Question 1

Recessions and depressions are the principal examples of

Accepted Answer

A) market failure. 
B) coordination failure. 
C) central planning. 
D) socialist contradictions. 
A) market failure. 
B) coordination failure. 
C) central planning. 
D) socialist contradictions. B

Question 2

Using the standard 45-degree 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. D

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. B

Question 4

-In Table 9-1, the equilibrium level of output is

Accepted Answer

A) 2,500. 
B) 3,000. 
C) 3,500. 
D) 4,000. 
A) 2,500. 
B) 3,000. 
C) 3,500. 
D) 4,000.

Question 5

In a simple, private economy, suppose that the MPC is .8 and investment rises by $20 million.At the new equilibrium, how much will saving have increased?

Accepted Answer

A) $8 million 
B) $16 million 
C) $20 million 
D) $80 million 
E) $100 million 
A) $8 million 
B) $16 million 
C) $20 million 
D) $80 million 
E) $100 million

Question 6

Assume that the MPC is 0.85 and investment spending rises by $100 million.How much consumption spending will this generate in the second round of spending?

Accepted Answer

A) $15 million 
B) $85 million 
C) $100 million 
D) $118 million 
E) $185 million 
A) $15 million 
B) $85 million 
C) $100 million 
D) $118 million 
E) $185 million

Question 7

When businesses are cutting back production, then it probably true that

Accepted Answer

A) total spending is greater than total output. 
B) total output is greater than total income. 
C) total spending is less than total output. 
D) inventory levels are decreasing. 
A) total spending is greater than total output. 
B) total output is greater than total income. 
C) total spending is less than total output. 
D) inventory levels are decreasing.

Question 8

The inflationary gap is the

Accepted Answer

A) inflation rate that will occur from excess aggregate demand. 
B) budget deficit that caused the inflation to occur. 
C) distance between the equilibrium level of output and the full employment level of output. 
D) gap between expected and actual inflation. 
A) inflation rate that will occur from excess aggregate demand. 
B) budget deficit that caused the inflation to occur. 
C) distance between the equilibrium level of output and the full employment level of output. 
D) gap between expected and actual inflation.

Question 9

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 10

If net exports are reduced, the expenditure schedule will shift

Accepted Answer

A) downward and equilibrium real GDP will rise. 
B) upward and equilibrium real GDP will rise. 
C) downward and equilibrium real GDP will fall. 
D) upward and equilibrium real GDP will fall. 
A) downward and equilibrium real GDP will rise. 
B) upward and equilibrium real GDP will rise. 
C) downward and equilibrium real GDP will fall. 
D) upward and equilibrium real GDP will fall.

Question 11

Figure 9-1
  
-In Figure 9-1, at $7,000 billion real GDP,

Accepted Answer

A) inventories are increasing. 
B) spending falls short of output. 
C) spending exceeds output. 
D) Both a and b are correct. 
A) inventories are increasing. 
B) spending falls short of output. 
C) spending exceeds output. 
D) Both a and b are correct.

Question 12

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 13

A recessionary gap exists when potential GDP

Accepted Answer

A) falls short of equilibrium GDP. 
B) exceeds equilibrium GDP. 
C) equals equilibrium GDP. 
D) All of the above are correct. 
A) falls short of equilibrium GDP. 
B) exceeds equilibrium GDP. 
C) equals equilibrium GDP. 
D) All of the above are correct.

Question 14

A given income-expenditure diagram always assumes a variable price level.

Accepted Answer

A) True 
 B)False

Question 15

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 16

In the circular flow diagram saving

Accepted Answer

A) is a leakage and investment is an injection. 
B) and investment are both injections. 
C) is an injection and investment is a leakage. 
D) and investment are both leakages. 
A) is a leakage and investment is an injection. 
B) and investment are both injections. 
C) is an injection and investment is a leakage. 
D) and investment are both leakages.

Question 17

Figure 9-3
  
-In Figure 9-3, investment plus net exports equals

Accepted Answer

A) $200 billion. 
B) $400 billion. 
C) $600 billion. 
D) $800 billion. 
E) $1,200 billion. 
A) $200 billion. 
B) $400 billion. 
C) $600 billion. 
D) $800 billion. 
E) $1,200 billion.

Question 18

The multiplier principle explains how

Accepted Answer

A) any change in the economy will be magnified. 
B) $1 invested will increase GDP by more than $1. 
C) expenditures and incomes increase as investment increases. 
D) All of the above are correct. 
A) any change in the economy will be magnified. 
B) $1 invested will increase GDP by more than $1. 
C) expenditures and incomes increase as investment increases. 
D) All of the above are correct.

Question 19

In the real world, the actual multiplier is ____ the simplified multiplier.

Accepted Answer

A) much larger than 
B) slightly larger than 
C) equal to 
D) slightly smaller than 
E) much smaller than 
A) much larger than 
B) slightly larger than 
C) equal to 
D) slightly smaller than 
E) much smaller than

Question 20

The concept that increases in spending cause larger increases in equilibrium GDP is known as the

Accepted Answer

A) profiler. 
B) mystifier. 
C) multiplier. 
D) depreciator. 
A) profiler. 
B) mystifier. 
C) multiplier. 
D) depreciator.

Exam 26: Demand-Side Equilibrium: Unemployment or Inflation

Recessions and depressions are the principal examples of

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

The oversimplified multiplier formula assumes that the

-In Table 9-1, the equilibrium level of output is

In a simple, private economy, suppose that the MPC is .8 and investment rises by $20 million.At the new equilibrium, how much will saving have increased?

Assume that the MPC is 0.85 and investment spending rises by $100 million.How much consumption spending will this generate in the second round of spending?

When businesses are cutting back production, then it probably true that

The inflationary gap is the

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

If net exports are reduced, the expenditure schedule will shift

Figure 9-1 -In Figure 9-1, at $7,000 billion real GDP,

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

A recessionary gap exists when potential GDP

A given income-expenditure diagram always assumes a variable price level.

If the economy is in equilibrium, it must be

In the circular flow diagram saving

Figure 9-3 -In Figure 9-3, investment plus net exports equals

The multiplier principle explains how

In the real world, the actual multiplier is ____ the simplified multiplier.

The concept that increases in spending cause larger increases in equilibrium GDP is known as the

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

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

He 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

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