Question 1

If the economy is suffering a recession, inventories are probably falling.

Accepted Answer

A) True 
 B)False

Question 2

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 3

When constructing a basic macroeconomic model, several assumptions (not realistic, but necessary to simplify the analysis) are made. Which of the following are assumed to be constant?

Accepted Answer

A)  The price level 
B)  Consumption spending 
C)  The value of fixed-money assets 
D)  Taxes 
A)  The price level 
B)  Consumption spending 
C)  The value of fixed-money assets 
D)  Taxes

Question 4

Figure 9-1
 
In Figure 9-1, the economy is

Accepted Answer

A)  experiencing an inflationary gap, shown by the horizontal distance EB. 
B)  at full employment without inflation. 
C)  experiencing a recessionary gap, shown by the horizontal distance EB. 
D)  experiencing a recessionary gap, shown by the distance between EF. 
A)  experiencing an inflationary gap, shown by the horizontal distance EB. 
B)  at full employment without inflation. 
C)  experiencing a recessionary gap, shown by the horizontal distance EB. 
D)  experiencing a recessionary gap, shown by the distance between EF.

Question 5

Movements along the consumption function are called

Accepted Answer

A)  autonomous consumption. 
B)  leakage consumption. 
C)  induced consumption. 
D)  injected consumption. 
A)  autonomous consumption. 
B)  leakage consumption. 
C)  induced consumption. 
D)  injected consumption.

Question 6

Table 9-1   In Table 9-1, inventories will be increasing as long as output is above

Accepted Answer

A)  1,000 
B)  1,500 
C)  2,000 
D)  3,000 
A)  1,000 
B)  1,500 
C)  2,000 
D)  3,000

Question 7

Differentiate between an induced increase in consumption and an autonomous increase in consumption. How are they represented on a graph?

Accepted Answer

An induced increase in consumption is an

Question 8

At the equilibrium level of income, it must be true that total

Accepted Answer

A)  income equals total spending. 
B)  product equals total output. 
C)  output equals total inventory. 
D)  income equals total saving. 
A)  income equals total spending. 
B)  product equals total output. 
C)  output equals total inventory. 
D)  income equals total saving.

Question 9

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 10

In the basic 45° line model, what is the effect of a decrease in the price level?

Accepted Answer

A)  The expenditure line will shift downward. 
B)  The expenditure line will shift upward. 
C)  There will be movement to the left on the expenditure line. 
D)  There will be movement to the right on the expenditure line. 
A)  The expenditure line will shift downward. 
B)  The expenditure line will shift upward. 
C)  There will be movement to the left on the expenditure line. 
D)  There will be movement to the right on the expenditure line.

Question 11

The aggregate demand curve

Accepted Answer

A)  slopes upward. 
B)  slopes downward. 
C)  is perfectly vertical. 
D)  is perfectly horizontal. 
A)  slopes upward. 
B)  slopes downward. 
C)  is perfectly vertical. 
D)  is perfectly horizontal.

Question 12

Figure 9-1
 
In Figure 9-1, at $3,000 billion real GDP,

Accepted Answer

A)  spending exceeds total output and inventories will fall. 
B)  inventories are constant. 
C)  aggregate demand equals aggregate supply. 
D)  spending falls short of output and inventories will rise. 
A)  spending exceeds total output and inventories will fall. 
B)  inventories are constant. 
C)  aggregate demand equals aggregate supply. 
D)  spending falls short of output and inventories will rise.

Question 13

A decrease in autonomous consumption would have the same effect on the expenditures schedule as a(n)

Accepted Answer

A)  decrease in investment. 
B)  increase in government purchases. 
C)  increase in net exports. 
D)  decrease in taxes. 
A)  decrease in investment. 
B)  increase in government purchases. 
C)  increase in net exports. 
D)  decrease in taxes.

Question 14

A major reason for the existence of inflationary and deflationary gaps is that

Accepted Answer

A)  corporations do most of the nation's saving. 
B)  saving and investing are done by people with no social conscience. 
C)  consumers do most of the nation's saving. 
D)  saving and investing are done by different groups. 
A)  corporations do most of the nation's saving. 
B)  saving and investing are done by people with no social conscience. 
C)  consumers do most of the nation's saving. 
D)  saving and investing are done by different groups.

Question 15

Describe the role of business inventory change in determining the equilibrium level of GDP and changes in the level of GDP.

Accepted Answer

Inventories work as buffers in the econo

Question 16

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 17

Keynes focused on problems of

Accepted Answer

A)  hyperinflation. 
B)  budget deficits. 
C)  trade deficits. 
D)  unemployment and inflation. 
A)  hyperinflation. 
B)  budget deficits. 
C)  trade deficits. 
D)  unemployment and inflation.

Question 18

The economic impact of a change in spending, working through the multiplier, takes effect

Accepted Answer

A)  immediately. 
B)  very quickly, with a small number of rounds of spending. 
C)  after a very long period of time. 
D)  after multiple rounds of spending occur. 
A)  immediately. 
B)  very quickly, with a small number of rounds of spending. 
C)  after a very long period of time. 
D)  after multiple rounds of spending occur.

Question 19

As the multiplier process works through time, the size of the multiplier effect becomes

Accepted Answer

A)  larger. 
B)  smaller. 
C)  constant. 
D)  explosive. 
A)  larger. 
B)  smaller. 
C)  constant. 
D)  explosive.

Question 20

A recessionary gap and an inflationary gap will not persist when the equilibrium level of GDP

Accepted Answer

A)  everyone who wants a job has one and firms are not looking for extra workers. 
B)  frictional unemployment is 0. 
C)  equals potential output. 
D)  the unemployment rate is 0. 
A)  everyone who wants a job has one and firms are not looking for extra workers. 
B)  frictional unemployment is 0. 
C)  equals potential output. 
D)  the unemployment rate is 0.

Exam 25: Demand-Side Equilibrium: Unemployment or Inflation

If the economy is suffering a recession, inventories are probably falling.

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

When constructing a basic macroeconomic model, several assumptions (not realistic, but necessary to simplify the analysis) are made. Which of the following are assumed to be constant?

Figure 9-1 In Figure 9-1, the economy is

Movements along the consumption function are called

Table 9-1 In Table 9-1, inventories will be increasing as long as output is above

Differentiate between an induced increase in consumption and an autonomous increase in consumption. How are they represented on a graph?

At the equilibrium level of income, it must be true that total

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

In the basic 45° line model, what is the effect of a decrease in the price level?

The aggregate demand curve

Figure 9-1 In Figure 9-1, at $3,000 billion real GDP,

A decrease in autonomous consumption would have the same effect on the expenditures schedule as a(n)

A major reason for the existence of inflationary and deflationary gaps is that

Describe the role of business inventory change in determining the equilibrium level of GDP and changes in the level of GDP.

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

Keynes focused on problems of

The economic impact of a change in spending, working through the multiplier, takes effect

As the multiplier process works through time, the size of the multiplier effect becomes

A recessionary gap and an inflationary gap will not persist 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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