Question 1

Which one of the following could cause an inflationary gap?

Accepted Answer

A)  Net exports are decreasing. 
B)  Price levels are too low. 
C)  Government spending is too high. 
D)  Unemployment occurs. 
A)  Net exports are decreasing. 
B)  Price levels are too low. 
C)  Government spending is too high. 
D)  Unemployment occurs.

Question 2

If the U.S. economy is experiencing falling price levels, the

Accepted Answer

A)  expenditure schedule will shift downward. 
B)  expenditure schedule will shift upward. 
C)  slope of the expenditure schedule increases. 
D)  slope of the expenditure schedule decreases. 
A)  expenditure schedule will shift downward. 
B)  expenditure schedule will shift upward. 
C)  slope of the expenditure schedule increases. 
D)  slope of the expenditure schedule decreases.

Question 3

In a capitalist market economy, the decision to save is made by the same people who make the major investment decisions.

Accepted Answer

A) True 
 B)False

Question 4

A recessionary gap occurs when

Accepted Answer

A)  the price level is too low. 
B)  equilibrium real GDP is greater than potential GDP. 
C)  equilibrium real GDP falls short of potential GDP. 
D)  the government does not stimulate investment spending. 
A)  the price level is too low. 
B)  equilibrium real GDP is greater than potential GDP. 
C)  equilibrium real GDP falls short of potential GDP. 
D)  the government does not stimulate investment spending.

Question 5

When the expenditure level is above the full employment level of GDP, a possible consequence is

Accepted Answer

A)  falling prices. 
B)  rising prices. 
C)  falling disposable income. 
D)  high levels of unemployment. 
A)  falling prices. 
B)  rising prices. 
C)  falling disposable income. 
D)  high levels of unemployment.

Question 6

A higher price level would mean ____ for a person who has a bank deposit of $2 million.

Accepted Answer

A)  an increase in real income 
B)  a decrease in real wealth 
C)  a decrease in nominal income 
D)  an increase in nominal income 
A)  an increase in real income 
B)  a decrease in real wealth 
C)  a decrease in nominal income 
D)  an increase in nominal income

Question 7

If total spending is greater than the value of output, firms will

Accepted Answer

A)  cut prices. 
B)  decrease production levels. 
C)  tend to raise prices. 
D)  see inventories rise. 
A)  cut prices. 
B)  decrease production levels. 
C)  tend to raise prices. 
D)  see inventories rise.

Question 8

A rising price level should shift the expenditure schedule

Accepted Answer

A)  upward and decrease equilibrium real GDP. 
B)  downward and increase equilibrium real GDP. 
C)  downward and decrease equilibrium real GDP. 
D)  upward and increase equilibrium real GDP. 
A)  upward and decrease equilibrium real GDP. 
B)  downward and increase equilibrium real GDP. 
C)  downward and decrease equilibrium real GDP. 
D)  upward and increase equilibrium real GDP.

Question 9

Figure 9-1
 
In Figure 9-1,

Accepted Answer

A)  the 45° line represents all points where spending equals output. 
B)  to the left of equilibrium GDP, inventories will rise. 
C)  to the right of equilibrium GDP, inventories will fall. 
D)  the level of equilibrium GDP equals potential GDP. 
A)  the 45° line represents all points where spending equals output. 
B)  to the left of equilibrium GDP, inventories will rise. 
C)  to the right of equilibrium GDP, inventories will fall. 
D)  the level of equilibrium GDP equals potential GDP.

Question 10

Investment spending is a leakage from the circular flow model.

Accepted Answer

A) True 
 B)False

Question 11

The recessionary gap is the

Accepted Answer

A)  amount of unemployment compensation required during a recession. 
B)  budget deficit encountered during a recession. 
C)  amount of government spending needed to end a recession. 
D)  distance between the equilibrium level of output and the full employment level of output. 
A)  amount of unemployment compensation required during a recession. 
B)  budget deficit encountered during a recession. 
C)  amount of government spending needed to end a recession. 
D)  distance between the equilibrium level of output and the full employment level of output.

Question 12

Equilibrium GDP on the demand side occurs when total spending

Accepted Answer

A)  equals total production, and inventories are zero. 
B)  equals total production, and firms are unable to adjust inventories. 
C)  exceeds total production, and inventories are rising. 
D)  equals total production, and inventories remain at desired levels. 
E)  is less than total production, and inventories are falling. 
A)  equals total production, and inventories are zero. 
B)  equals total production, and firms are unable to adjust inventories. 
C)  exceeds total production, and inventories are rising. 
D)  equals total production, and inventories remain at desired levels. 
E)  is less than total production, and inventories are falling.

Question 13

When spending is greater than output, firms will experience falling inventories, and prices of goods and services will rise.

Accepted Answer

A) True 
 B)False

Question 14

When total spending is less than production, GDP will decrease.

Accepted Answer

A) True 
 B)False

Question 15

The multiplier is the

Accepted Answer

A)  impact that investment has on the physical capital. 
B)  concept that the interest rate will induce consumption and investment spending. 
C)  concept that increases in spending will cause a larger increase in equilibrium GDP. 
D)  impact that expansionary fiscal policy has on recessions. 
A)  impact that investment has on the physical capital. 
B)  concept that the interest rate will induce consumption and investment spending. 
C)  concept that increases in spending will cause a larger increase in equilibrium GDP. 
D)  impact that expansionary fiscal policy has on recessions.

Question 16

Where does equilibrium occur in an income expenditure diagram? What would be the effect if production is at either on the left or right side of the equilibrium point?

Accepted Answer

Equilibrium occurs at appoint at which t

Question 17

Using the standard 45° line diagram, how does a decrease in net exports effect the expenditure schedule?

Accepted Answer

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

Question 18

If investment spending depends on GDP, this is called induced investment.

Accepted Answer

A) True 
 B)False

Question 19

What is a multiplier? How does the multiplier effect occur?

Accepted Answer

The multiplier is the ratio of the chang

Question 20

45° line diagrams show how

Accepted Answer

A)  investment varies with income. 
B)  expenditures vary with income. 
C)  investment spending rises when GDP rises. 
D)  GDP is affected by government purchases. 
A)  investment varies with income. 
B)  expenditures vary with income. 
C)  investment spending rises when GDP rises. 
D)  GDP is affected by government purchases.

Exam 25: Demand-Side Equilibrium: Unemployment or Inflation

Which one of the following could cause an inflationary gap?

If the U.S. economy is experiencing falling price levels, the

In a capitalist market economy, the decision to save is made by the same people who make the major investment decisions.

A recessionary gap occurs when

When the expenditure level is above the full employment level of GDP, a possible consequence is

A higher price level would mean ____ for a person who has a bank deposit of $2 million.

If total spending is greater than the value of output, firms will

A rising price level should shift the expenditure schedule

Figure 9-1 In Figure 9-1,

Investment spending is a leakage from the circular flow model.

The recessionary gap is the

Equilibrium GDP on the demand side occurs when total spending

When spending is greater than output, firms will experience falling inventories, and prices of goods and services will rise.

When total spending is less than production, GDP will decrease.

The multiplier is the

Where does equilibrium occur in an income expenditure diagram? What would be the effect if production is at either on the left or right side of the equilibrium point?

Using the standard 45° line diagram, how does a decrease in net exports effect the expenditure schedule?

If investment spending depends on GDP, this is called induced investment.

What is a multiplier? How does the multiplier effect occur?

45° line diagrams show how

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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