Question 1

The reason for the multiplier effect is that

Accepted Answer

A) businesses make decisions about investment projects based on anticipated profits. 
B) one person's additional expenditure creates a new source of income for another person, and this additional income leads to still more spending. 
C) changes in government spending typically deepen recessions and exacerbate inflationary conditions in the economy. 
D) additional spending lowers the rate of interest and leads to further borrowing and spending.

Question 2

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 3

A major reason for the existence of inflationary and deflationary gaps is that

Accepted Answer

A) corporations do most of the nation's saving. 
B) saving and investing are done by people with no social conscience. 
C) consumers do most of the nation's saving. 
D) saving and investing are done by different groups.

Question 4

Using the standard 45-degree 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

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 6

The actual multiplier for the U.S.economy is estimated to be

Accepted Answer

A) about 10. 
B) approximately 5. 
C) between 3 and 4. 
D) less than 2.

Question 7

Investment spending

Accepted Answer

A) cannot be stimulated by decreasing the interest rate. 
B) is often the cause of business fluctuations in the United States. 
C) is a remarkably stable function of the level of real GDP. 
D) is the primary solution to recessions and inflations, according to John Maynard Keynes.

Question 8

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) All of the above are true.

Question 9

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 10

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 11

If an increase in investment of $100 billion generates an increase of $500 billion in real GDP, the multiplier is

Accepted Answer

A) 20. 
B) 50. 
C) 1.50. 
D) 5.00.

Question 12

The multiplier principle illustrates that

Accepted Answer

A) an increase in investment spending will be multiplied into a larger increase in GDP. 
B) an increase in GDP will be multiplied into a larger amount of investment spending. 
C) an increase in GDP will be multiplied into a larger increase in consumer spending. 
D) investment spending is always a multiple of consumer spending.

Question 13

The counterpart to the unsold output of firms is the lack of jobs for workers willing to work.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Equilibrium is the point where total spending equals total output, or GDP.

Accepted Answer

A) True 
 B)False

Question 16

A recessionary gap exists when the equilibrium level of GDP

Accepted Answer

A) falls short of potential GDP. 
B) equals potential GDP. 
C) exceeds potential GDP. 
D) causes inventory levels to fall.

Question 17

At the equilibrium level of income it must be true that total

Accepted Answer

A) income equals total spending. 
B) product equals total output. 
C) output equals total inventory. 
D) income equals total saving.

Question 18

The expenditure schedule will shift upward when

Accepted Answer

A) net exports decrease. 
B) net exports increase. 
C) total imports increase. 
D) total exports decrease.

Question 19

A decrease in the price level causes a lower equilibrium quantity demanded.

Accepted Answer

A) True 
 B)False

Question 20

Businesses in the United States cut their investment projects by $30 billion.If the MPC is 2, what will be the impact on the national income (Y)?

Accepted Answer

A) Y will fall by $15 billion. 
B) Y will fall by $30 billion. 
C) Y will fall by $60 billion. 
D) Y will fall by $120 billion.

Exam 26: Demand-Side Equilibrium: Unemployment or Inflation

The reason for the multiplier effect is that

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

A major reason for the existence of inflationary and deflationary gaps is that

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

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

The actual multiplier for the U.S.economy is estimated to be

Investment spending

Inventory reductions are a signal indicating that

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

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 an increase in investment of $100 billion generates an increase of $500 billion in real GDP, the multiplier is

The multiplier principle illustrates that

The counterpart to the unsold output of firms is the lack of jobs for workers willing to work.

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?

Equilibrium is the point where total spending equals total output, or GDP.

A recessionary gap exists when the equilibrium level of GDP

At the equilibrium level of income it must be true that total

The expenditure schedule will shift upward when

A decrease in the price level causes a lower equilibrium quantity demanded.

Businesses in the United States cut their investment projects by $30 billion.If the MPC is 2, what will be the impact on the national income (Y) ?