Question 1

If the equilibrium level of income is solely a function of aggregate supply, then the aggregate supply curve must be in the Keynesian region.

Accepted Answer

A) True 
 B)False

Question 2

If the MPS equals 0.25 and the MPI is 0.15, then an initial change in investment spending of $250 million will result in a total change in equilibrium real GDP of $625 million.

Accepted Answer

A) True 
 B)False

Question 3

The table given below reports the value of real GDP and its components consumption (C), investment (I), exports, and imports for two consecutive years. Table 10.3
  Refer to Table 10.3.What will be the value of the spending multiplier?

Accepted Answer

A) 1 
B) 0.47 
C) 5 
D) 1.25 
E) 2.13 
A) 1 
B) 0.47 
C) 5 
D) 1.25 
E) 2.13

Question 4

Which of the following can be considered an injection that can offset leakages in an economy and help it attain equilibrium?

Accepted Answer

A) Imports 
B) Investment 
C) Aid to foreign countries 
D) Saving 
E) Taxes 
A) Imports 
B) Investment 
C) Aid to foreign countries 
D) Saving 
E) Taxes

Question 5

The figure given below represents the leakages and injections in an economy. Figure 10.2   In the figure:
I, I1: Investment;
G: Government spending;
EX, EX1: Exports;
T: Taxes;and
M: Imports.
Refer to Figure 10.2.A decline in total injections by $10:

Accepted Answer

A) will cause equilibrium income to rise to $400. 
B) will result in a disequilibrium of $200 in the economy. 
C) will cause the total leakages curve to shift inward by $10. 
D) will cause equilibrium income to fall to $300. 
E) will not affect equilibrium income. 
A) will cause equilibrium income to rise to $400. 
B) will result in a disequilibrium of $200 in the economy. 
C) will cause the total leakages curve to shift inward by $10. 
D) will cause equilibrium income to fall to $300. 
E) will not affect equilibrium income.

Question 6

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4
  Refer to Table 10.4.Given a potential GDP of $6, 000, the recessionary gap equals _____.

Accepted Answer

A) $200 
B) $400 
C) $1, 000 
D) $2, 000 
E) $5, 000 
A) $200 
B) $400 
C) $1, 000 
D) $2, 000 
E) $5, 000

Question 7

The table given below shows the levels of national income (Y)and the corresponding levels of saving (S), investment (I), export (X), and import (M)of an open economy. Table 10.2
  Consider the economy described in Table 10.2.Calculate the level of consumption spending when the economy is in equilibrium.

Accepted Answer

A) $4, 425 
B) $4, 010 
C) $4, 050 
D) $5, 175 
E) $4, 800 
A) $4, 425 
B) $4, 010 
C) $4, 050 
D) $5, 175 
E) $4, 800

Question 8

According to economists, the fixed-price model of macroeconomic equilibrium depicts the modern economy most closely because it assumes that aggregate supply is independent of price.

Accepted Answer

A) True 
 B)False

Question 9

The Keynesian region of the aggregate supply curve explains the situation experienced during the Great Depression.Therefore, we can conclude that the Great Depression was characterized by:

Accepted Answer

A) high unemployment and low inflation. 
B) low unemployment and low inflation. 
C) low unemployment and high inflation. 
D) high unemployment and high inflation. 
E) excess capacity but no unemployment or inflation. 
A) high unemployment and low inflation. 
B) low unemployment and low inflation. 
C) low unemployment and high inflation. 
D) high unemployment and high inflation. 
E) excess capacity but no unemployment or inflation.

Question 10

Suppose for an economy, investment = $40;saving = $50, government spending + exports = 100;and taxes + imports = $110.Then for this economy, total leakages exceed total injections by $20, so there will be pressure for the economy to contract.

Accepted Answer

A) True 
 B)False

Question 11

In reality, the simple spending multiplier [1/(MPS+MPI)] is applicable only to countries whose imports are a substantial fraction of income in foreign countries.

Accepted Answer

A) True 
 B)False

Question 12

Leakages are greater than injections when total planned expenditures exceed real GDP.

Accepted Answer

A) True 
 B)False

Question 13

Injections represent outflows of planned expenditures from the real GDP stream.

Accepted Answer

A) True 
 B)False

Question 14

The figure given below depicts macroeconomic equilibrium in a closed economy.Assume that the spending multiplier in this economy is 1.5. Figure 10.5   Refer to Figure 10.5.Suppose that instead of there being a recessionary gap, the economy is characterized by an equilibrium real GDP level of $900 that exceeds the natural unemployment or potential real GDP level by $600.This so-called expansionary gap can be closed by:

Accepted Answer

A) increasing planned aggregate expenditures by $400. 
B) lowering government purchases by $600. 
C) lowering autonomous consumption spending by $400. 
D) increasing planned aggregate expenditures by $900. 
E) lowering autonomous net exports by $600. 
A) increasing planned aggregate expenditures by $400. 
B) lowering government purchases by $600. 
C) lowering autonomous consumption spending by $400. 
D) increasing planned aggregate expenditures by $900. 
E) lowering autonomous net exports by $600.

Question 15

Assume that an economy is in equilibrium with a budget deficit of $130 billion, positive net exports of $453 billion, and a saving level of $1, 550 billion.If taxes are zero, then planned investment spending must be equal to:

Accepted Answer

A) $1, 550 billion. 
B) $130 billion. 
C) $1, 873 billion. 
D) $1, 227 billion. 
E) $967 billion. 
A) $1, 550 billion. 
B) $130 billion. 
C) $1, 873 billion. 
D) $1, 227 billion. 
E) $967 billion.

Question 16

Scenario 10.1 Imagine an economy that does not have international trade and is originally in equilibrium.Then the government increases the level of spending by $350 million because it received a gift from abroad.In this economy, only 65 cents of every dollar is spent, and the rest is saved.
What is the marginal propensity to consume for the economy described in Scenario 10.1?

Accepted Answer

A) 0.45 
B) 0.85 
C) 0.65 
D) 0.35 
E) Cannot be determined 
A) 0.45 
B) 0.85 
C) 0.65 
D) 0.35 
E) Cannot be determined

Question 17

The figure given below represents the macroeconomic equilibrium in the aggregate income and aggregate expenditure framework.Assume that MPI is equal to zero. Figure 10.4   In the figure:
C: Consumption
I1 and I2: Investment
G: Government Spending
X: Exports
Refer to Figure 10.4.Compute the increase in investment spending from I1 to I2.

Accepted Answer

A) $600. 
B) $100. 
C) $200. 
D) $400. 
E) $300. 
A) $600. 
B) $100. 
C) $200. 
D) $400. 
E) $300.

Question 18

The figure given below shows the aggregate expenditure curve of an open economy. Figure 10.1   In the figure:
C1: Consumption
I1: Investment
G1: Government spending
X1: Net Exports
Consider the economy described in Figure 10.1.Which of the following is true if the real GDP is equal to 0H?

Accepted Answer

A) Aggregate expenditures are greater than total income. 
B) All economic resources are being used efficiently. 
C) Households are dissaving an amount equal to DC. 
D) Businesses accumulate unwanted inventories. 
E) Unplanned investment will decline. 
A) Aggregate expenditures are greater than total income. 
B) All economic resources are being used efficiently. 
C) Households are dissaving an amount equal to DC. 
D) Businesses accumulate unwanted inventories. 
E) Unplanned investment will decline.

Question 19

In macroeconomics, equilibrium is defined as the point at which:

Accepted Answer

A) the economy attains the highest level of GDP. 
B) there is no unemployment in the economy. 
C) people's plans match the reality. 
D) people adjust their behavior to match plans with reality. 
E) there is no inflation in the economy. 
A) the economy attains the highest level of GDP. 
B) there is no unemployment in the economy. 
C) people's plans match the reality. 
D) people adjust their behavior to match plans with reality. 
E) there is no inflation in the economy.

Question 20

Everything else constant, the international trade effect indicates that aggregate expenditures in the domestic economy fall when:

Accepted Answer

A) domestic prices fall relative to foreign prices. 
B) domestic interest rates fall relative to foreign interest rates. 
C) domestic prices rise relative to foreign prices. 
D) domestic purchasing power rises relative to foreign purchasing power. 
E) domestic interest rates rise relative to foreign interest rates. 
A) domestic prices fall relative to foreign prices. 
B) domestic interest rates fall relative to foreign interest rates. 
C) domestic prices rise relative to foreign prices. 
D) domestic purchasing power rises relative to foreign purchasing power. 
E) domestic interest rates rise relative to foreign interest rates.

Exam 15: Income and Expenditures Equilibrium

If the equilibrium level of income is solely a function of aggregate supply, then the aggregate supply curve must be in the Keynesian region.

If the MPS equals 0.25 and the MPI is 0.15, then an initial change in investment spending of $250 million will result in a total change in equilibrium real GDP of $625 million.

The table given below reports the value of real GDP and its components consumption (C), investment (I), exports, and imports for two consecutive years. Table 10.3 Refer to Table 10.3.What will be the value of the spending multiplier?

Which of the following can be considered an injection that can offset leakages in an economy and help it attain equilibrium?

The figure given below represents the leakages and injections in an economy. Figure 10.2 In the figure: I, I1: Investment; G: Government spending; EX, EX1: Exports; T: Taxes;and M: Imports. Refer to Figure 10.2.A decline in total injections by $10:

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4 Refer to Table 10.4.Given a potential GDP of $6, 000, the recessionary gap equals _____.

According to economists, the fixed-price model of macroeconomic equilibrium depicts the modern economy most closely because it assumes that aggregate supply is independent of price.

The Keynesian region of the aggregate supply curve explains the situation experienced during the Great Depression.Therefore, we can conclude that the Great Depression was characterized by:

Suppose for an economy, investment = $40;saving = $50, government spending + exports = 100;and taxes + imports = $110.Then for this economy, total leakages exceed total injections by $20, so there will be pressure for the economy to contract.

In reality, the simple spending multiplier [1/(MPS+MPI)] is applicable only to countries whose imports are a substantial fraction of income in foreign countries.

Leakages are greater than injections when total planned expenditures exceed real GDP.

Injections represent outflows of planned expenditures from the real GDP stream.

Assume that an economy is in equilibrium with a budget deficit of $130 billion, positive net exports of $453 billion, and a saving level of $1, 550 billion.If taxes are zero, then planned investment spending must be equal to:

The figure given below shows the aggregate expenditure curve of an open economy. Figure 10.1 In the figure: C1: Consumption I1: Investment G1: Government spending X1: Net Exports Consider the economy described in Figure 10.1.Which of the following is true if the real GDP is equal to 0H?

In macroeconomics, equilibrium is defined as the point at which:

Everything else constant, the international trade effect indicates that aggregate expenditures in the domestic economy fall when:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

The figure given below represents the leakages and injections in an economy. Figure 10.2 In the figure: I, I₁: Investment; G: Government spending; EX, EX₁: Exports; T: Taxes;and M: Imports. Refer to Figure 10.2.A decline in total injections by $10:

The figure given below shows the aggregate expenditure curve of an open economy. Figure 10.1 In the figure: C₁: Consumption I₁: Investment G₁: Government spending X₁: Net Exports Consider the economy described in Figure 10.1.Which of the following is true if the real GDP is equal to 0H?