Question 1

Equal increases in government expenditures and tax collections will leave the equilibrium GDP unchanged.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following will not occur when the economy is at its equilibrium GDP level?

Accepted Answer

A) Aggregate expenditures = GDP. 
B) Inventories will be zero. 
C) Saving equals planned investment. 
D) There are no unplanned changes in inventories.

Question 3

In the aggregate expenditures model, the equilibrium GDP is

Accepted Answer

A) assumed to be equal to the potential GDP level. 
B) not necessarily equal to the full-employment GDP. 
C) always above the potential GDP level. 
D) always less than the full-employment GDP level.

Question 4

An exchange rate

Accepted Answer

A) is the ratio of the dollar volume of a nation's exports to the dollar volume of its imports. 
B) measures the interest rate ratios of any two nations. 
C) is the amount that one nation must export to obtain $1 worth of imports. 
D) is the price that the currencies of any two nations exchange for one another.

Question 5

A rightward shift of the investment demand curve will

Accepted Answer

A) shift the investment schedule downward. 
B) shift the investment schedule upward. 
C) decrease the quantity of investment. 
D) decrease the real rate of interest.

Question 6

If the MPS is 0.25 and the economy has a recessionary expenditure gap of $5 billion, then equilibrium GDP is

Accepted Answer

A) $5 billion below the full-employment GDP. 
B) $5 billion above the full-employment GDP. 
C) $20 billion below the full-employment GDP. 
D) $20 billion above the full-employment GDP.

Question 7

The steeper is the consumption schedule in an economy, the larger will be the multiplier.

Accepted Answer

A) True 
 B)False

Question 8

When aggregate expenditure is greater than GDP, then there will be an

Accepted Answer

A) unplanned increase in inventories and GDP will increase. 
B) unplanned decrease in inventories and GDP will increase. 
C) unplanned increase in inventories and GDP will decrease. 
D) unplanned decrease in inventories and GDP will decrease.

Question 9

If C + Ig exceeds GDP in a private closed economy, GDP will decline.

Accepted Answer

A) True 
 B)False

Question 10

In a mixed open economy, if aggregate expenditures exceed GDP,

Accepted Answer

A) Ig + X + G = Ca . 
B) Ca + Ig + Xn + G  S. 
D) I g + X + G > Sa + M + T.

Question 11

Assume in a closed economy that the equilibrium level of income is $380 and the MPS is 0.25.Now suppose government collects taxes of $50 and spends the entire amount.As a result,

Accepted Answer

A) the equilibrium level of real income and the price level will both remain unchanged. 
B) the equilibrium level of income will remain unchanged. 
C) the equilibrium level of income will rise to $420. 
D) the equilibrium level of income will rise to $430.

Question 12

A lump-sum tax means that

Accepted Answer

A) the tax only applies to one time period. 
B) the same amount of tax revenue is collected at each level of GDP. 
C) tax revenues vary directly with GDP. 
D) tax revenues vary inversely with GDP.

Question 13

GDP C S Ig $100 $100 $0 $80
200 160 40 80
300 220 80 80
400 280 120 80
500 340 160 80
600 400 200 80
700 460 240 80
Refer to the accompanying information for a closed economy.The introduction of $80 billion of government spending would

Accepted Answer

A) lower the multiplier from 2.5 to 2.0. 
B) increase the multiplier from 2.5 to 3.0. 
C) increase the multiplier from 2.0 to 2.5. 
D) have no effect on the size of the multiplier.

Question 14

If the marginal propensity to consume in an economy is 0.8, net exports are zero, and government spending is $33 billion at each level of real GDP, the slope of the economy's aggregate expenditures schedule will be

Accepted Answer

A) 0.8. 
B) 0.2. 
C) 5. 
D) 0.125.

Question 15

A newspaper story states, "For the fourth straight quarter, the nation purchased more goods from abroad than ever before." The event described would

Accepted Answer

A) increase the equilibrium level of GDP. 
B) decrease the equilibrium level of GDP. 
C) make no change in the equilibrium level of GDP. 
D) increase, decrease, or make no change in the equilibrium level of GDP; we cannot tell from the information given.

Question 16

A recessionary expenditure gap in a mixed open economy can be measured as the extent to which aggregate expenditures (Ca + Ig + Xn + G) fall short of real GDP at the full-employment level of real GDP.

Accepted Answer

A) True 
 B)False

Question 17

In the aggregate expenditures model of a private closed economy, if aggregate expenditures are greater than output or income, then real GDP will increase toward its equilibrium level.

Accepted Answer

A) True 
 B)False

Question 18

Graphically, the height of the investment schedule depends on the real interest rate, together with the location of the investment demand curve.

Accepted Answer

A) True 
 B)False

Question 19

In the aggregate expenditures model of a private closed economy, we analyze a consumption schedule and an investment schedule, both of which indicate that as income increases then consumption and investment will increase.

Accepted Answer

A) True 
 B)False

Question 20

If the expected rates of return from investment decrease in an economy, there would most likely be a downward shift in the investment schedule for that economy.

Accepted Answer

A) True 
 B)False

Exam 31: The Aggregate Expenditures Model

Equal increases in government expenditures and tax collections will leave the equilibrium GDP unchanged.

Which of the following will not occur when the economy is at its equilibrium GDP level?

In the aggregate expenditures model, the equilibrium GDP is

An exchange rate

A rightward shift of the investment demand curve will

If the MPS is 0.25 and the economy has a recessionary expenditure gap of $5 billion, then equilibrium GDP is

The steeper is the consumption schedule in an economy, the larger will be the multiplier.

When aggregate expenditure is greater than GDP, then there will be an

If C + Ig exceeds GDP in a private closed economy, GDP will decline.

In a mixed open economy, if aggregate expenditures exceed GDP,

Assume in a closed economy that the equilibrium level of income is $380 and the MPS is 0.25.Now suppose government collects taxes of $50 and spends the entire amount.As a result,

A lump-sum tax means that

GDP C S Ig $100 $100 $0 $80 200 160 40 80 300 220 80 80 400 280 120 80 500 340 160 80 600 400 200 80 700 460 240 80 Refer to the accompanying information for a closed economy.The introduction of $80 billion of government spending would

If the marginal propensity to consume in an economy is 0.8, net exports are zero, and government spending is $33 billion at each level of real GDP, the slope of the economy's aggregate expenditures schedule will be

A newspaper story states, "For the fourth straight quarter, the nation purchased more goods from abroad than ever before." The event described would

A recessionary expenditure gap in a mixed open economy can be measured as the extent to which aggregate expenditures (Ca + Ig + Xn + G) fall short of real GDP at the full-employment level of real GDP.

In the aggregate expenditures model of a private closed economy, if aggregate expenditures are greater than output or income, then real GDP will increase toward its equilibrium level.

Graphically, the height of the investment schedule depends on the real interest rate, together with the location of the investment demand curve.

In the aggregate expenditures model of a private closed economy, we analyze a consumption schedule and an investment schedule, both of which indicate that as income increases then consumption and investment will increase.

If the expected rates of return from investment decrease in an economy, there would most likely be a downward shift in the investment schedule for that economy.