Question 1

A rightward shift of the investment demand curve translates into an upward shift of the investment schedule in the aggregate expenditures model.

Accepted Answer

A) True 
 B)False

Question 2

What is the likely result from a depreciation of a nation's currency when its economy is already operating at its full-employment level of output?

Accepted Answer

A)  Net exports fall and contribute to demand-pull inflation 
B)  Net exports rise and contribute to demand-pull inflation 
C)  Net exports fall, but equilibrium GDP rises 
D)  Net exports rise, but equilibrium GDP falls 
A)  Net exports fall and contribute to demand-pull inflation 
B)  Net exports rise and contribute to demand-pull inflation 
C)  Net exports fall, but equilibrium GDP rises 
D)  Net exports rise, but equilibrium GDP falls

Question 3

Refer to the graph above for a private closed economy. At the $150-billion level of GDP:

Accepted Answer

A)  Aggregate expenditures are less than real GDP, so GDP will rise 
B)  Aggregate expenditures are more than real GDP, so GDP will fall 
C)  Aggregate expenditures are more than real GDP, so GDP will rise 
D)  Aggregate expenditures will be equal to GDP, so there will be no change in GDP 
A)  Aggregate expenditures are less than real GDP, so GDP will rise 
B)  Aggregate expenditures are more than real GDP, so GDP will fall 
C)  Aggregate expenditures are more than real GDP, so GDP will rise 
D)  Aggregate expenditures will be equal to GDP, so there will be no change in GDP

Question 4

One major point that Keynes raised pertains to income and spending. He argued that:

Accepted Answer

A)  All income is often spent in the same period of time 
B)  Oftentimes, people spend more than their incomes 
C)  The marginal propensity to spend out of additional income is quite volatile 
D)  Pessimism could cause aggregate spending to fall short of total output 
A)  All income is often spent in the same period of time 
B)  Oftentimes, people spend more than their incomes 
C)  The marginal propensity to spend out of additional income is quite volatile 
D)  Pessimism could cause aggregate spending to fall short of total output

Question 5

If the MPC is 0.80, all taxes are lump-sum taxes, and the equilibrium GDP is $25 billion below the full-employment GDP, then the size of the recessionary expenditure gap is:

Accepted Answer

A)  $2 billion 
B)  $4 billion 
C)  $5 billion 
D)  $6 billion 
A)  $2 billion 
B)  $4 billion 
C)  $5 billion 
D)  $6 billion

Question 6

If a lump-sum tax of $40 billion is levied at each level of income and the MPC is 0.75, then the saving schedule will shift:

Accepted Answer

A)  Upward by $10 billion 
B)  Upward by $25 billion 
C)  Downward by $10 billion 
D)  Downward by $25 billion 
A)  Upward by $10 billion 
B)  Upward by $25 billion 
C)  Downward by $10 billion 
D)  Downward by $25 billion

Question 7

All figures below are in billions of dollars.   Refer to the table above. When there is no investment in this private closed economy, the equilibrium level of GDP will be:

Accepted Answer

A)  $240 billion 
B)  $250 billion 
C)  $260 billion 
D)  $270 billion 
A)  $240 billion 
B)  $250 billion 
C)  $260 billion 
D)  $270 billion

Question 8

In a recessionary expenditure gap, the equilibrium level of real GDP is:

Accepted Answer

A)  Less than planned aggregate expenditures 
B)  Greater than planned aggregate expenditures 
C)  Greater than full-employment GDP 
D)  Less than full-employment GDP 
A)  Less than planned aggregate expenditures 
B)  Greater than planned aggregate expenditures 
C)  Greater than full-employment GDP 
D)  Less than full-employment GDP

Question 9

If actual investment exceeds planned investment in a private closed economy, then:

Accepted Answer

A)  Real GDP will decrease 
B)  Real GDP will increase 
C)  Saving exceeds planned investment 
D)  There is an unplanned decrease in inventories 
A)  Real GDP will decrease 
B)  Real GDP will increase 
C)  Saving exceeds planned investment 
D)  There is an unplanned decrease in inventories

Question 10

In the Great Recession of 2007-2009, the Federal government enacted a "stimulus package" that was intended to bring inflation down.

Accepted Answer

A) True 
 B)False

Question 11

The table shows a private closed economy. All figures are in billions of dollars.   Refer to the table above. If the real rate of interest is 2%, then the equilibrium level of GDP will be:

Accepted Answer

A)  $800 billion 
B)  $1000 billion 
C)  $1200 billion 
D)  $1400 billion 
A)  $800 billion 
B)  $1000 billion 
C)  $1200 billion 
D)  $1400 billion

Question 12

If a government raises its expenditures by $50 billion and at the same time levies a lump-sum tax of $50 billion, the net effect on the economy will be to:

Accepted Answer

A)  Increase GDP by less than $50 billion 
B)  Increase GDP by more than $50 billion 
C)  Increase GDP by $50 billion 
D)  Make no change in GDP 
A)  Increase GDP by less than $50 billion 
B)  Increase GDP by more than $50 billion 
C)  Increase GDP by $50 billion 
D)  Make no change in GDP

Question 13

Saving is $15 billion at the $125 billion equilibrium level of output in a closed, private economy. Actual investment must be:

Accepted Answer

A)  Less than saving 
B)  Greater than saving 
C)  Equal to $15 billion 
D)  Equal to $125 billion 
A)  Less than saving 
B)  Greater than saving 
C)  Equal to $15 billion 
D)  Equal to $125 billion

Question 14

A recessionary expenditure gap is the amount by which aggregate expenditures must increase in order to reach the full-employment level of GDP.

Accepted Answer

A) True 
 B)False

Question 15

In a private closed economy, the equilibrium condition for the economy is:

Accepted Answer

A)  AE = C + Ig = GDP 
B)  AE = G + Ig = GDP 
C)  AE = C + Ig + G = GDP 
D)  C + Ig + G + NX = GDP 
A)  AE = C + Ig = GDP 
B)  AE = G + Ig = GDP 
C)  AE = C + Ig + G = GDP 
D)  C + Ig + G + NX = GDP

Question 16

To close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0.8, it would be necessary to:

Accepted Answer

A)  Decrease the aggregate expenditures schedule by $20 billion 
B)  Decrease the aggregate expenditures schedule by $4 billion 
C)  Increase the aggregate expenditures schedule by $20 billion 
D)  Increase the aggregate expenditures schedule by $4 billion 
A)  Decrease the aggregate expenditures schedule by $20 billion 
B)  Decrease the aggregate expenditures schedule by $4 billion 
C)  Increase the aggregate expenditures schedule by $20 billion 
D)  Increase the aggregate expenditures schedule by $4 billion

Question 17

All figures in the table below are in billions.   Refer to the above data. The equilibrium level of GDP in this private open economy is:

Accepted Answer

A)  $550 billion 
B)  $600 billion 
C)  $650 billion 
D)  $700 billion 
A)  $550 billion 
B)  $600 billion 
C)  $650 billion 
D)  $700 billion

Question 18

A decrease in taxes will have a larger effect on equilibrium GDP if the marginal propensity to consume is smaller.

Accepted Answer

A) True 
 B)False

Question 19

The following data show levels of planned variables for an economy. Ig = Investment; Sa = Saving after taxes; G = Government spending; T = Taxation; X = Exports; M = Imports. What is the equilibrium level of domestic output?

Accepted Answer

A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D 
A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D

Question 20

In the aggregate expenditures model, the consumption schedule is shown to be:

Accepted Answer

A)  Directly related to real interest rates 
B)  Inversely related to real interest rates 
C)  Directly related to real income GDP 
D)  Inversely related to real income GDP 
A)  Directly related to real interest rates 
B)  Inversely related to real interest rates 
C)  Directly related to real income GDP 
D)  Inversely related to real income GDP

Exam 11: The Aggregate Expenditures Model

A rightward shift of the investment demand curve translates into an upward shift of the investment schedule in the aggregate expenditures model.

What is the likely result from a depreciation of a nation's currency when its economy is already operating at its full-employment level of output?

Refer to the graph above for a private closed economy. At the $150-billion level of GDP:

One major point that Keynes raised pertains to income and spending. He argued that:

If the MPC is 0.80, all taxes are lump-sum taxes, and the equilibrium GDP is $25 billion below the full-employment GDP, then the size of the recessionary expenditure gap is:

If a lump-sum tax of $40 billion is levied at each level of income and the MPC is 0.75, then the saving schedule will shift:

All figures below are in billions of dollars. Refer to the table above. When there is no investment in this private closed economy, the equilibrium level of GDP will be:

In a recessionary expenditure gap, the equilibrium level of real GDP is:

If actual investment exceeds planned investment in a private closed economy, then:

In the Great Recession of 2007-2009, the Federal government enacted a "stimulus package" that was intended to bring inflation down.

The table shows a private closed economy. All figures are in billions of dollars. Refer to the table above. If the real rate of interest is 2%, then the equilibrium level of GDP will be:

If a government raises its expenditures by $50 billion and at the same time levies a lump-sum tax of $50 billion, the net effect on the economy will be to:

Saving is $15 billion at the $125 billion equilibrium level of output in a closed, private economy. Actual investment must be:

A recessionary expenditure gap is the amount by which aggregate expenditures must increase in order to reach the full-employment level of GDP.

In a private closed economy, the equilibrium condition for the economy is:

To close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0.8, it would be necessary to:

All figures in the table below are in billions. Refer to the above data. The equilibrium level of GDP in this private open economy is:

A decrease in taxes will have a larger effect on equilibrium GDP if the marginal propensity to consume is smaller.

The following data show levels of planned variables for an economy. Ig = Investment; Sa = Saving after taxes; G = Government spending; T = Taxation; X = Exports; M = Imports. What is the equilibrium level of domestic output?

In the aggregate expenditures model, the consumption schedule is shown to be:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

The following data show levels of planned variables for an economy. I_g = Investment; S_a = Saving after taxes; G = Government spending; T = Taxation; X = Exports; M = Imports. What is the equilibrium level of domestic output?