Question 1

If net taxes decrease,which of the following would occur?

Accepted Answer

A)  Disposable income decreases,consumption at any income level increases,and the consumption-income line shifts upward. 
B)  Disposable income increases,consumption at any income level increases,and the consumption-income line shifts downward. 
C)  Disposable income increases,consumption at any income level increases,and the consumption-income line shifts upward. 
D)  Disposable income decreases,consumption at any income level decreases,and the consumption-income line shifts downward. 
E)  Disposable income increases,consumption at any income level decreases,and the consumption-income line shifts downward. 
A)  Disposable income decreases,consumption at any income level increases,and the consumption-income line shifts upward. 
B)  Disposable income increases,consumption at any income level increases,and the consumption-income line shifts downward. 
C)  Disposable income increases,consumption at any income level increases,and the consumption-income line shifts upward. 
D)  Disposable income decreases,consumption at any income level decreases,and the consumption-income line shifts downward. 
E)  Disposable income increases,consumption at any income level decreases,and the consumption-income line shifts downward.

Question 2

In the short-run macro model,if the economy is in equilibrium,it must also be operating at full employment.

Accepted Answer

A) True 
 B)False

Question 3

In the short-run macro model,if GDP = $5 trillion and aggregate expenditure = $4.6 trillion,we would expect

Accepted Answer

A)  prices to fall until the additional $0.4 trillion of output was sold 
B)  prices to rise 
C)  output to rise because businesses anticipate that buyers will spend more in the future to compensate for weak spending in this period 
D)  inventories to rise by $0.4 trillion 
E)  inventories to shrink by $0.4 trillion 
A)  prices to fall until the additional $0.4 trillion of output was sold 
B)  prices to rise 
C)  output to rise because businesses anticipate that buyers will spend more in the future to compensate for weak spending in this period 
D)  inventories to rise by $0.4 trillion 
E)  inventories to shrink by $0.4 trillion

Question 4

If taxes rise $100 billion,disposable income will fall by $100 billion and consumption spending will also fall by $100 billion.

Accepted Answer

A) True 
 B)False

Question 5

Automatic stabilizers do not include

Accepted Answer

A)  taxes 
B)  interest rates 
C)  transfer payments 
D)  forward-looking behavior 
E)  enhancing the multiplier effect 
A)  taxes 
B)  interest rates 
C)  transfer payments 
D)  forward-looking behavior 
E)  enhancing the multiplier effect

Question 6

If firms increase their investment spending,the resulting change in equilibrium GDP is equal to the change in investment spending

Accepted Answer

A)  multiplied by 2.5 
B)  alone 
C)  multiplied by the expenditure multiplier 
D)  divided by the marginal propensity to consume 
E)  plus the change in consumption spending 
A)  multiplied by 2.5 
B)  alone 
C)  multiplied by the expenditure multiplier 
D)  divided by the marginal propensity to consume 
E)  plus the change in consumption spending

Question 7

Suppose the marginal propensity to consume is 0.80 and taxes decrease by $10 billion.Which of the following is true?

Accepted Answer

A)  Disposable income and consumption fall by $10 billion 
B)  Disposable income and consumption rise by $10 billion 
C)  Disposable income rises by $10 billion and consumption rises by $8 billion 
D)  Disposable income falls by $10 billion and consumption falls by $8 billion 
E)  Disposable income rises by $10 billion and consumption falls by $8 billion 
A)  Disposable income and consumption fall by $10 billion 
B)  Disposable income and consumption rise by $10 billion 
C)  Disposable income rises by $10 billion and consumption rises by $8 billion 
D)  Disposable income falls by $10 billion and consumption falls by $8 billion 
E)  Disposable income rises by $10 billion and consumption falls by $8 billion

Question 8

When income increases,aggregate expenditure will rise by

Accepted Answer

A)  the change in GDP 
B)  the change in GDP minus the MPC 
C)  the change in GDP times the MPC 
D)  the MPC 
E)  the change in GDP divided by the MPC 
A)  the change in GDP 
B)  the change in GDP minus the MPC 
C)  the change in GDP times the MPC 
D)  the MPC 
E)  the change in GDP divided by the MPC

Question 9

Which of the following is a definition of the consumption function?

Accepted Answer

A)  A functional relationship between real consumption spending and real disposable income 
B)  A functional relationship between real consumption spending and the interest rate 
C)  A functional relationship between real consumption spending and wealth 
D)  A functional relationship between real consumption spending and total spending 
E)  A functional relationship between real consumption spending and net taxes 
A)  A functional relationship between real consumption spending and real disposable income 
B)  A functional relationship between real consumption spending and the interest rate 
C)  A functional relationship between real consumption spending and wealth 
D)  A functional relationship between real consumption spending and total spending 
E)  A functional relationship between real consumption spending and net taxes

Question 10

Which of the following would cause the consumption function to shift down?

Accepted Answer

A)  A decrease in disposable income 
B)  A decrease in taxes 
C)  An increase in taxes 
D)  An increase in the marginal propensity to consume 
E)  None of the above 
A)  A decrease in disposable income 
B)  A decrease in taxes 
C)  An increase in taxes 
D)  An increase in the marginal propensity to consume 
E)  None of the above

Question 11

Which of the following would unambiguously increase consumption spending?

Accepted Answer

A)  an increase in real disposable income coupled with a decrease in real wealth 
B)  an increase in real wealth coupled with more pessimistic expectations regarding future income 
C)  a decrease in real disposable income coupled with a decrease in the interest rate 
D)  a decrease in the interest rate coupled with an increase in real wealth 
E)  increased pessimism regarding future income coupled with an increase in the interest rate 
A)  an increase in real disposable income coupled with a decrease in real wealth 
B)  an increase in real wealth coupled with more pessimistic expectations regarding future income 
C)  a decrease in real disposable income coupled with a decrease in the interest rate 
D)  a decrease in the interest rate coupled with an increase in real wealth 
E)  increased pessimism regarding future income coupled with an increase in the interest rate

Question 12

The reason the short-run macro model suggests that the economy can operate either above or below its potential while in the long-run classical model the economy operates automatically at full employment is that

Accepted Answer

A)  the short-run macro model is flawed and inaccurate 
B)  the classical model is flawed and inaccurate 
C)  the two models measure completely different aspects of the economy 
D)  in the short run,spending affects output,but not in the long run 
E)  in the short run the role of government in helping the economy return to equilibrium is not considered 
A)  the short-run macro model is flawed and inaccurate 
B)  the classical model is flawed and inaccurate 
C)  the two models measure completely different aspects of the economy 
D)  in the short run,spending affects output,but not in the long run 
E)  in the short run the role of government in helping the economy return to equilibrium is not considered

Question 13

Which of the following is not another way of describing the marginal propensity to consume?

Accepted Answer

A)  MPC 
B)  The slope of the consumption function 
C)  The change in real consumption spending divided by the change in real disposable income 
D)  The amount by which real consumption spending rises when real disposable income increases by one dollar 
E)  Autonomous consumption spending. 
A)  MPC 
B)  The slope of the consumption function 
C)  The change in real consumption spending divided by the change in real disposable income 
D)  The amount by which real consumption spending rises when real disposable income increases by one dollar 
E)  Autonomous consumption spending.

Question 14

Since the value of the multiplier is always at least 1,which of the following is correct?

Accepted Answer

A)  The size of the vertical shift in the aggregate expenditure line is always equal to the change in GDP 
B)  The size of the vertical shift in the aggregate expenditure line is always less than the change in GDP 
C)  The size of the vertical shift in the aggregate expenditure line is always greater than the change in GDP 
D)  The size of the vertical shift in the aggregate expenditure line is always equal to or smaller than the change in GDP 
E)  The MPC is always bigger than 1 
A)  The size of the vertical shift in the aggregate expenditure line is always equal to the change in GDP 
B)  The size of the vertical shift in the aggregate expenditure line is always less than the change in GDP 
C)  The size of the vertical shift in the aggregate expenditure line is always greater than the change in GDP 
D)  The size of the vertical shift in the aggregate expenditure line is always equal to or smaller than the change in GDP 
E)  The MPC is always bigger than 1

Question 15

Which of the following would not cause the consumption-income line to shift upward?

Accepted Answer

A)  An increase in income 
B)  An increase in autonomous consumption 
C)  A decrease in the interest rate 
D)  Greater optimism about economic conditions 
E)  An increase in household wealth 
A)  An increase in income 
B)  An increase in autonomous consumption 
C)  A decrease in the interest rate 
D)  Greater optimism about economic conditions 
E)  An increase in household wealth

Question 16

Whenever there is an increase in autonomous consumption spending,there will be

Accepted Answer

A)  an upward shift of the aggregate expenditure line causing equilibrium GDP to rise 
B)  an upward shift of aggregate expenditure line,but no change in equilibrium GDP 
C)  no change in the aggregate expenditure line,but equilibrium GDP will rise 
D)  an upward shift of the aggregate expenditure line,causing equilibrium GDP to fall 
E)  no change in the aggregate expenditure line or equilibrium GDP 
A)  an upward shift of the aggregate expenditure line causing equilibrium GDP to rise 
B)  an upward shift of aggregate expenditure line,but no change in equilibrium GDP 
C)  no change in the aggregate expenditure line,but equilibrium GDP will rise 
D)  an upward shift of the aggregate expenditure line,causing equilibrium GDP to fall 
E)  no change in the aggregate expenditure line or equilibrium GDP

Question 17

Investment,as defined for calculating GDP,consists of only two components: business spending on plant and equipment and unsold inventories.

Accepted Answer

A) True 
 B)False

Question 18

Where can equilibrium GDP be found on a graph?

Accepted Answer

A)  Where the consumption function crosses the 45-degree line 
B)  Where the 45-degree line crosses the investment function 
C)  Where the aggregate expenditure function crosses the 45-degree line 
D)  Where total output is equal to the unplanned inventory change 
E)  Where the next exports function crosses the 45-degree line 
A)  Where the consumption function crosses the 45-degree line 
B)  Where the 45-degree line crosses the investment function 
C)  Where the aggregate expenditure function crosses the 45-degree line 
D)  Where total output is equal to the unplanned inventory change 
E)  Where the next exports function crosses the 45-degree line

Question 19

-Use the graph shown in Figure 11-5 to determine equilibrium in the economy.

Accepted Answer

A)  $1,000 
B)  $2,000 
C)  $3,000 
D)  $3,250 
E)  There is no equilibrium in this economy 
A)  $1,000 
B)  $2,000 
C)  $3,000 
D)  $3,250 
E)  There is no equilibrium in this economy

Question 20

One benefit of automatic stabilizers is that they

Accepted Answer

A)  decrease consumption during a recession below what it would otherwise be 
B)  make GDP more volatile 
C)  cause the cyclical deficit to fall during a recession 
D)  increase consumption during a recession above what it would otherwise be 
E)  increase consumption during an expansion above what it would otherwise be 
A)  decrease consumption during a recession below what it would otherwise be 
B)  make GDP more volatile 
C)  cause the cyclical deficit to fall during a recession 
D)  increase consumption during a recession above what it would otherwise be 
E)  increase consumption during an expansion above what it would otherwise be

If net taxes decrease,which of the following would occur?

In the short-run macro model,if the economy is in equilibrium,it must also be operating at full employment.

In the short-run macro model,if GDP = $5 trillion and aggregate expenditure = $4.6 trillion,we would expect

If taxes rise $100 billion,disposable income will fall by $100 billion and consumption spending will also fall by $100 billion.

Automatic stabilizers do not include

If firms increase their investment spending,the resulting change in equilibrium GDP is equal to the change in investment spending

Suppose the marginal propensity to consume is 0.80 and taxes decrease by $10 billion.Which of the following is true?

When income increases,aggregate expenditure will rise by

Which of the following is a definition of the consumption function?

Which of the following would cause the consumption function to shift down?

Which of the following would unambiguously increase consumption spending?

The reason the short-run macro model suggests that the economy can operate either above or below its potential while in the long-run classical model the economy operates automatically at full employment is that

Which of the following is not another way of describing the marginal propensity to consume?

Since the value of the multiplier is always at least 1,which of the following is correct?

Which of the following would not cause the consumption-income line to shift upward?

Whenever there is an increase in autonomous consumption spending,there will be

Investment,as defined for calculating GDP,consists of only two components: business spending on plant and equipment and unsold inventories.

Where can equilibrium GDP be found on a graph?

-Use the graph shown in Figure 11-5 to determine equilibrium in the economy.

One benefit of automatic stabilizers is that they

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

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Exam 11: The Short-run Macro Model

If net taxes decrease,which of the following would occur?

In the short-run macro model,if the economy is in equilibrium,it must also be operating at full employment.

In the short-run macro model,if GDP = $5 trillion and aggregate expenditure = $4.6 trillion,we would expect

If taxes rise $100 billion,disposable income will fall by $100 billion and consumption spending will also fall by $100 billion.

Automatic stabilizers do not include

If firms increase their investment spending,the resulting change in equilibrium GDP is equal to the change in investment spending

Suppose the marginal propensity to consume is 0.80 and taxes decrease by $10 billion.Which of the following is true?

When income increases,aggregate expenditure will rise by

Which of the following is a definition of the consumption function?

Which of the following would cause the consumption function to shift down?

Which of the following would unambiguously increase consumption spending?

The reason the short-run macro model suggests that the economy can operate either above or below its potential while in the long-run classical model the economy operates automatically at full employment is that

Which of the following is not another way of describing the marginal propensity to consume?

Since the value of the multiplier is always at least 1,which of the following is correct?

Which of the following would not cause the consumption-income line to shift upward?

Whenever there is an increase in autonomous consumption spending,there will be

Investment,as defined for calculating GDP,consists of only two components: business spending on plant and equipment and unsold inventories.

Where can equilibrium GDP be found on a graph?

-Use the graph shown in Figure 11-5 to determine equilibrium in the economy.

One benefit of automatic stabilizers is that they

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters