumers engage in dissaving. 
D)  the economy is in macroeconomic equilibrium. 
E)  unplanned inventory changes will be positive.

Question 10

Assume that a GDP gap can be closed by a $200 initial change in planned spending. The MPS is 0.3 and the MPI equals 0.1. If the economy is currently in equilibrium with an income level of $600, potential GDP equals:

Accepted Answer

A)  $1,600. 
B)  $1,100. 
C)  $800. 
D)  $600. 
E)  $400. 
A)  $1,600. 
B)  $1,100. 
C)  $800. 
D)  $600. 
E)  $400.

Question 11

The figure given below represents the leakages and injections in an economy.
Figure 10.3
   In the figure:
SS1U1B11S1U1B0 and SS1U1B12S1U1B0: Saving functions
I: Investment
G: Government spending
EX: Net exports
-Refer to Figure 10.3. The paradox of thrift might not be a problem if:

Accepted Answer

A)  the average price level does not change in the short run. 
B)  the I + G + EX line were downward-sloping. 
C)  the I + G + EX line were constant at an intercept of $30. 
D)  the increase in saving was used to fund investment expenditures. 
E)  the I + G + EX line were constant at an intercept of $50. 
A)  the average price level does not change in the short run. 
B)  the I + G + EX line were downward-sloping. 
C)  the I + G + EX line were constant at an intercept of $30. 
D)  the increase in saving was used to fund investment expenditures. 
E)  the I + G + EX line were constant at an intercept of $50.

Question 12

Ceteris paribus, a downward shift in the net exports function will cause:

Accepted Answer

A)  equilibrium real GDP to decrease. 
B)  equilibrium real GDP to increase. 
C)  savings to decrease. 
D)  net exports to increase. 
E)  government budget deficit to decline. 
A)  equilibrium real GDP to decrease. 
B)  equilibrium real GDP to increase. 
C)  savings to decrease. 
D)  net exports to increase. 
E)  government budget deficit to decline.

Question 13

Calculate the marginal propensity to save for the economy from the information given in Table 10.4.

Accepted Answer

A)  0.9 
B)  0.8 
C)  0.5 
D)  0.2 
E)  0.1 
A)  0.9 
B)  0.8 
C)  0.5 
D)  0.2 
E)  0.1

Question 14

Injections represent outflows of planned expenditures from the real GDP stream.

Accepted Answer

A) True 
 B)False

Question 15

The Keynesian region of the aggregate supply curve explains the situation experienced during the Great Depression. Therefore, we can conclude that the Great Depression was characterized by:

Accepted Answer

A)  high unemployment and low inflation. 
B)  low unemployment and low inflation. 
C)  low unemployment and high inflation. 
D)  high unemployment and high inflation. 
E)  excess capacity but no unemployment or inflation. 
A)  high unemployment and low inflation. 
B)  low unemployment and low inflation. 
C)  low unemployment and high inflation. 
D)  high unemployment and high inflation. 
E)  excess capacity but no unemployment or inflation.

Question 16

Which of the following is associated with an increase in the average price level?

Accepted Answer

A)  A decrease in the aggregate quantity demanded 
B)  An increase in the aggregate quantity demanded 
C)  A leftward shift of the aggregate demand curve 
D)  A rightward shift of the aggregate demand curve 
E)  Aggregate quantity demanded remains unchanged but the aggregate expenditures curve shifts leftward. 
A)  A decrease in the aggregate quantity demanded 
B)  An increase in the aggregate quantity demanded 
C)  A leftward shift of the aggregate demand curve 
D)  A rightward shift of the aggregate demand curve 
E)  Aggregate quantity demanded remains unchanged but the aggregate expenditures curve shifts leftward.

Question 17

Suppose for an economy, investment = $40; saving = $50, government spending + exports = 100; and taxes + imports = $110. Then for this economy, total leakages exceed total injections by $20, so there will be pressure for the economy to contract.

Accepted Answer

A) True 
 B)False

Question 18

Scenario 10.2
A hypothetical open economy has a marginal propensity to import (MPI) equal to 0.2 and a marginal propensity to consume equal to 0.7. Assume that the economy is initially in equilibrium.
-Refer to Scenario 10.2. If a tourist visits the country and spends $100 that she brought with her, then what will happen to the equilibrium real GDP?

Accepted Answer

A)  It will not change 
B)  It will increase by $100 
C)  It will increase by $200 
D)  It will increase by $143 
E)  It will increase by $90 
A)  It will not change 
B)  It will increase by $100 
C)  It will increase by $200 
D)  It will increase by $143 
E)  It will increase by $90

Question 19

Scenario 10.1
Imagine an economy that does not have international trade and is originally in equilibrium. Then the government increases the level of spending by $350 million because it received a gift from abroad. In this economy, only 65 cents of every dollar is spent, and the rest is saved.
-Refer to Scenario 10.1. The new equilibrium level of GDP for the economy will be:

Accepted Answer

A)  one billion higher. 
B)  350 millions higher. 
C)  65 millions higher. 
D)  227.5 millions higher. 
E)  227.5 millions lower. 
A)  one billion higher. 
B)  350 millions higher. 
C)  65 millions higher. 
D)  227.5 millions higher. 
E)  227.5 millions lower.

Question 20

The figure given below represents the leakages and injections of an economy.
Figure 10.6
  
-Refer to Figure 10.6. If 0L represents potential GDP, the GDP gap can be closed by increasing autonomous expenditures by an amount equal to line segment _____.

Accepted Answer

A)  NM 
B)  NL 
C)  ML 
D)  OK 
E)  QK 
A)  NM 
B)  NL 
C)  ML 
D)  OK 
E)  QK

Savings are good for a family. If all families increase savings, the economy is better off. This fallacy of composition is called:

Foreign repercussions of changes in domestic imports cause the true domestic spending multiplier to be less than 1/(MPS+MPI)

A change in the price level in an economy will be depicted by a movement along the AE curve and not by a leftward or rightward movement of the curve.

Assume that an increase of $300 in exports leads to an increase of $750 in equilibrium income. If the marginal propensity to import equals 1/10, the marginal propensity to save must be _____.

Everything else constant, the international trade effect indicates that aggregate expenditures in the domestic economy fall when:

If aggregate expenditures are less than real GDP, then:

The portion of the aggregate supply curve that is a positive function of the general price level represents excess capacity and unemployed resources.

The figure given below represents the leakages and injections in an economy. Figure 10.2 In the figure: I, I1: Investment; G: Government spending; EX, EX1: Exports; T: Taxes; and M: Imports. -According to Figure 10.2, real GDP of $200 indicates a point where:

Assume that a GDP gap can be closed by a $200 initial change in planned spending. The MPS is 0.3 and the MPI equals 0.1. If the economy is currently in equilibrium with an income level of $600, potential GDP equals:

The figure given below represents the leakages and injections in an economy. Figure 10.3 In the figure: S₁ and S₂: Saving functions I: Investment G: Government spending EX: Net exports -Refer to Figure 10.3. The paradox of thrift might not be a problem if:

Ceteris paribus, a downward shift in the net exports function will cause:

Calculate the marginal propensity to save for the economy from the information given in Table 10.4.

Injections represent outflows of planned expenditures from the real GDP stream.

The Keynesian region of the aggregate supply curve explains the situation experienced during the Great Depression. Therefore, we can conclude that the Great Depression was characterized by:

Which of the following is associated with an increase in the average price level?

Suppose for an economy, investment = $40; saving = $50, government spending + exports = 100; and taxes + imports = $110. Then for this economy, total leakages exceed total injections by $20, so there will be pressure for the economy to contract.

The figure given below represents the leakages and injections of an economy. Figure 10.6 -Refer to Figure 10.6. If 0L represents potential GDP, the GDP gap can be closed by increasing autonomous expenditures by an amount equal to line segment _____.

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

Exam 10: Income and Expenditures Equilibrium

Savings are good for a family. If all families increase savings, the economy is better off. This fallacy of composition is called:

Foreign repercussions of changes in domestic imports cause the true domestic spending multiplier to be less than 1/(MPS+MPI)

A change in the price level in an economy will be depicted by a movement along the AE curve and not by a leftward or rightward movement of the curve.

Assume that an increase of $300 in exports leads to an increase of $750 in equilibrium income. If the marginal propensity to import equals 1/10, the marginal propensity to save must be _____.

Everything else constant, the international trade effect indicates that aggregate expenditures in the domestic economy fall when:

If aggregate expenditures are less than real GDP, then:

The portion of the aggregate supply curve that is a positive function of the general price level represents excess capacity and unemployed resources.

The figure given below represents the leakages and injections in an economy. Figure 10.2 In the figure: I, I1: Investment; G: Government spending; EX, EX1: Exports; T: Taxes; and M: Imports. -According to Figure 10.2, real GDP of $200 indicates a point where:

Assume that a GDP gap can be closed by a $200 initial change in planned spending. The MPS is 0.3 and the MPI equals 0.1. If the economy is currently in equilibrium with an income level of $600, potential GDP equals:

The figure given below represents the leakages and injections in an economy. Figure 10.3 In the figure: S1 and S2: Saving functions I: Investment G: Government spending EX: Net exports -Refer to Figure 10.3. The paradox of thrift might not be a problem if:

Ceteris paribus, a downward shift in the net exports function will cause:

Calculate the marginal propensity to save for the economy from the information given in Table 10.4.

Injections represent outflows of planned expenditures from the real GDP stream.

The Keynesian region of the aggregate supply curve explains the situation experienced during the Great Depression. Therefore, we can conclude that the Great Depression was characterized by:

Which of the following is associated with an increase in the average price level?

Suppose for an economy, investment = $40; saving = $50, government spending + exports = 100; and taxes + imports = $110. Then for this economy, total leakages exceed total injections by $20, so there will be pressure for the economy to contract.

The figure given below represents the leakages and injections of an economy. Figure 10.6 -Refer to Figure 10.6. If 0L represents potential GDP, the GDP gap can be closed by increasing autonomous expenditures by an amount equal to line segment _____.

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

The figure given below represents the leakages and injections in an economy. Figure 10.3 In the figure: S₁ and S₂: Saving functions I: Investment G: Government spending EX: Net exports -Refer to Figure 10.3. The paradox of thrift might not be a problem if: