Question 1

The U.S.economy in 2009 was characterized by an excess level of output.This corresponds to a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 2

According to Baumol and Blinder, from the demand side an increase 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

An economic recession in Japan will cause the aggregate demand curve in the United States to shift to the right.

Accepted Answer

A) True 
 B)False

Question 4

In the standard 45-degree line expenditure model, the C + I line and the C line are parallel because,

Accepted Answer

A) all I is assumed to be autonomous. 
B) all I is assumed to be induced. 
C) consumption depends on disposable income. 
D) I rises with GDP at the same rate as C. 
A) all I is assumed to be autonomous. 
B) all I is assumed to be induced. 
C) consumption depends on disposable income. 
D) I rises with GDP at the same rate as C.

Question 5

One of the possible consequences of the expenditure schedule lying below the level of full employment GDP is

Accepted Answer

A) unemployment. 
B) rising prices. 
C) increasing production. 
D) decreasing inventories. 
A) unemployment. 
B) rising prices. 
C) increasing production. 
D) decreasing inventories.

Question 6

Figure 9-1
  
-In Figure 9-1,

Accepted Answer

A) the 45-degree line represents all points where spending equals output. 
B) to the left of equilibrium GDP, inventories will fall. 
C) to the right of equilibrium GDP, inventories will rise. 
D) All of the above are correct. 
A) the 45-degree line represents all points where spending equals output. 
B) to the left of equilibrium GDP, inventories will fall. 
C) to the right of equilibrium GDP, inventories will rise. 
D) All of the above are correct.

Question 7

Equilibrium GDP will not exist where output exceeds aggregate demand because businesses will notice that

Accepted Answer

A) their profits are positive. 
B) inventory stocks are building up. 
C) inventory stocks are being depleted. 
D) their level of depreciation is rising. 
A) their profits are positive. 
B) inventory stocks are building up. 
C) inventory stocks are being depleted. 
D) their level of depreciation is rising.

Question 8

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 9

The main examples of macroeconomic coordination failures are

Accepted Answer

A) profit declines. 
B) relative price changes. 
C) recessions and depressions. 
D) consumer taste changes. 
A) profit declines. 
B) relative price changes. 
C) recessions and depressions. 
D) consumer taste changes.

Question 10

If the MPC is .67, then the oversimplified multiplier is

Accepted Answer

A) 7.60. 
B) 6.70. 
C) 3.00. 
D) 33. 
A) 7.60. 
B) 6.70. 
C) 3.00. 
D) 33.

Question 11

Producers will change their prices when GDP is at the equilibrium level.

Accepted Answer

A) True 
 B)False

Question 12

When constructing a basic macroeconomic model, several assumptions (not realistic, but necessary to simplify the analysis) are made.Which of the following are assumed to be constant?

Accepted Answer

A) the price level 
B) the rate of interest 
C) the foreign exchange rate 
D) the level of government spending 
E) All of the above are held constant. 
A) the price level 
B) the rate of interest 
C) the foreign exchange rate 
D) the level of government spending 
E) All of the above are held constant.

Question 13

The economic impact of a change in spending, working through the multiplier, takes effect

Accepted Answer

A) immediately. 
B) very quickly, with a small number of rounds of spending. 
C) after a very long period of time. 
D) after multiple rounds of spending occur. 
A) immediately. 
B) very quickly, with a small number of rounds of spending. 
C) after a very long period of time. 
D) after multiple rounds of spending occur.

Question 14

If the amount that consumers wish to save at the full employment level of income is greater than the amount that businesses plan to invest, then

Accepted Answer

A) there will be an inflationary gap. 
B) there will be a recessionary gap. 
C) total demand will exceed potential GDP. 
D) the economy will move to a higher level of output. 
A) there will be an inflationary gap. 
B) there will be a recessionary gap. 
C) total demand will exceed potential GDP. 
D) the economy will move to a higher level of output.

Question 15

The equilibrium level of GDP is always accompanied by full employment and stable prices.

Accepted Answer

A) True 
 B)False

Question 16

The MPC in the U.S.economy has been estimated to be near 0.95.If this is an accurate measure, then the numerical value for the multiplier would be

Accepted Answer

A) 0.9. 
B) 1.8. 
C) 9.5. 
D) 10.0. 
E) 20.0. 
A) 0.9. 
B) 1.8. 
C) 9.5. 
D) 10.0. 
E) 20.0.

Question 17

For a simple economy (no government, no foreign sector), the condition for equilibrium can be stated correctly as

Accepted Answer

A) saving equals actual investment. 
B) saving equals inventory accumulation. 
C) saving equals planned investment. 
D) inventory accumulation equals planned investment. 
A) saving equals actual investment. 
B) saving equals inventory accumulation. 
C) saving equals planned investment. 
D) inventory accumulation equals planned investment.

Question 18

Why does an increase in the price level cause a decrease in real GDP demanded?

Accepted Answer

A) Consumer wealth increases. 
B) Net exports will increase. 
C) Interest rates decrease and cause higher investment. 
D) Net exports will decrease. 
A) Consumer wealth increases. 
B) Net exports will increase. 
C) Interest rates decrease and cause higher investment. 
D) Net exports will decrease.

Question 19

In a simplified circular flow model with no government, in equilibrium, S = I + (X − IM).

Accepted Answer

A) True 
 B)False

Question 20

In comparison to the oversimplified formula for the multiplier, the real-world multiplier is

Accepted Answer

A) lower. 
B) higher. 
C) almost equal to it. 
D) higher if taxes are included. 
A) lower. 
B) higher. 
C) almost equal to it. 
D) higher if taxes are included.

Exam 26: Demand-Side Equilibrium: Unemployment or Inflation

The U.S.economy in 2009 was characterized by an excess level of output.This corresponds to a recessionary gap.

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

An economic recession in Japan will cause the aggregate demand curve in the United States to shift to the right.

In the standard 45-degree line expenditure model, the C + I line and the C line are parallel because,

One of the possible consequences of the expenditure schedule lying below the level of full employment GDP is

Figure 9-1 -In Figure 9-1,

Equilibrium GDP will not exist where output exceeds aggregate demand because businesses will notice that

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

The main examples of macroeconomic coordination failures are

If the MPC is .67, then the oversimplified multiplier is

Producers will change their prices when GDP is at the equilibrium level.

When constructing a basic macroeconomic model, several assumptions (not realistic, but necessary to simplify the analysis) are made.Which of the following are assumed to be constant?

The economic impact of a change in spending, working through the multiplier, takes effect

If the amount that consumers wish to save at the full employment level of income is greater than the amount that businesses plan to invest, then

The equilibrium level of GDP is always accompanied by full employment and stable prices.

The MPC in the U.S.economy has been estimated to be near 0.95.If this is an accurate measure, then the numerical value for the multiplier would be

For a simple economy (no government, no foreign sector), the condition for equilibrium can be stated correctly as

Why does an increase in the price level cause a decrease in real GDP demanded?

In a simplified circular flow model with no government, in equilibrium, S = I + (X − IM).

In comparison to the oversimplified formula for the multiplier, the real-world multiplier is

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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