Question 1

The spending multiplier measures the change in equilibrium income that results from a change in:

Accepted Answer

A)  consumption. 
B)  planned investment. 
C)  savings. 
D)  net exports. 
E)  autonomous expenditures. 
A)  consumption. 
B)  planned investment. 
C)  savings. 
D)  net exports. 
E)  autonomous expenditures.

Question 2

Injections to the economy include consumption, investment, and government spending.

Accepted Answer

A) True 
 B)False

Question 3

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. If saving is represented by S1, at a real GDP level of $500:

Accepted Answer

A)  leakages are greater than injections which will cause income to increase. 
B)  leakages are greater than injections which will cause income to decrease. 
C)  leakages are less than injections which will cause income to increase. 
D)  leakages are less than injections which will cause income to decrease. 
E)  leakages are equal to injections which will cause no change in income. 
A)  leakages are greater than injections which will cause income to increase. 
B)  leakages are greater than injections which will cause income to decrease. 
C)  leakages are less than injections which will cause income to increase. 
D)  leakages are less than injections which will cause income to decrease. 
E)  leakages are equal to injections which will cause no change in income.

Question 4

A depreciation of the U.S. dollar will result in an increase in aggregate expenditures in the country.

Accepted Answer

A) True 
 B)False

Question 5

Consider a closed economy described by AE (aggregate expenditures) = 800,000 + 0.75Y Assume that this economy is initially in equilibrium. But now the government implements a program to improve highways that will cost $1 million. This implies that equilibrium real GDP will:

Accepted Answer

A)  decrease by $1 million. 
B)  decrease by $4 million. 
C)  increase by $1 million. 
D)  increase by $4 million. 
E)  decrease by $800,000. 
A)  decrease by $1 million. 
B)  decrease by $4 million. 
C)  increase by $1 million. 
D)  increase by $4 million. 
E)  decrease by $800,000.

Question 6

Assume that the multiplier effect for Mexico is 0.85 when U.S. government spending increases. Therefore, a $20 billion decrease in U.S. government spending results in:

Accepted Answer

A)  a $23.5 billion increase in Mexican real GDP. 
B)  a $133.3 billion decrease in Mexican real GDP. 
C)  a $3 billion decrease in Mexican real GDP. 
D)  a $17 billion decrease in Mexican real GDP. 
E)  a $23.5 billion decrease in Mexican real GDP. 
A)  a $23.5 billion increase in Mexican real GDP. 
B)  a $133.3 billion decrease in Mexican real GDP. 
C)  a $3 billion decrease in Mexican real GDP. 
D)  a $17 billion decrease in Mexican real GDP. 
E)  a $23.5 billion decrease in Mexican real GDP.

Question 7

Foreign repercussions of changes in domestic spending may cause:

Accepted Answer

A)  the GDP gap to be larger than the recessionary gap. 
B)  the equilibrium income to increase by an amount equal to the change in net exports. 
C)  the actual spending multiplier to be larger than the reciprocal of the marginal propensity to save plus the marginal propensity to import. 
D)  equilibrium income to rise by a smaller amount than evidenced by the multiplier effect of autonomous spending increases. 
E)  real GDP to be larger than potential GDP. 
A)  the GDP gap to be larger than the recessionary gap. 
B)  the equilibrium income to increase by an amount equal to the change in net exports. 
C)  the actual spending multiplier to be larger than the reciprocal of the marginal propensity to save plus the marginal propensity to import. 
D)  equilibrium income to rise by a smaller amount than evidenced by the multiplier effect of autonomous spending increases. 
E)  real GDP to be larger than potential GDP.

Question 8

The figure given below depicts macroeconomic equilibrium in a closed economy. Assume that the spending multiplier in this economy is 1.5.
Figure 10.5
  
-Refer to Figure 10.5. If the target or potential level of real GDP is $1,200, then at an equilibrium real GDP level of $900:

Accepted Answer

A)  the GDP gap is zero. 
B)  there exists a recessionary gap that could be closed by a $200 decrease in planned aggregate expenditures. 
C)  the GDP gap is $200. 
D)  actual real GDP exceeds potential real GDP by $300. 
E)  there exists a recessionary gap that could be closed by a $200 increase in autonomous investment spending. 
A)  the GDP gap is zero. 
B)  there exists a recessionary gap that could be closed by a $200 decrease in planned aggregate expenditures. 
C)  the GDP gap is $200. 
D)  actual real GDP exceeds potential real GDP by $300. 
E)  there exists a recessionary gap that could be closed by a $200 increase in autonomous investment spending.

Question 9

Other things equal, a reduction in personal income taxes will decrease consumption and will have an expansionary effect on real GDP.

Accepted Answer

A) True 
 B)False

Question 10

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. What is the marginal propensity to save of this economy?

Accepted Answer

A)  0.2 
B)  0.3 
C)  0.7 
D)  0.9 
E)  0.6 
A)  0.2 
B)  0.3 
C)  0.7 
D)  0.9 
E)  0.6

Question 11

When the price level in an economy falls, the demand for bonds and other nonmonetary financial assets rises.

Accepted Answer

A) True 
 B)False

Question 12

Suppose the multiplier effect for Japan is 0.8 for any $1 billion change in U.S. government purchases. Therefore, Japanese real GDP will rise by $8 billion when U.S. government spending rises by $10 billion.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following will not increase aggregate expenditures?

Accepted Answer

A)  A decrease in domestic prices 
B)  A decrease in the interest rate 
C)  An increase in real wealth 
D)  An increase in income taxes 
E)  An increase in autonomous net exports 
A)  A decrease in domestic prices 
B)  A decrease in the interest rate 
C)  An increase in real wealth 
D)  An increase in income taxes 
E)  An increase in autonomous net exports

Question 14

Calculate the marginal propensity to consume 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 15

Assume that potential GDP is $200 billion and the multiplier equals 5. The recessionary gap is $10 billion. What is the actual level of equilibrium income?

Accepted Answer

A)  $200 billion 
B)  $150 billion 
C)  $100 billion 
D)  $80 billion 
E)  $50 billion 
A)  $200 billion 
B)  $150 billion 
C)  $100 billion 
D)  $80 billion 
E)  $50 billion

Question 16

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy.
Table 10.4
 $\begin{array}{|c|c|c|c|}
\hline \text { Real GDP } & \begin{array}{c}
\text { Aggregate } \
\text { Expenditures }
\end{array} & \text { Saving } & \text { Imports } \
\hline \$ 0 & \$ 800 & -\$ 300 & \$ 50 \
\$ 1,000 & \$ 1,600 & -\$ 200 & \$ 150 \
\$ 2,000 & \$ 2,400 & -\$ 100 & \$ 250 \
\$ 3,000 & \$ 3,200 & \$ 0 & \$ 350 \
\$ 4,000 & \$ 4,000 & \$ 100 & \$ 450 \
\$ 5,000 & \$ 4,800 & \$ 200 & \$ 550 \
\$ 6,000 & \$ 5,600 & \$ 300 & \$ 650 \
\hline
\end{array}$
-Refer to Table 10.4. Given a potential GDP of $6,000, the recessionary gap equals _____.

Accepted Answer

A)  $200 
B)  $400 
C)  $1,000 
D)  $2,000 
E)  $5,000 
A)  $200 
B)  $400 
C)  $1,000 
D)  $2,000 
E)  $5,000

Question 17

In a closed economy that does not have international trade, the spending multiplier equals _____.

Accepted Answer

A)  1/MPS 
B)  1/MPC 
C)  1/(MPC-1) 
D)  1/(1-MPS) 
E)  1/(1+MPS) 
A)  1/MPS 
B)  1/MPC 
C)  1/(MPC-1) 
D)  1/(1-MPS) 
E)  1/(1+MPS)

Question 18

Suppose in an economy, investment = $40, saving = $50, government spending+export = $100 and taxes+imports = $110. Then for this economy, total leakages exceed total injections by:

Accepted Answer

A)  $30. 
B)  $25. 
C)  $10. 
D)  $45. 
E)  $20. 
A)  $30. 
B)  $25. 
C)  $10. 
D)  $45. 
E)  $20.

Question 19

If 81 percent of Canada's exports go to the United States, a recession in the United States would probably:

Accepted Answer

A)  lead to an economic boom in Canada. 
B)  have no impact on Canada's economy. 
C)  increase imports from Canada. 
D)  decrease Canada's domestic real GDP. 
E)  increase Canada's domestic real GDP. 
A)  lead to an economic boom in Canada. 
B)  have no impact on Canada's economy. 
C)  increase imports from Canada. 
D)  decrease Canada's domestic real GDP. 
E)  increase Canada's domestic real GDP.

Question 20

Suppose only 7 percent of Turkey's products go to the United States. Hence, an increase in U.S. imports from Turkey:

Accepted Answer

A)  would have no significant effect on Turkey's domestic income. 
B)  would significantly increase Turkey's domestic income. 
C)  would significantly decrease Turkey's domestic income. 
D)  would significantly increase U.S. domestic income. 
E)  would significantly decrease U.S. domestic income. 
A)  would have no significant effect on Turkey's domestic income. 
B)  would significantly increase Turkey's domestic income. 
C)  would significantly decrease Turkey's domestic income. 
D)  would significantly increase U.S. domestic income. 
E)  would significantly decrease U.S. domestic income.

The spending multiplier measures the change in equilibrium income that results from a change in:

Injections to the economy include consumption, investment, and government spending.

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. If saving is represented by S₁, at a real GDP level of $500:

A depreciation of the U.S. dollar will result in an increase in aggregate expenditures in the country.

Consider a closed economy described by AE (aggregate expenditures) = 800,000 + 0.75Y Assume that this economy is initially in equilibrium. But now the government implements a program to improve highways that will cost $1 million. This implies that equilibrium real GDP will:

Assume that the multiplier effect for Mexico is 0.85 when U.S. government spending increases. Therefore, a $20 billion decrease in U.S. government spending results in:

Foreign repercussions of changes in domestic spending may cause:

The figure given below depicts macroeconomic equilibrium in a closed economy. Assume that the spending multiplier in this economy is 1.5. Figure 10.5 -Refer to Figure 10.5. If the target or potential level of real GDP is $1,200, then at an equilibrium real GDP level of $900:

Other things equal, a reduction in personal income taxes will decrease consumption and will have an expansionary effect on real GDP.

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. What is the marginal propensity to save of this economy?

When the price level in an economy falls, the demand for bonds and other nonmonetary financial assets rises.

Suppose the multiplier effect for Japan is 0.8 for any $1 billion change in U.S. government purchases. Therefore, Japanese real GDP will rise by $8 billion when U.S. government spending rises by $10 billion.

Which of the following will not increase aggregate expenditures?

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

Assume that potential GDP is $200 billion and the multiplier equals 5. The recessionary gap is $10 billion. What is the actual level of equilibrium income?

In a closed economy that does not have international trade, the spending multiplier equals _____.

Suppose in an economy, investment = $40, saving = $50, government spending+export = $100 and taxes+imports = $110. Then for this economy, total leakages exceed total injections by:

If 81 percent of Canada's exports go to the United States, a recession in the United States would probably:

Suppose only 7 percent of Turkey's products go to the United States. Hence, an increase in U.S. imports from Turkey:

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

The spending multiplier measures the change in equilibrium income that results from a change in:

Injections to the economy include consumption, investment, and government spending.

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. If saving is represented by S1, at a real GDP level of $500:

A depreciation of the U.S. dollar will result in an increase in aggregate expenditures in the country.

Consider a closed economy described by AE (aggregate expenditures) = 800,000 + 0.75Y Assume that this economy is initially in equilibrium. But now the government implements a program to improve highways that will cost $1 million. This implies that equilibrium real GDP will:

Assume that the multiplier effect for Mexico is 0.85 when U.S. government spending increases. Therefore, a $20 billion decrease in U.S. government spending results in:

Foreign repercussions of changes in domestic spending may cause:

The figure given below depicts macroeconomic equilibrium in a closed economy. Assume that the spending multiplier in this economy is 1.5. Figure 10.5 -Refer to Figure 10.5. If the target or potential level of real GDP is $1,200, then at an equilibrium real GDP level of $900:

Other things equal, a reduction in personal income taxes will decrease consumption and will have an expansionary effect on real GDP.

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. What is the marginal propensity to save of this economy?

When the price level in an economy falls, the demand for bonds and other nonmonetary financial assets rises.

Suppose the multiplier effect for Japan is 0.8 for any $1 billion change in U.S. government purchases. Therefore, Japanese real GDP will rise by $8 billion when U.S. government spending rises by $10 billion.

Which of the following will not increase aggregate expenditures?

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

Assume that potential GDP is $200 billion and the multiplier equals 5. The recessionary gap is $10 billion. What is the actual level of equilibrium income?

In a closed economy that does not have international trade, the spending multiplier equals _____.

Suppose in an economy, investment = $40, saving = $50, government spending+export = $100 and taxes+imports = $110. Then for this economy, total leakages exceed total injections by:

If 81 percent of Canada's exports go to the United States, a recession in the United States would probably:

Suppose only 7 percent of Turkey's products go to the United States. Hence, an increase in U.S. imports from Turkey:

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. If saving is represented by S₁, at a real GDP level of $500: