Question 1

The effect throughout the entire economy of one individual's increase in spending will be

Accepted Answer

A) less than the individual's spending. 
B) equal to the individual's spending. 
C) greater than the individual's spending. 
D) offset by another individual's saving. 
A) less than the individual's spending. 
B) equal to the individual's spending. 
C) greater than the individual's spending. 
D) offset by another individual's saving.

Question 2

According to Baumol and Blinder, from the demand side a decrease in the price level causes aggregate expenditures to

Accepted Answer

A) fall, resulting in a lower level of equilibrium income. 
B) fall, resulting in a higher level of equilibrium income. 
C) rise, resulting in a higher level of equilibrium income. 
D) rise, resulting in a lower level of equilibrium income. 
A) fall, resulting in a lower level of equilibrium income. 
B) fall, resulting in a higher level of equilibrium income. 
C) rise, resulting in a higher level of equilibrium income. 
D) rise, resulting in a lower level of equilibrium income.

Question 3

Two variables that affect the slope of the aggregate demand curve are

Accepted Answer

A) government purchases and real taxes. 
B) tax rates and interest rates. 
C) government purchases and interest rates. 
D) exchange rates and income rates. 
A) government purchases and real taxes. 
B) tax rates and interest rates. 
C) government purchases and interest rates. 
D) exchange rates and income rates.

Question 4

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 5

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

Accepted Answer

The multiplier is the ratio of the chang

Question 6

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

Accepted Answer

A) There will be movement to the left on the expenditure line. 
B) There will be movement to the right on the expenditure line. 
C) The expenditure line will shift downward. 
D) The expenditure line will shift upward. 
A) There will be movement to the left on the expenditure line. 
B) There will be movement to the right on the expenditure line. 
C) The expenditure line will shift downward. 
D) The expenditure line will shift upward.

Question 7

If total spending is less than the value of total output, firms

Accepted Answer

A) may decide to cut prices. 
B) may increase production levels. 
C) will tend to raise prices. 
D) will notice inventories falling. 
A) may decide to cut prices. 
B) may increase production levels. 
C) will tend to raise prices. 
D) will notice inventories falling.

Question 8

An expenditure schedule that lies below the full employment level of GDP will cause

Accepted Answer

A) rising prices. 
B) increasing output. 
C) falling inventories. 
D) falling prices. 
A) rising prices. 
B) increasing output. 
C) falling inventories. 
D) falling prices.

Question 9

Figure 9-5
  
-If the shift in the C + I + (X − IM) in Figure 9-5 was caused by a 80 dollar increase in investment, then the multiplier is

Accepted Answer

A) 0. 
B) 2. 
C) 3. 
D) 4. 
E) 5. 
A) 0. 
B) 2. 
C) 3. 
D) 4. 
E) 5.

Question 10

If the economy is suffering a recession, inventories are probably falling.

Accepted Answer

A) True 
 B)False

Question 11

Investment spending might be larger when GDP is higher.Such added investment as GDP rises is called

Accepted Answer

A) mutual investment. 
B) induced investment. 
C) positive investment. 
D) net investment. 
A) mutual investment. 
B) induced investment. 
C) positive investment. 
D) net investment.

Question 12

The federal government could stimulate investment spending by

Accepted Answer

A) phasing out the depreciation allowance on corporate income taxes. 
B) enacting an investment tax credit. 
C) reinstating the windfall profits tax. 
D) reducing the tax rate on capital gains. 
E) Both b and d are correct. 
A) phasing out the depreciation allowance on corporate income taxes. 
B) enacting an investment tax credit. 
C) reinstating the windfall profits tax. 
D) reducing the tax rate on capital gains. 
E) Both b and d are correct.

Question 13

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 14

To avoid a coordination failure, the intentions of savers and investors must be both

Accepted Answer

A) increasing. 
B) at their planned levels. 
C) more than full employment GDP. 
D) at levels set by the government. 
A) increasing. 
B) at their planned levels. 
C) more than full employment GDP. 
D) at levels set by the government.

Question 15

If an economy at the equilibrium level of GDP experiences an increase in the amount of investment spending, then inventories will be

Accepted Answer

A) depleted, causing firms to cut production. 
B) accumulated, causing firms to cut production. 
C) depleted, causing firms to increase production. 
D) accumulated, causing firms to expand production. 
A) depleted, causing firms to cut production. 
B) accumulated, causing firms to cut production. 
C) depleted, causing firms to increase production. 
D) accumulated, causing firms to expand production.

Question 16

-In Table 9-1, at output of 4,000, inventories are

Accepted Answer

A) decreasing by 200. 
B) increasing by 200. 
C) increasing by 300. 
D) decreasing by 300. 
A) decreasing by 200. 
B) increasing by 200. 
C) increasing by 300. 
D) decreasing by 300.

Question 17

If net exports decrease, the expenditure schedule will

Accepted Answer

A) get steeper. 
B) get flatter. 
C) shift upward. 
D) shift downward. 
A) get steeper. 
B) get flatter. 
C) shift upward. 
D) shift downward.

Question 18

Assume that the MPC is .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 19

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

Accepted Answer

A) True 
 B)False

Question 20

If the multiplier is 4, a decrease in spending equal to $80 billion will be accompanied by a decrease in GDP of

Accepted Answer

A) $480 billion. 
B) $320 billion. 
C) $240 billion. 
D) $84 billion. 
E) $48 billion. 
A) $480 billion. 
B) $320 billion. 
C) $240 billion. 
D) $84 billion. 
E) $48 billion.

Exam 26: Demand-Side Equilibrium: Unemployment or Inflation

The effect throughout the entire economy of one individual's increase in spending will be

According to Baumol and Blinder, from the demand side a decrease in the price level causes aggregate expenditures to

Two variables that affect the slope of the aggregate demand curve are

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

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

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

If total spending is less than the value of total output, firms

An expenditure schedule that lies below the full employment level of GDP will cause

Figure 9-5 -If the shift in the C + I + (X − IM) in Figure 9-5 was caused by a 80 dollar increase in investment, then the multiplier is

If the economy is suffering a recession, inventories are probably falling.

Investment spending might be larger when GDP is higher.Such added investment as GDP rises is called

The federal government could stimulate investment spending by

The basic idea behind the multiplier is that an increase in

To avoid a coordination failure, the intentions of savers and investors must be both

If an economy at the equilibrium level of GDP experiences an increase in the amount of investment spending, then inventories will be

-In Table 9-1, at output of 4,000, inventories are

If net exports decrease, the expenditure schedule will

Assume that the MPC is .9 and investment falls by $30 billion.What is the change in real GDP?

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

If the multiplier is 4, a decrease in spending equal to $80 billion will be accompanied by a decrease in GDP of

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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