Question 1

In a simple economy (no government), the vertical distance between the consumption function and the expenditure schedule measures

Accepted Answer

A)  undesired inventory depletion. 
B)  planned investment 
C)  undesired investment. 
D)  unintended investment.

Question 2

Figure 9-4

In Figure 9-4, if the economy faces an inflationary gap, what must happen to reach potential GDP?

Accepted Answer

A)  The expenditure level must rise and/or the price level must rise. 
B)  The expenditure level must rise and/or the price level must fall. 
C)  The expenditure level must fall and/or the price level must fall. 
D)  The expenditure level must fall and/or the price level must rise.

Question 3

Equilibrium GDP occurs when total spending equals total output.

Accepted Answer

A) True 
 B)False

Question 4

Using the standard 45° line diagram, how does a decrease in investment spending 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 downward. 
D)  It shifts the expenditure schedule upward.

Question 5

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 6

When income rises, total expenditures remain constant.

Accepted Answer

A) True 
 B)False

Question 7

Carefully define the following terms and explain their importance in the study of macroeconomics: 
a. Expenditure schedule 
b. Saving schedule 
c. Equilibrium GDP 
d. Leakages schedule 
e. Injections schedule

Accepted Answer

The answer of Carefully define the following terms and explain...

Question 8

If net exports are reduced, the expenditure schedule will shift

Accepted Answer

A)  downward and equilibrium real GDP will rise. 
B)  upward and equilibrium real GDP will rise. 
C)  downward and equilibrium real GDP will fall. 
D)  upward and equilibrium real GDP will fall.

Question 9

When inventories accumulate, unemployment rises.

Accepted Answer

A) True 
 B)False

Question 10

According to Baumol and Blinder, from the demand side, an increase in the price level causes aggregate expenditures to

Accepted Answer

A)  fall, resulting in a lower level of equilibrium income. 
B)  fall, resulting in a higher level of equilibrium income. 
C)  rise, resulting in a higher level of equilibrium income. 
D)  rise, resulting in a lower level of equilibrium income.

Question 11

Figure 9-5

If the shift in the C + I + (X − IM) in Figure 9-5 was caused by a 80 dollar increase in investment, then the multiplier is

Accepted Answer

A)  0 
B)  2 
C)  3 
D)  4 
E)  5

Question 12

Why do booms and recessions tend to be transmitted across national borders?

Accepted Answer

The answer of Why do booms and recessions tend to...

Question 13

The multiplier can be expressed as the ratio of the change in Y over the change in I.

Accepted Answer

A) True 
 B)False

Question 14

According to Baumol and Blinder, the real-world multiplier will be smaller than 1/(1 − MPC) because the 1/(1 − MPC) measure is based on

Accepted Answer

A)  a model that ignores inflation associated with the expansion of income. 
B)  a model that adds taxes that tend to change as income changes. 
C)  a model that adds the effects of international trade. 
D)  a model that ignores the prices government faces

Question 15

The aggregate demand curve is directly derived from the expenditures schedule.

Accepted Answer

A) True 
 B)False

Question 16

One of the primary functions of markets could be labeled

Accepted Answer

A)  stimulation. 
B)  coordination. 
C)  planification. 
D)  decentralization.

Question 17

Savings and taxes are considered leakages in the circular flow model.

Accepted Answer

A) True 
 B)False

Question 18

Assume a simple macroeconomic model. When inventories rise unexpectedly,

Accepted Answer

A)  income is above its equilibrium value. 
B)  income will rise until it reaches its equilibrium value. 
C)  total spending is higher than total output. 
D)  total output is less than spending.

Question 19

Inventory reductions are a signal indicating that

Accepted Answer

A)  the economy is close to disaster. 
B)  the Dow Jones Industrial Average will fall. 
C)  manufacturers need to increase production. 
D)  producers need to lower prices.

Question 20

An economic recession in Japan will cause the aggregate demand curve in the United States to shift to the right.

Accepted Answer

A) True 
 B)False

Exam 25: Demand-Side Equilibrium: Unemployment or Inflation

In a simple economy (no government) , the vertical distance between the consumption function and the expenditure schedule measures

Figure 9-4 In Figure 9-4, if the economy faces an inflationary gap, what must happen to reach potential GDP?

Equilibrium GDP occurs when total spending equals total output.

Using the standard 45° line diagram, how does a decrease in investment spending effect the expenditure schedule?

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

When income rises, total expenditures remain constant.

Carefully define the following terms and explain their importance in the study of macroeconomics: a. Expenditure schedule b. Saving schedule c. Equilibrium GDP d. Leakages schedule e. Injections schedule

If net exports are reduced, the expenditure schedule will shift

When inventories accumulate, unemployment rises.

According to Baumol and Blinder, from the demand side, an increase in the price level causes aggregate expenditures to

Figure 9-5 If the shift in the C + I + (X − IM) in Figure 9-5 was caused by a 80 dollar increase in investment, then the multiplier is

Why do booms and recessions tend to be transmitted across national borders?

The multiplier can be expressed as the ratio of the change in Y over the change in I.

According to Baumol and Blinder, the real-world multiplier will be smaller than 1/(1 − MPC) because the 1/(1 − MPC) measure is based on

The aggregate demand curve is directly derived from the expenditures schedule.

One of the primary functions of markets could be labeled

Savings and taxes are considered leakages in the circular flow model.

Assume a simple macroeconomic model. When inventories rise unexpectedly,

Inventory reductions are a signal indicating that

An economic recession in Japan will cause the aggregate demand curve in the United States to shift to the right.