Question 1

By definition, total production must always equal total

Accepted Answer

A) sales. 
B) demand. 
C) purchases. 
D) income. 
A) sales. 
B) demand. 
C) purchases. 
D) income.

Question 2

Define the terms recessionary gap and inflationary gap.Why do they occur?

Accepted Answer

A recessionary gap exists when the expen

Question 3

If firms are experiencing falling inventories, one can expect that firms will cut production.

Accepted Answer

A) True 
 B)False

Question 4

When spending falls short of output, additional inventories are created.

Accepted Answer

A) True 
 B)False

Question 5

The expenditure schedule and the aggregate demand curve show much the same thing, with one crucial difference-the price level.How does the price level affect the two schedules?

Accepted Answer

The expenditure schedule is drawn assumi

Question 6

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 7

The expenditure schedule includes the consumption function.

Accepted Answer

A) True 
 B)False

Question 8

If the level of investment spending increases by $100 and the MPC in the economy is 0.8, then the cumulative spending increase after three rounds of spending is

Accepted Answer

A) $280. 
B) $260. 
C) $244. 
D) $220. 
A) $280. 
B) $260. 
C) $244. 
D) $220.

Question 9

In the basic 45-degree 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 10

If the multiplier is 4 and real GDP increases by $520 billion, the increase in investment spending must have been

Accepted Answer

A) $110 billion. 
B) $120 billion. 
C) $130 billion. 
D) $140 billion. 
A) $110 billion. 
B) $120 billion. 
C) $130 billion. 
D) $140 billion.

Question 11

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 12

In a simple macroeconomic model, only one component of expenditures is allowed to change:

Accepted Answer

A) investment. 
B) consumption. 
C) net exports. 
D) government spending. 
E) transfer payments. 
A) investment. 
B) consumption. 
C) net exports. 
D) government spending. 
E) transfer payments.

Question 13

The total expenditure schedule in Macroland begins with these initial levels (in billions of dollars): Income = 1,000; Consumption = 900; Investment = 200; Government = 300; Net Exports = −100.If the MPC = 0.75 and income increases in increments of 200, find the equilibrium level of income.If full employment requires an income level of 2,000, what (if anything) should the government do?
 Indicate both the direction of the spending change and the size of the spending change.

Accepted Answer

Initially, total expenditures equal 1,30

Question 14

When equilibrium real GDP falls short of potential GDP, there is a(n)

Accepted Answer

A) inflationary gap. 
B) potential gap. 
C) recessionary gap. 
D) precautionary gap. 
A) inflationary gap. 
B) potential gap. 
C) recessionary gap. 
D) precautionary gap.

Question 15

The equilibrium level of GDP is the level at which

Accepted Answer

A) aggregate demand exceeds output. 
B) aggregate demand equals output. 
C) aggregate demand is less than output. 
D) inventories are being depleted to meet demand. 
A) aggregate demand exceeds output. 
B) aggregate demand equals output. 
C) aggregate demand is less than output. 
D) inventories are being depleted to meet demand.

Question 16

What is meant by the concept of a "coordination failure" in macroeconomics?

Accepted Answer

When individual members of an economy re

Question 17

A change in the price level will cause a shift in the expenditure schedule.

Accepted Answer

A) True 
 B)False

Question 18

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.

Question 19

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.

Question 20

Economists before Keynes assumed that equilibrium GDP occurred

Accepted Answer

A) automatically. 
B) only with the help of government stabilization. 
C) if spending was generally greater than output. 
D) only in socialist economies with central planning. 
A) automatically. 
B) only with the help of government stabilization. 
C) if spending was generally greater than output. 
D) only in socialist economies with central planning.

Exam 26: Demand-Side Equilibrium: Unemployment or Inflation

By definition, total production must always equal total

Define the terms recessionary gap and inflationary gap.Why do they occur?

If firms are experiencing falling inventories, one can expect that firms will cut production.

When spending falls short of output, additional inventories are created.

The expenditure schedule and the aggregate demand curve show much the same thing, with one crucial difference-the price level.How does the price level affect the two schedules?

Movements along the consumption function are called

The expenditure schedule includes the consumption function.

If the level of investment spending increases by $100 and the MPC in the economy is 0.8, then the cumulative spending increase after three rounds of spending is

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

If the multiplier is 4 and real GDP increases by $520 billion, the increase in investment spending must have been

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

In a simple macroeconomic model, only one component of expenditures is allowed to change:

When equilibrium real GDP falls short of potential GDP, there is a(n)

The equilibrium level of GDP is the level at which

What is meant by the concept of a "coordination failure" in macroeconomics?

A change in the price level will cause a shift in the expenditure schedule.

45° line diagrams show how

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

Economists before Keynes assumed that equilibrium GDP occurred

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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