Question 1

If aggregate demand falls short of current output,business firms will ________ production to ________ inventories.

Accepted Answer

A) cut; keep from accumulating 
B) expand; keep from accumulating 
C) cut; build up 
D) expand; build up 
A) cut; keep from accumulating 
B) expand; keep from accumulating 
C) cut; build up 
D) expand; build up

Question 2

If actual output is greater than equilibrium output,firms will ________ output to keep from ________ inventories.

Accepted Answer

A) increase; accumulating 
B) increase; depleting 
C) decrease; depleting 
D) decrease; accumulating 
A) increase; accumulating 
B) increase; depleting 
C) decrease; depleting 
D) decrease; accumulating

Question 3

In the Keynesian framework,as long as output is ________ the equilibrium level,unplanned inventory investment will remain ________,firms will continue to lower production,and output will continue to fall.

Accepted Answer

A) below; negative 
B) above; negative 
C) below; positive 
D) above; positive 
A) below; negative 
B) above; negative 
C) below; positive 
D) above; positive

Question 4

The simple Keynesian model illustrates the idea that the economy can come to rest at a level of aggregate output

Accepted Answer

A) only at the full employment level. 
B) below the full employment level. 
C) only when the price level is fixed. 
D) only when wages are stable. 
A) only at the full employment level. 
B) below the full employment level. 
C) only when the price level is fixed. 
D) only when wages are stable.

Question 5

There are two types of investment: ________ investment-the spending by business firms on equipment and structures,and planned spending on residential houses-and ________ investment-spending by business firms on additional holdings of raw materials,parts,and finished goods.

Accepted Answer

A) planned; gross 
B) planned; inventory 
C) fixed; gross 
D) fixed; inventory 
A) planned; gross 
B) planned; inventory 
C) fixed; gross 
D) fixed; inventory

Question 6

An increase in unplanned inventory investment for the entire economy equals the excess of

Accepted Answer

A) output over aggregate supply. 
B) output over aggregate demand. 
C) aggregate supply over output. 
D) aggregate demand over output. 
A) output over aggregate supply. 
B) output over aggregate demand. 
C) aggregate supply over output. 
D) aggregate demand over output.

Question 7

If net exports decrease by 250 and the mpc is 0.75,equilibrium aggregate output

Accepted Answer

A) increases by 1000. 
B) increases by 750. 
C) decreases by 750. 
D) decreases by 1000. 
A) increases by 1000. 
B) increases by 750. 
C) decreases by 750. 
D) decreases by 1000.

Question 8

The ratio of the change in aggregate output to a change in planned investment spending is called

Accepted Answer

A) the marginal propensity to consume. 
B) autonomous consumer expenditure. 
C) the expenditure multiplier. 
D) unplanned inventory accumulation. 
A) the marginal propensity to consume. 
B) autonomous consumer expenditure. 
C) the expenditure multiplier. 
D) unplanned inventory accumulation.

Question 9

Everything else held constant,if aggregate output is to the ________ of the LM curve,then there is an excess demand of money which will cause the interest rate to ________.

Accepted Answer

A) right; fall 
B) right; rise 
C) left; fall 
D) left; rise 
A) right; fall 
B) right; rise 
C) left; fall 
D) left; rise

Question 10

Use the following situation (20-1) to answer the question : Assume a closed economy with no government.  Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
-Using the information in Situation 20-1,if aggregate output equals $8,000,the unplanned inventory investment equals

Accepted Answer

A) -$100 
B) $0 
C) $100 
D) $500 
A) -$100 
B) $0 
C) $100 
D) $500

Question 11

Use the following situation (20-2) to answer the question : Assume a closed economy.  Suppose that autonomous consumption equals $400, planned investment equals $500, government expenditure equals $200, net taxes equals $50, and the mpc equals 0.9.
-Using the information in situation 20-2,if government increases their spending by $50 and increases net taxes by 50,then equilibrium aggregate output will change by

Accepted Answer

A) -$100. 
B) -$50. 
C) $50. 
D) $100. 
A) -$100. 
B) -$50. 
C) $50. 
D) $100.

Question 12

Aggregate output is increased by a decrease in

Accepted Answer

A) autonomous consumption. 
B) government spending. 
C) planned investment. 
D) net taxes. 
A) autonomous consumption. 
B) government spending. 
C) planned investment. 
D) net taxes.

Question 13

Which of the following statements concerning Keynesian analysis is false?

Accepted Answer

A) Keynes's analysis started with the recognition that the total quantity demanded of an economy's output was the sum of four types of spending: consumer expenditure,planned investment spending,government spending,and net exports. 
B) Keynes recognized that equilibrium would occur in the economy when total quantity of output supplied equals quantity of output demanded (Yad),that is,when Y = Yad. 
C) Keynes's analysis involves explaining why aggregate output is at a certain level by understanding what factors affect each component of aggregate demand and how the sum of these components could add up to an output smaller than the economy is capable of producing,resulting in less than full employment. 
D) Keynes's analysis explains how the price level will change when the total quantity of output supplied changes. 
A) Keynes's analysis started with the recognition that the total quantity demanded of an economy's output was the sum of four types of spending: consumer expenditure,planned investment spending,government spending,and net exports. 
B) Keynes recognized that equilibrium would occur in the economy when total quantity of output supplied equals quantity of output demanded (Yad),that is,when Y = Yad. 
C) Keynes's analysis involves explaining why aggregate output is at a certain level by understanding what factors affect each component of aggregate demand and how the sum of these components could add up to an output smaller than the economy is capable of producing,resulting in less than full employment. 
D) Keynes's analysis explains how the price level will change when the total quantity of output supplied changes.

Question 14

It is convenient to separate actual investment into two categories when explaining how the equilibrium level of aggregate output is determined.These two categories are ________ investment and ________ investment.

Accepted Answer

A) planned; fixed 
B) financial; structural 
C) planned; unplanned 
D) planned; structural 
A) planned; fixed 
B) financial; structural 
C) planned; unplanned 
D) planned; structural

Question 15

If net exports increase by 250 and the mpc is 0.75,equilibrium aggregate output increases by

Accepted Answer

A) 250. 
B) 500. 
C) 750. 
D) 1000. 
A) 250. 
B) 500. 
C) 750. 
D) 1000.

Question 16

If net exports increase by 100 and the mpc is 0.75,equilibrium aggregate output increases by

Accepted Answer

A) 100. 
B) 250. 
C) 400. 
D) 750. 
A) 100. 
B) 250. 
C) 400. 
D) 750.

Question 17

The Federal Reserve increases interest rates when it wants to reduce aggregate demand to fight inflation.How do increases in the interest rate reduce aggregate demand?

Accepted Answer

Increases in interest rates reduce plann

Question 18

The multiplier effect means that a given change in ________ expenditures will change equilibrium ________ by an amount ________ than the initial change in autonomous expenditures.

Accepted Answer

A) autonomous; income; greater 
B) autonomous; income; less 
C) induced; income; greater 
D) induced; income; less 
A) autonomous; income; greater 
B) autonomous; income; less 
C) induced; income; greater 
D) induced; income; less

Question 19

Everything else held constant,if aggregate output is to the ________ of the IS curve,then there is an excess supply of goods which will cause aggregate output to ________.

Accepted Answer

A) right; fall 
B) right; rise 
C) left; fall 
D) left; rise 
A) right; fall 
B) right; rise 
C) left; fall 
D) left; rise

Question 20

If the consumption function is expressed as C = a + mpc × YD,then "a" represents

Accepted Answer

A) autonomous consumer expenditure. 
B) the marginal propensity to consume. 
C) the expenditure multiplier. 
D) disposable income. 
A) autonomous consumer expenditure. 
B) the marginal propensity to consume. 
C) the expenditure multiplier. 
D) disposable income.

Exam 20: The Islm Model

If aggregate demand falls short of current output,business firms will ________ production to ________ inventories.

If actual output is greater than equilibrium output,firms will ________ output to keep from ________ inventories.

In the Keynesian framework,as long as output is ________ the equilibrium level,unplanned inventory investment will remain ________,firms will continue to lower production,and output will continue to fall.

The simple Keynesian model illustrates the idea that the economy can come to rest at a level of aggregate output

There are two types of investment: ________ investment-the spending by business firms on equipment and structures,and planned spending on residential houses-and ________ investment-spending by business firms on additional holdings of raw materials,parts,and finished goods.

An increase in unplanned inventory investment for the entire economy equals the excess of

If net exports decrease by 250 and the mpc is 0.75,equilibrium aggregate output

The ratio of the change in aggregate output to a change in planned investment spending is called

Everything else held constant,if aggregate output is to the ________ of the LM curve,then there is an excess demand of money which will cause the interest rate to ________.

Aggregate output is increased by a decrease in

Which of the following statements concerning Keynesian analysis is false?

It is convenient to separate actual investment into two categories when explaining how the equilibrium level of aggregate output is determined.These two categories are ________ investment and ________ investment.

If net exports increase by 250 and the mpc is 0.75,equilibrium aggregate output increases by

If net exports increase by 100 and the mpc is 0.75,equilibrium aggregate output increases by

The Federal Reserve increases interest rates when it wants to reduce aggregate demand to fight inflation.How do increases in the interest rate reduce aggregate demand?

The multiplier effect means that a given change in ________ expenditures will change equilibrium ________ by an amount ________ than the initial change in autonomous expenditures.

Everything else held constant,if aggregate output is to the ________ of the IS curve,then there is an excess supply of goods which will cause aggregate output to ________.

If the consumption function is expressed as C = a + mpc × YD,then "a" represents

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises and the Subprime Meltdown

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools for Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Demand for Money

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

Filters

If aggregate demand falls short of current output,business firms will production to inventories.

If actual output is greater than equilibrium output,firms will output to keep from inventories.

In the Keynesian framework,as long as output is the equilibrium level,unplanned inventory investment will remain ,firms will continue to lower production,and output will continue to fall.

There are two types of investment: investment-the spending by business firms on equipment and structures,and planned spending on residential houses-and investment-spending by business firms on additional holdings of raw materials,parts,and finished goods.

Everything else held constant,if aggregate output is to the of the LM curve,then there is an excess demand of money which will cause the interest rate to .

It is convenient to separate actual investment into two categories when explaining how the equilibrium level of aggregate output is determined.These two categories are investment and investment.

The multiplier effect means that a given change in expenditures will change equilibrium by an amount than the initial change in autonomous expenditures.

Everything else held constant,if aggregate output is to the of the IS curve,then there is an excess supply of goods which will cause aggregate output to .

If the consumption function is expressed as C = a + mpc × Y_D,then "a" represents