Question 1

A decrease in the government expenditures will:

Accepted Answer

A)  shift the aggregate expenditures line upwards and shift the aggregate demand curve to the left. 
B)  shift the aggregate expenditures line upwards and shift the aggregate demand curve to the right. 
C)  shift the aggregate expenditures line downwards and shift the aggregate demand curve to the left. 
D)  shift the aggregate expenditures line downwards and shift the aggregate demand curve to the right.

Question 2

-Refer to Table 11.5. If both G and T decrease by 100, equilibrium output will:

Accepted Answer

A)  decrease by 200. 
B)  decrease by 100. 
C)  increase by 100. 
D)  stay the same.

Question 3

Suppose that the marginal propensity to consume in Montavada is 0.75.
(a) If taxes were reduced by $1,000 in Montavada, by how much would equilibrium output change?
(b) If government spending were increased by $1,000 in Montavada, by how much would equilibrium output change?
(c) Explain why a tax cut of $1,000 would have less effect on the economy of Montavada than an increase in government spending of $1,000.

Accepted Answer

The answer of Suppose that the marginal propensity to consume...

Question 4

Suppose the consumption function is represented as follows: C = 200 + 0.75Y. If Y increases by $100, then consumption would increase by:

Accepted Answer

A)  $70. 
B)  $75. 
C)  $80. 
D)  $90.

Question 5

If you save $20 when you experience a $200 rise in your income:

Accepted Answer

A)  your marginal propensity to consume is 0.1. 
B)  your marginal propensity to consume is 0.9. 
C)  your marginal propensity to save is 0.2. 
D)  your marginal propensity to save is 0.8.

Question 6

Assuming there is no government or foreign sector, if the multiplier is 2.5, the marginal propensity to consume must be:

Accepted Answer

A)  0.6. 
B)  0.8. 
C)  0.25. 
D)  2.5.

Question 7

Define equilibrium as the term is used in macroeconomics.

Accepted Answer

The answer of Define equilibrium as the term is used...

Question 8

Figure 11.1
-Refer to Figure 11.1. If the expenditures in the economy correspond to C + I, what should businesses do to get back to equilibrium if the economy is at point c?

Accepted Answer

A)  decrease production, because expenditures exceed production 
B)  increase production, because expenditures exceed production 
C)  decrease production, because expenditures are less than production 
D)  increase production, because expenditures are less than production

Question 9

Recall Application 1, "Falling Home Prices, the Wealth Effect, and Decreased Consumer Spending," to answer the following questions:
-According to the application, from 1997- 2006, the largest increase in net wealth for most families in the US came from:

Accepted Answer

A)  bankruptcy. 
B)  home equity. 
C)  auto loans. 
D)  credit card debt.

Question 10

Discuss an important difference between the government spending multiplier and the tax multiplier.

Accepted Answer

The answer of Discuss an important difference between the government...

Question 11

If Jack received a $1,000 bonus and his marginal propensity to save is 0.15, his consumption rises by _______ and his saving rises by _______ .

Accepted Answer

A)  $1,000; $150 
B)  $150; $500 
C)  $850; $150 
D)  $150; $850

Question 12

When the consumption function is expressed as C = 200 + .75(1- t)y where t =0.2, then an increase in income y by 100 will result in an increase in consumption by:

Accepted Answer

A)  75. 
B)  60. 
C)  80. 
D)  15.

Question 13

Assume there is no government or foreign sector. If the multiplier is 5, a $10 billion increase in investment will cause equilibrium output to increase by:

Accepted Answer

A)  $10 billion. 
B)  $200 billion. 
C)  $5 billion. 
D)  $50 billion.

Question 14

Recall Application 2, "Using Long-Term Macro Data to Measure Multipliers," to answer the following questions:
-According to the application, the multiplier for government spending _______ during periods of high unemployment.

Accepted Answer

A)  was less than the multiplier for investment spending 
B)  was larger 
C)  was smaller 
D)  was zero

Question 15

Recall Application 1, "Falling Home Prices, the Wealth Effect, and Decreased Consumer Spending," to answer the
following questions:
-According to the application, since 2006, the nationwide decrease in home values averaged _______ from their peaks.

Accepted Answer

A)  30 percent 
B)  80 percent 
C)  70 percent 
D)  20 percent

Question 16

The marginal propensity to import is

Accepted Answer

A)  positive because firms will produce more goods and services as income rises. 
B)  positive because consumers will export more goods and services as income rises. 
C)  positive because consumers will import more goods and services as income rises. 
D)  positive because consumers will import less goods and services as income rises.

Question 17

An unexpected decrease in inventories has:

Accepted Answer

A)  no effect on future production. 
B)  a positive effect on current production. 
C)  a negative effect on future production. 
D)  a positive effect on future production.

Question 18

Suppose that planned expenditure is less than aggregate output. Explain the process by which the economy moves toward equilibrium.

Accepted Answer

The answer of Suppose that planned expenditure is less than...

Question 19

Show why the balanced- budget multiplier equals one.

Accepted Answer

The answer of Show why the balanced- budget multiplier equals...

Question 20

-Refer to Table 11.6. In this example, the government spending multiplier is:

Accepted Answer

A)  1. 
B)  - 2. 
C)  0.5. 
D)  2.

Exam 11: The Income-Expenditure Model

A decrease in the government expenditures will:

-Refer to Table 11.5. If both G and T decrease by 100, equilibrium output will:

Suppose the consumption function is represented as follows: C = 200 + 0.75Y. If Y increases by $100, then consumption would increase by:

If you save $20 when you experience a $200 rise in your income:

Assuming there is no government or foreign sector, if the multiplier is 2.5, the marginal propensity to consume must be:

Define equilibrium as the term is used in macroeconomics.

Figure 11.1 -Refer to Figure 11.1. If the expenditures in the economy correspond to C + I, what should businesses do to get back to equilibrium if the economy is at point c?

Recall Application 1, "Falling Home Prices, the Wealth Effect, and Decreased Consumer Spending," to answer the following questions: -According to the application, from 1997- 2006, the largest increase in net wealth for most families in the US came from:

Discuss an important difference between the government spending multiplier and the tax multiplier.

If Jack received a $1,000 bonus and his marginal propensity to save is 0.15, his consumption rises by _ and his saving rises by _ .

When the consumption function is expressed as C = 200 + .75(1- t) y where t =0.2, then an increase in income y by 100 will result in an increase in consumption by: