Question 1

If equilibrium in the economy is merely a function of aggregate demand, the aggregate supply curve must be:

Accepted Answer

A)  upward-sloping. 
B)  downward-sloping. 
C)  in the Keynesian region. 
D)  vertical. 
E)  at the full-capacity level. 
A)  upward-sloping. 
B)  downward-sloping. 
C)  in the Keynesian region. 
D)  vertical. 
E)  at the full-capacity level.

Question 2

The figure given below represents the macroeconomic equilibrium in the aggregate income and aggregate expenditure framework. Assume that MPI is equal to zero.
Figure 10.4
   In the figure:
C: Consumption
IS1U1B11S1U1B0 and IS1U1B12S1U1B0: Investment
G: Government Spending
X: Exports
-Refer to Figure 10.4. The spending multiplier is _____.

Accepted Answer

A)  2 
B)  3 
C)  6 
D)  0.5 
E)  1.2 
A)  2 
B)  3 
C)  6 
D)  0.5 
E)  1.2

Question 3

The paradox of thrift explains that increased savings by households could actually lower savings for the economy as a whole.

Accepted Answer

A) True 
 B)False

Question 4

In macroeconomics, equilibrium is defined as the point at which:

Accepted Answer

A)  the economy attains the highest level of GDP. 
B)  there is no unemployment in the economy. 
C)  people's plans match the reality. 
D)  people adjust their behavior to match plans with reality. 
E)  there is no inflation in the economy. 
A)  the economy attains the highest level of GDP. 
B)  there is no unemployment in the economy. 
C)  people's plans match the reality. 
D)  people adjust their behavior to match plans with reality. 
E)  there is no inflation in the economy.

Question 5

The equilibrium level of income will rise when:

Accepted Answer

A)  planned consumption spending is less than real GDP. 
B)  taxes exceed saving. 
C)  supply exceeds demand. 
D)  planned inventory investment is negative. 
E)  aggregate expenditures exceed real GDP. 
A)  planned consumption spending is less than real GDP. 
B)  taxes exceed saving. 
C)  supply exceeds demand. 
D)  planned inventory investment is negative. 
E)  aggregate expenditures exceed real GDP.

Question 6

The spending multiplier equals 1/marginal propensity to save if an economy:

Accepted Answer

A)  has a trade surplus. 
B)  is open to international trade. 
C)  produces and consumes only domestic goods and services. 
D)  has a higher level of saving than consumption. 
E)  reduces its investment expenditures to zero. 
A)  has a trade surplus. 
B)  is open to international trade. 
C)  produces and consumes only domestic goods and services. 
D)  has a higher level of saving than consumption. 
E)  reduces its investment expenditures to zero.

Question 7

When total planned expenditures are more than real GDP, there will be inventory accumulation.

Accepted Answer

A) True 
 B)False

Question 8

Calculate the spending multiplier from the information given in Table 10.4.

Accepted Answer

A)  5 
B)  4 
C)  2 
D)  0.2 
E)  0.1 
A)  5 
B)  4 
C)  2 
D)  0.2 
E)  0.1

Question 9

A major drawback of the Keynesian approach to macroeconomic equilibrium is the assumption that the supply of goods and services in the economy always adjusts to aggregate expenditures

Accepted Answer

A) True 
 B)False

Question 10

According to economists, the fixed-price model of macroeconomic equilibrium depicts the modern economy most closely because it assumes that aggregate supply is independent of price.

Accepted Answer

A) True 
 B)False

Question 11

The figure given below represents the macroeconomic equilibrium in the aggregate income and aggregate expenditure framework. Assume that MPI is equal to zero.
Figure 10.4
   In the figure:
C: Consumption
IS1U1B11S1U1B0 and IS1U1B12S1U1B0: Investment
G: Government Spending
X: Exports
-Refer to Figure 10.4. If autonomous government expenditures increase by $250 billion, equilibrium real GDP will:

Accepted Answer

A)  rise by $250 billion. 
B)  fall by 300 billion 
C)  rise by $500 billion. 
D)  rise by $75 billion. 
E)  rise by $100 billion. 
A)  rise by $250 billion. 
B)  fall by 300 billion 
C)  rise by $500 billion. 
D)  rise by $75 billion. 
E)  rise by $100 billion.

Question 12

A rise in the price level that reduces the real wealth of people who hold financial assets is an illustration of the:

Accepted Answer

A)  interest rate effect. 
B)  monetary theory. 
C)  supply-side theory. 
D)  wealth effect. 
E)  trade effect 
A)  interest rate effect. 
B)  monetary theory. 
C)  supply-side theory. 
D)  wealth effect. 
E)  trade effect

Question 13

In reality, the simple spending multiplier [1/(MPS+MPI)] is applicable only to countries whose imports are a substantial fraction of income in foreign countries.

Accepted Answer

A) True 
 B)False

Question 14

A horizontal aggregate supply curve indicates that equilibrium real GDP is determined by aggregate supply.

Accepted Answer

A) True 
 B)False

Question 15

If the equilibrium level of income is solely a function of aggregate supply, then the aggregate supply curve must be in the Keynesian region.

Accepted Answer

A) True 
 B)False

If equilibrium in the economy is merely a function of aggregate demand, the aggregate supply curve must be:

The paradox of thrift explains that increased savings by households could actually lower savings for the economy as a whole.

In macroeconomics, equilibrium is defined as the point at which:

The equilibrium level of income will rise when:

The spending multiplier equals 1/marginal propensity to save if an economy:

When total planned expenditures are more than real GDP, there will be inventory accumulation.

Calculate the spending multiplier from the information given in Table 10.4.

A major drawback of the Keynesian approach to macroeconomic equilibrium is the assumption that the supply of goods and services in the economy always adjusts to aggregate expenditures

According to economists, the fixed-price model of macroeconomic equilibrium depicts the modern economy most closely because it assumes that aggregate supply is independent of price.

A rise in the price level that reduces the real wealth of people who hold financial assets is an illustration of the:

In reality, the simple spending multiplier [1/(MPS+MPI)] is applicable only to countries whose imports are a substantial fraction of income in foreign countries.

A horizontal aggregate supply curve indicates that equilibrium real GDP is determined by aggregate supply.

If the equilibrium level of income is solely a function of aggregate supply, then the aggregate supply curve must be in the Keynesian region.

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

If equilibrium in the economy is merely a function of aggregate demand, the aggregate supply curve must be:

The paradox of thrift explains that increased savings by households could actually lower savings for the economy as a whole.

In macroeconomics, equilibrium is defined as the point at which:

The equilibrium level of income will rise when:

The spending multiplier equals 1/marginal propensity to save if an economy:

When total planned expenditures are more than real GDP, there will be inventory accumulation.

Calculate the spending multiplier from the information given in Table 10.4.

A major drawback of the Keynesian approach to macroeconomic equilibrium is the assumption that the supply of goods and services in the economy always adjusts to aggregate expenditures

According to economists, the fixed-price model of macroeconomic equilibrium depicts the modern economy most closely because it assumes that aggregate supply is independent of price.

A rise in the price level that reduces the real wealth of people who hold financial assets is an illustration of the:

In reality, the simple spending multiplier [1/(MPS+MPI)] is applicable only to countries whose imports are a substantial fraction of income in foreign countries.

A horizontal aggregate supply curve indicates that equilibrium real GDP is determined by aggregate supply.

If the equilibrium level of income is solely a function of aggregate supply, then the aggregate supply curve must be in the Keynesian region.

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