Question 1

Using the standard 45° line diagram, how does an increase in investment spending effect the expenditure schedule?

Accepted Answer

A)  It shifts the expenditure schedule downward. 
B)  It shifts the expenditure schedule upward. 
C)  It increases the slope of the expenditure schedule. 
D)  It decreases the slope of the expenditure schedule. 
A)  It shifts the expenditure schedule downward. 
B)  It shifts the expenditure schedule upward. 
C)  It increases the slope of the expenditure schedule. 
D)  It decreases the slope of the expenditure schedule.

Question 2

Assume that the MPC is 0.75, and investment spending rises by $25 billion. How much will real GDP change?

Accepted Answer

A)  $25 billion 
B)  $75 billion 
C)  $100 billion 
D)  $175 billion 
A)  $25 billion 
B)  $75 billion 
C)  $100 billion 
D)  $175 billion

Question 3

The oversimplified multiplier formula assumes that the

Accepted Answer

A)  level of consumption spending is fixed. 
B)  price level is fixed. 
C)  government spending is fixed. 
D)  net exports depend on income. 
A)  level of consumption spending is fixed. 
B)  price level is fixed. 
C)  government spending is fixed. 
D)  net exports depend on income.

Question 4

The main examples of macroeconomic coordination failures are

Accepted Answer

A)  profit declines. 
B)  relative price changes. 
C)  recessions and depressions. 
D)  consumer taste changes. 
A)  profit declines. 
B)  relative price changes. 
C)  recessions and depressions. 
D)  consumer taste changes.

Question 5

In a market economy, the decisions about what to produce and how much of each good or service to produce are made by

Accepted Answer

A)  government officials. 
B)  economic planners. 
C)  central bankers. 
D)  consumers and producers. 
A)  government officials. 
B)  economic planners. 
C)  central bankers. 
D)  consumers and producers.

Question 6

Assume that the MPC is 0.80 and investment rises by $50 million. How much additional saving will this generate in the second round of spending?

Accepted Answer

A)  $10 million 
B)  $40 million 
C)  $50 million 
D)  $62.5 million 
E)  $250 million 
A)  $10 million 
B)  $40 million 
C)  $50 million 
D)  $62.5 million 
E)  $250 million

Question 7

An inflationary gap will exist when the full employment level of GDP is

Accepted Answer

A)  equal to equilibrium GDP. 
B)  greater than equilibrium GDP. 
C)  less than equilibrium GDP. 
D)  greater than disposable income. 
A)  equal to equilibrium GDP. 
B)  greater than equilibrium GDP. 
C)  less than equilibrium GDP. 
D)  greater than disposable income.

Question 8

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

Accepted Answer

A)  $2,000 billion. 
B)  $3,000 billion. 
C)  $4,000 billion. 
D)  $5,000 billion. 
A)  $2,000 billion. 
B)  $3,000 billion. 
C)  $4,000 billion. 
D)  $5,000 billion.

Question 9

The economy will reach equilibrium in a simple economy only if saving is

Accepted Answer

A)  greater than investment. 
B)  less than investment. 
C)  equal to investment. 
D)  equal to disposable income. 
A)  greater than investment. 
B)  less than investment. 
C)  equal to investment. 
D)  equal to disposable income.

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

Figure 9-4
 
In Figure 9-4, which expenditure level will result in a recessionary gap?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  There will be no deflationary gap. 
A)  1 
B)  2 
C)  3 
D)  There will be no deflationary gap.

Question 12

If the economy automatically tends toward full employment, then government stabilization policy

Accepted Answer

A)  must be constantly in force. 
B)  will be necessary only in recessions. 
C)  will be necessary only in inflationary periods. 
D)  will not be necessary. 
A)  must be constantly in force. 
B)  will be necessary only in recessions. 
C)  will be necessary only in inflationary periods. 
D)  will not be necessary.

Question 13

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 14

Which of the following would be associated with an inflationary gap?

Accepted Answer

A)  Interest rates too low 
B)  Business expectations pessimistic 
C)  Inventory levels too low 
D)  Stock market crash 
E)  Inventory levels are too high 
A)  Interest rates too low 
B)  Business expectations pessimistic 
C)  Inventory levels too low 
D)  Stock market crash 
E)  Inventory levels are too high

Question 15

If inventories are being depleted, firms may respond by cutting prices.

Accepted Answer

A) True 
 B)False

Question 16

A level of GDP cannot be at equilibrium when aggregate demand exceeds output because firms will notice that

Accepted Answer

A)  inventory stocks are building up. 
B)  inventory stocks are being depleted. 
C)  their profits are negative. 
D)  many of their workers have little to do. 
A)  inventory stocks are building up. 
B)  inventory stocks are being depleted. 
C)  their profits are negative. 
D)  many of their workers have little to do.

Question 17

Total expenditures can be written as C + I + G + (X − IM).

Accepted Answer

A) True 
 B)False

Question 18

High unemployment and high rates of inflation are examples of coordination successes.

Accepted Answer

A) True 
 B)False

Question 19

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.

Question 20

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.

Exam 25: Demand-Side Equilibrium: Unemployment or Inflation

Using the standard 45° line diagram, how does an increase in investment spending effect the expenditure schedule?

Assume that the MPC is 0.75, and investment spending rises by $25 billion. How much will real GDP change?

The oversimplified multiplier formula assumes that the

The main examples of macroeconomic coordination failures are

In a market economy, the decisions about what to produce and how much of each good or service to produce are made by

Assume that the MPC is 0.80 and investment rises by $50 million. How much additional saving will this generate in the second round of spending?

An inflationary gap will exist when the full employment level of GDP is

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

The economy will reach equilibrium in a simple economy only if saving is

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

Figure 9-4 In Figure 9-4, which expenditure level will result in a recessionary gap?

If the economy automatically tends toward full employment, then government stabilization policy

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

Which of the following would be associated with an inflationary gap?

If inventories are being depleted, firms may respond by cutting prices.

A level of GDP cannot be at equilibrium when aggregate demand exceeds output because firms will notice that

Total expenditures can be written as C + I + G + (X − IM).

High unemployment and high rates of inflation are examples of coordination successes.

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

A recessionary gap exists when the equilibrium level of GDP

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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 Us Economy

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