Question 1

When net exports increase,

Accepted Answer

A)  the expenditures schedule increases. 
B)  the expenditures schedule decreases. 
C)  there is a corresponding increase along the aggregate demand curve. 
D)  there is a corresponding decrease along the aggregate demand curve. 
A)  the expenditures schedule increases. 
B)  the expenditures schedule decreases. 
C)  there is a corresponding increase along the aggregate demand curve. 
D)  there is a corresponding decrease along the aggregate demand curve.

Question 2

Businesses in the United States cut their investment projects by $30 billion. If the MPC is 2, what will be the impact on the national income (Y)?

Accepted Answer

A)  Y will fall by $15 billion. 
B)  Y will fall by $30 billion. 
C)  Y will fall by $60 billion. 
D)  Y will fall by $120 billion. 
A)  Y will fall by $15 billion. 
B)  Y will fall by $30 billion. 
C)  Y will fall by $60 billion. 
D)  Y will fall by $120 billion.

Question 3

When equilibrium GDP falls below potential GDP, an inflationary gap exists.

Accepted Answer

A) True 
 B)False

Question 4

Identify the "oversimplified multiplier formula."

Accepted Answer

A)  Multiplier = 1 divided by (1 − change in GDP) 
B)  Multiplier = 1 divided by (1 − marginal propensity to consume) 
C)  Multiplier = 1 divided by (1 − marginal propensity to save) 
D)  Multiplier = 1 divided by (1 − rate of inflation) 
A)  Multiplier = 1 divided by (1 − change in GDP) 
B)  Multiplier = 1 divided by (1 − marginal propensity to consume) 
C)  Multiplier = 1 divided by (1 − marginal propensity to save) 
D)  Multiplier = 1 divided by (1 − rate of inflation)

Question 5

Real wealth changes with

Accepted Answer

A)  disposable income. 
B)  consumption. 
C)  the price level. 
D)  GDP. 
A)  disposable income. 
B)  consumption. 
C)  the price level. 
D)  GDP.

Question 6

If the economy is in equilibrium, it must be

Accepted Answer

A)  on the 45° line. 
B)  on the 60° line. 
C)  below the 45° line. 
D)  below the 60° line. 
A)  on the 45° line. 
B)  on the 60° line. 
C)  below the 45° line. 
D)  below the 60° line.

Question 7

A decrease in the price level causes a lower equilibrium quantity demanded.

Accepted Answer

A) True 
 B)False

Question 8

The basic idea behind the multiplier is that an increase in

Accepted Answer

A)  GDP brings about an additional, larger increase in GDP. 
B)  consumer spending causes a larger increase in investment spending. 
C)  government spending causes a larger increase in tax revenues. 
D)  spending will cause an even larger increase in equilibrium GDP. 
A)  GDP brings about an additional, larger increase in GDP. 
B)  consumer spending causes a larger increase in investment spending. 
C)  government spending causes a larger increase in tax revenues. 
D)  spending will cause an even larger increase in equilibrium GDP.

Question 9

Leakages are offset by investment and government spending in the circular flow model.

Accepted Answer

A) True 
 B)False

Question 10

If saving exceeds investment, then the level of GDP will

Accepted Answer

A)  increase. 
B)  remain constant. 
C)  decrease. 
D)  rise above potential GDP. 
A)  increase. 
B)  remain constant. 
C)  decrease. 
D)  rise above potential GDP.

Question 11

Assume that the MPC is 0.9 and investment falls by $30 billion. What is the change in real GDP?

Accepted Answer

A)  −$300 billion 
B)  −$270 billion 
C)  −$93 billion 
D)  −$39 billion 
A)  −$300 billion 
B)  −$270 billion 
C)  −$93 billion 
D)  −$39 billion

Question 12

Workers in a nearby pizza restaurant may indirectly enjoy income increases from a nearby construction work site.

Accepted Answer

A) True 
 B)False

Question 13

One of the possible consequences of the expenditure schedule lying below the level of full employment GDP is

Accepted Answer

A)  unemployment. 
B)  rising prices. 
C)  increasing production. 
D)  decreasing inventories. 
A)  unemployment. 
B)  rising prices. 
C)  increasing production. 
D)  decreasing inventories.

Question 14

The reason for the multiplier effect is that

Accepted Answer

A)  businesses make decisions about investment projects based on anticipated profits. 
B)  one person's additional expenditure creates a new source of income for another person, and this additional income leads to still more spending. 
C)  changes in government spending typically deepen recessions and exacerbate inflationary conditions in the economy. 
D)  additional spending lowers the rate of interest and leads to further borrowing and spending. 
A)  businesses make decisions about investment projects based on anticipated profits. 
B)  one person's additional expenditure creates a new source of income for another person, and this additional income leads to still more spending. 
C)  changes in government spending typically deepen recessions and exacerbate inflationary conditions in the economy. 
D)  additional spending lowers the rate of interest and leads to further borrowing and spending.

Question 15

If total spending is greater than current output, GDP will rise.

Accepted Answer

A) True 
 B)False

Question 16

An expenditure schedule model with no government sector shows the relationship between

Accepted Answer

A)  C and national product. 
B)  C and disposable income. 
C)  C + I and national income. 
D)  GDP and disposable income. 
A)  C and national product. 
B)  C and disposable income. 
C)  C + I and national income. 
D)  GDP and disposable income.

Question 17

According to the income-expenditure diagram, total production must always equal total

Accepted Answer

A)  inventories. 
B)  aggregate demand. 
C)  wages, profit, rents. 
D)  income. 
A)  inventories. 
B)  aggregate demand. 
C)  wages, profit, rents. 
D)  income.

Question 18

If the U.S. price level decreases, then

Accepted Answer

A)  the expenditure schedule slope will flatten. 
B)  the expenditure schedule slope will become steeper. 
C)  shift the expenditure schedule upward. 
D)  shift the expenditure schedule downward. 
A)  the expenditure schedule slope will flatten. 
B)  the expenditure schedule slope will become steeper. 
C)  shift the expenditure schedule upward. 
D)  shift the expenditure schedule downward.

Question 19

As the price level decreases real GDP demanded increases because

Accepted Answer

A)  consumer wealth increases. 
B)  net exports decrease. 
C)  interest rates decrease and cause lower investment. 
D)  net exports are indeterminant . 
A)  consumer wealth increases. 
B)  net exports decrease. 
C)  interest rates decrease and cause lower investment. 
D)  net exports are indeterminant .

Question 20

If the price level rises, the effect on the expenditure schedule and equilibrium real GDP is to

Accepted Answer

A)  increase both. 
B)  decrease both. 
C)  shift the expenditure schedule upward and decrease equilibrium real GDP. 
D)  shift the expenditure schedule downward and increase equilibrium real GDP. 
A)  increase both. 
B)  decrease both. 
C)  shift the expenditure schedule upward and decrease equilibrium real GDP. 
D)  shift the expenditure schedule downward and increase equilibrium real GDP.

Exam 25: Demand-Side Equilibrium: Unemployment or Inflation

When net exports increase,

Businesses in the United States cut their investment projects by $30 billion. If the MPC is 2, what will be the impact on the national income (Y)?

When equilibrium GDP falls below potential GDP, an inflationary gap exists.

Identify the "oversimplified multiplier formula."

Real wealth changes with

If the economy is in equilibrium, it must be

A decrease in the price level causes a lower equilibrium quantity demanded.

The basic idea behind the multiplier is that an increase in

Leakages are offset by investment and government spending in the circular flow model.

If saving exceeds investment, then the level of GDP will

Assume that the MPC is 0.9 and investment falls by $30 billion. What is the change in real GDP?

Workers in a nearby pizza restaurant may indirectly enjoy income increases from a nearby construction work site.

One of the possible consequences of the expenditure schedule lying below the level of full employment GDP is

The reason for the multiplier effect is that

If total spending is greater than current output, GDP will rise.

An expenditure schedule model with no government sector shows the relationship between

According to the income-expenditure diagram, total production must always equal total

If the U.S. price level decreases, then

As the price level decreases real GDP demanded increases because

If the price level rises, the effect on the expenditure schedule and equilibrium real GDP is to

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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