Question 1

Which of the following is associated with an increase in the average price level?

Accepted Answer

A) A decrease in the aggregate quantity demanded 
B) An increase in the aggregate quantity demanded 
C) A leftward shift of the aggregate demand curve 
D) A rightward shift of the aggregate demand curve 
E) Aggregate quantity demanded remains unchanged but the aggregate expenditures curve shifts leftward. 
A) A decrease in the aggregate quantity demanded 
B) An increase in the aggregate quantity demanded 
C) A leftward shift of the aggregate demand curve 
D) A rightward shift of the aggregate demand curve 
E) Aggregate quantity demanded remains unchanged but the aggregate expenditures curve shifts leftward.

Question 2

Given a constant GDP gap, the higher the spending multiplier, the smaller will be the recessionary gap.

Accepted Answer

A) True 
 B)False

Question 3

Scenario 10.2 A hypothetical open economy has a marginal propensity to import (MPI)equal to 0.2 and a marginal propensity to consume equal to 0.7.Assume that the economy is initially in equilibrium.
Refer to Scenario 10.2.What is the spending multiplier of this economy?

Accepted Answer

A) 2 
B) 1.4 
C) 0.7 
D) 0.9 
E) Cannot be determined with the information given 
A) 2 
B) 1.4 
C) 0.7 
D) 0.9 
E) Cannot be determined with the information given

Question 4

In general, autonomous spending increases have a lower multiplier effect on real GDP when the economy is open to international trade.

Accepted Answer

A) True 
 B)False

Question 5

Suppose equilibrium income decreases by $600 as a result of a change in government spending.If the multiplier is 3, what is the change in government spending?

Accepted Answer

A) Government sending will decrease by $1, 800 
B) Government sending will decrease by $600 
C) Government sending will decrease by $200 
D) Government sending will increase by $400 
E) Government sending will increase by $1, 200 
A) Government sending will decrease by $1, 800 
B) Government sending will decrease by $600 
C) Government sending will decrease by $200 
D) Government sending will increase by $400 
E) Government sending will increase by $1, 200

Question 6

An increase in U.S.imports from Mexico will cause a decrease in income for Mexican individuals and businesses.

Accepted Answer

A) True 
 B)False

Question 7

If Saving+Tax+Import > Investment+Government spending+Export, then _____ must fall to establish macroeconomic equilibrium.

Accepted Answer

A) net exports 
B) gross exports 
C) nominal GDP 
D) real GDP 
E) government spending 
A) net exports 
B) gross exports 
C) nominal GDP 
D) real GDP 
E) government spending

Question 8

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.The equilibrium value of imports in year 1 is:

Accepted Answer

A) $1, 600 
B) $1, 450. 
C) $1, 400. 
D) $1, 300. 
E) $1, 200. 
A) $1, 600 
B) $1, 450. 
C) $1, 400. 
D) $1, 300. 
E) $1, 200.

Question 9

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.Starting at equilibrium level E3 equilibrium level E1 will be reached if aggregate expenditure:

Accepted Answer

A) decreases by $200. 
B) increases by $200. 
C) decreases by $100. 
D) increases by $100. 
E) increases by $50. 
A) decreases by $200. 
B) increases by $200. 
C) decreases by $100. 
D) increases by $100. 
E) increases by $50.

Question 10

In an economy that has no foreign trade, if real GDP declines by $160 million following a decline in investment spending of $40 million, then the marginal propensity to consume must be equal to _____.

Accepted Answer

A) 2 
B) 0.33 
C) 4 
D) 0.75 
E) 0.4 
A) 2 
B) 0.33 
C) 4 
D) 0.75 
E) 0.4

Question 11

Suppose the multiplier effect for Japan is 0.8 for any $1 billion change in U.S.government purchases.Therefore, Japanese real GDP will rise by $8 billion when U.S.government spending rises by $10 billion.

Accepted Answer

A) True 
 B)False

Question 12

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.To increase equilibrium real GDP in an open economy to $12, 000 in year 3, all else equal to that in year 2, investment would have to increase by:

Accepted Answer

A) $258. 
B) $550. 
C) $2, 262. 
D) $1, 100. 
E) $1, 155. 
A) $258. 
B) $550. 
C) $2, 262. 
D) $1, 100. 
E) $1, 155.

Question 13

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.What is the equilibrium level of real GDP?

Accepted Answer

A) $935 
B) $2, 100 
C) $3, 320 
D) $4, 800 
E) $5, 230 
A) $935 
B) $2, 100 
C) $3, 320 
D) $4, 800 
E) $5, 230

Question 14

What is the value of the spending multiplier when MPC = 0.85 and MPI = 0.3?

Accepted Answer

A) 1.82 
B) 0.85 
C) 2.22 
D) 1.18 
E) 2.50 
A) 1.82 
B) 0.85 
C) 2.22 
D) 1.18 
E) 2.50

Exam 15: Income and Expenditures Equilibrium

Which of the following is associated with an increase in the average price level?

Given a constant GDP gap, the higher the spending multiplier, the smaller will be the recessionary gap.

Scenario 10.2 A hypothetical open economy has a marginal propensity to import (MPI)equal to 0.2 and a marginal propensity to consume equal to 0.7.Assume that the economy is initially in equilibrium. Refer to Scenario 10.2.What is the spending multiplier of this economy?

In general, autonomous spending increases have a lower multiplier effect on real GDP when the economy is open to international trade.

Suppose equilibrium income decreases by $600 as a result of a change in government spending.If the multiplier is 3, what is the change in government spending?

An increase in U.S.imports from Mexico will cause a decrease in income for Mexican individuals and businesses.

If Saving+Tax+Import > Investment+Government spending+Export, then _____ must fall to establish macroeconomic equilibrium.

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.The equilibrium value of imports in year 1 is:

In an economy that has no foreign trade, if real GDP declines by $160 million following a decline in investment spending of $40 million, then the marginal propensity to consume must be equal to _____.

Suppose the multiplier effect for Japan is 0.8 for any $1 billion change in U.S.government purchases.Therefore, Japanese real GDP will rise by $8 billion when U.S.government spending rises by $10 billion.

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.What is the equilibrium level of real GDP?

What is the value of the spending multiplier when MPC = 0.85 and MPI = 0.3?

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

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