Question 1

Using the standard 45-degree line diagram, how does a decrease in net exports effect the expenditure schedule?

Accepted Answer

A)  It increases the slope of the expenditure schedule. 
B)  It decreases the slope of the expenditure schedule. 
C)  It shifts the expenditure schedule upward. 
D)  It shifts the expenditure schedule downward.

Question 2

In the real world, the actual multiplier is ____ the simplified multiplier.

Accepted Answer

A)  much larger than 
B)  slightly larger than 
C)  equal to 
D)  slightly smaller than 
E)  much smaller than

Question 3

Two variables that affect the slope of the aggregate demand curve are

Accepted Answer

A)  government purchases and real taxes. 
B)  tax rates and interest rates. 
C)  government purchases and interest rates. 
D)  exchange rates and income rates.

Question 4

Because of a recession in Japan, net exports from the United States decrease by $10 billion.If the MPC is 0.75, how much less spending will occur in the U.S.economy in the second "round" of spending?

Accepted Answer

A)  $17.5 billion 
B)  $10 billion 
C)  $7.5 billion 
D)  $5.0 billion

Question 5

In a market economy, the decisions about what to produce and how much of each good or service to produce are made by

Accepted Answer

A)  government officials. 
B)  economic planners. 
C)  central bankers. 
D)  consumers and producers.

Question 6

A level of GDP cannot be at equilibrium when aggregate demand exceeds output because firms will notice that

Accepted Answer

A)  inventory stocks are building up. 
B)  inventory stocks are being depleted. 
C)  their profits are negative. 
D)  many of their workers have little to do.

Question 7

Which of the following would be associated with an inflationary gap?

Accepted Answer

A)  interest rates too low 
B)  business expectations pessimistic 
C)  inventory levels too low 
D)  stock market crash 
E)  All of the above.

Question 8

The economic impact of a change in spending, working through the multiplier, takes effect

Accepted Answer

A)  immediately. 
B)  very quickly, with a small number of rounds of spending. 
C)  after a very long period of time. 
D)  after multiple rounds of spending occur.

Question 9

An increase in the U.S.price level (foreign prices held constant) will cause a leftward shift in the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 10

Table 9-1
 $\begin{array}{cccc}
 \underline {\text { Outgut} } &  \underline {\text { Consumption} } &  \underline {\text { Investment }} &  \underline {\text { Net Exports} } \
1000 & 800 & 500 & 100 \
1500 & 1200 & 500 & 100 \
2000 & 1600 & 500 & 100 \
2500 & 2000 & 500 & 100 \
3000 & 2400 & 500 & 100 \
3500 & 2800 & 500 & 100 \
4000& 3200& 500 & 100
\end{array}$
-In Table 9-1, inventories will be increasing as long as output is above

Accepted Answer

A)  1,000. 
B)  1,500. 
C)  2,000. 
D)  3,000.

Question 11

If total spending is less than total output, then price levels will

Accepted Answer

A)  rise and output will increase. 
B)  rise and output will decrease. 
C)  fall and output will increase. 
D)  fall and output will decrease.

Question 12

When the price level in the United States rises, then net exports should

Accepted Answer

A)  rise and equilibrium real GDP should increase. 
B)  fall and equilibrium real GDP should increase. 
C)  fall and equilibrium real GDP should decrease. 
D)  rise and equilibrium real GDP should decrease.

Question 13

The expenditure schedule and the aggregate demand curve show much the same thing, with one crucial difference-the price level.How does the price level affect the two schedules?

Accepted Answer

The answer of The expenditure schedule and the aggregate demand...

Question 14

Recessionary gaps are most likely to be accompanied by

Accepted Answer

A)  inflation. 
B)  inventory reductions. 
C)  unemployment. 
D)  expanding output.

Question 15

Define the terms recessionary gap and inflationary gap.Why do they occur?

Accepted Answer

The answer of Define the terms recessionary gap and inflationary...

Question 16

When equilibrium GDP falls below potential GDP, an inflationary gap exists.

Accepted Answer

A) True 
 B)False

Question 17

The basic reason for the multiplier effect is that, when you spend money,

Accepted Answer

A)  another person receives income. 
B)  another person must pay for it. 
C)  your money balances are reduced. 
D)  your net worth decreases.

Question 18

If the expenditure schedule must be shifted upward to reach potential GDP, then the economy is experiencing a(n)

Accepted Answer

A)  inflationary gap. 
B)  precautionary gap. 
C)  recessionary gap. 
D)  expansionary gap.

Question 19

Figure 9-3
 
-In Figure 9-3, at $5,000 billion GDP, inventories will be

Accepted Answer

A)  falling, signaling businesses to increase production. 
B)  accumulating, signaling businesses to increase production. 
C)  accumulating, signaling businesses to cut production. 
D)  falling, signaling businesses to cut production.

Question 20

Table 9-1
 $\begin{array}{cccc}
 \underline {\text { Outgut} } &  \underline {\text { Consumption} } &  \underline {\text { Investment }} &  \underline {\text { Net Exports} } \
1000 & 800 & 500 & 100 \
1500 & 1200 & 500 & 100 \
2000 & 1600 & 500 & 100 \
2500 & 2000 & 500 & 100 \
3000 & 2400 & 500 & 100 \
3500 & 2800 & 500 & 100 \
4000& 3200& 500 & 100
\end{array}$
-In Table 9-1, inventories are being depleted as long as output is below

Accepted Answer

A)  2,000. 
B)  2,500. 
C)  3,000. 
D)  3,500.

Exam 26: Demand-Side Equilibrium: Unemployment or Inflation?