Question 1

In a closed economy that does not have international trade, the spending multiplier equals _____.

Accepted Answer

A) 1/MPS 
B) 1/MPC 
C) 1/(MPC-1) 
D) 1/(1-MPS) 
E) 1/(1+MPS)

Question 2

At each round of the multiplier process, increases in income:

Accepted Answer

A) leak out of the expenditures stream in the form of investment and taxes. 
B) leak out of the expenditures stream in the form of saving and imports. 
C) are matched by a smaller increase in expenditures. 
D) result in even greater increases in expenditures due to investment and exports. 
E) result in no change in total expenditures.

Question 3

Scenario 10.1 Imagine an economy that does not have international trade and is originally in equilibrium.Then the government increases the level of spending by $350 million because it received a gift from abroad.In this economy, only 65 cents of every dollar is spent, and the rest is saved.
Refer to Scenario 10.1.The new equilibrium level of GDP for the economy will be:

Accepted Answer

A) one billion higher. 
B) 350 millions higher. 
C) 65 millions higher. 
D) 227.5 millions higher. 
E) 227.5 millions lower.

Question 4

The percentage of a change in income that is spent domestically is:

Accepted Answer

A) the sum of the MPC and the MPI. 
B) the sum of the MPC and the MPS. 
C) the difference between the MPC and the MPI. 
D) the Difference between the MPC and the MPI. 
E) the sum of the MPS and the MPI.

Question 5

The table given below reports the value of real GDP and its components consumption (C), investment (I), exports, and imports for two consecutive years. Table 10.3
 Consider Table 10.3 to calculate the value of the MPC.

Accepted Answer

A) 0.75 
B) 0.67 
C) 0.25 
D) 0.33 
E) 0.80

Question 6

A major drawback of the Keynesian approach to macroeconomic equilibrium is the assumption that the supply of goods and services in the economy always adjusts to aggregate expenditures

Accepted Answer

A) True 
 B)False

Question 7

Suppose an economy operates at a real GDP level of $855, where saving = $400;investment = $95;government spending = $365;taxes = $130;imports = $210;exports = $170.Which of the following statements is true in the light of the given information?

Accepted Answer

A) Aggregate expenditures will fall, because total injections exceed total leakages by $110. 
B) Real GDP will increase, because total injections are less than $855. 
C) The economy will be in equilibrium, because leakages equal injections. 
D) Real GDP will fall, because total leakages exceed total injections by $110. 
E) Inventories will rise, because planned saving exceeds planned investment.

Question 8

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4
 Calculate the marginal propensity to save for the economy from the information given in Table 10.4.

Accepted Answer

A) 0.9 
B) 0.8 
C) 0.5 
D) 0.2 
E) 0.1

Question 9

The table given below shows the levels of national income (Y)and the corresponding levels of saving (S), investment (I), export (X), and import (M)of an open economy. Table 10.2
 Consider the economy described in Table 10.2.At an income level of $2, 100:

Accepted Answer

A) leakages exceed injections by $800. 
B) total output exceeds aggregate expenditures by $500. 
C) injections exceed leakages by $500. 
D) injections are equal to total output. 
E) aggregate expenditures exceed total output by $500.

Question 10

Savings are good for a family.If all families increase savings, the economy is better off.This fallacy of composition is called:

Accepted Answer

A) the paradox of time. 
B) the paradox of dissaving. 
C) the paradox of thrift. 
D) the paradox of value. 
E) the paradox of choice.

Question 11

Assume that a GDP gap can be closed by a $200 initial change in planned spending.The MPS is 0.3 and the MPI equals 0.1.If the economy is currently in equilibrium with an income level of $600, potential GDP equals:

Accepted Answer

A) $1, 600. 
B) $1, 100. 
C) $800. 
D) $600. 
E) $400.

Question 12

The figure given below shows the aggregate expenditure curve of an open economy. Figure 10.1  In the figure:
C1: Consumption
I1: Investment
G1: Government spending
X1: Net Exports
According to Figure 10.1, when real GDP is at G:

Accepted Answer

A) there is pressure for the economy to expand. 
B) there are unplanned reductions in inventory. 
C) aggregate expenditures are less than real GDP. 
D) the economy has achieved macroeconomic equilibrium. 
E) there is pressure for the economy to contract.

Question 13

The Keynesian region of the aggregate supply curve is:

Accepted Answer

A) horizontal. 
B) downward-sloping. 
C) upward-sloping. 
D) vertical. 
E) a 45-degree line.

Question 14

The portion of the aggregate supply curve that is a positive function of the general price level represents excess capacity and unemployed resources.

Accepted Answer

A) True 
 B)False

Question 15

If an economy consumes 75 percent of any increase in real GDP and spends 10 percent of this increased income on imports, then a decline in government spending by $60 million will result in a total reduction in equilibrium income of:

Accepted Answer

A) $171.43 million. 
B) $123.47 million. 
C) $151.63 million. 
D) $73.47 million. 
E) $71.43 million.

Question 16

When the price level in an economy falls, the demand for bonds and other nonmonetary financial assets rises.

Accepted Answer

A) True 
 B)False

Question 17

The figure given below shows the macroeconomic equilibrium of a country. Figure 10.7  Refer to Figure 10.7.What is the size of the GDP gap if potential GDP equals $3, 000?

Accepted Answer

A) $500 
B) $1, 000 
C) $2, 000 
D) $2, 500 
E) $3, 000

Question 18

Scenario 10.2 A hypothetical open economy has a marginal propensity to import (MPI)equal to 0.2 and a marginal propensity to consume equal to 0.7.Assume that the economy is initially in equilibrium.
Refer to Scenario 10.2.What is the marginal propensity to save of this economy?

Accepted Answer

A) 0.2 
B) 0.3 
C) 0.7 
D) 0.9 
E) 0.6

Question 19

If the spending multiplier equals 5 and equilibrium income is $2 billion below potential GDP, then _____ to reach the potential real GDP level.

Accepted Answer

A) total spending needs to increase by $0.1 billion 
B) real GDP needs to increase by $1.2 billion 
C) total spending needs to decrease by $6 billion 
D) real GDP needs to decrease by $12 billion 
E) total spending needs to increase by $0.4 billion

Question 20

Suppose the marginal propensity to consume is 0.63, the marginal propensity to import equals 0.08, and personal income taxes amount to 9 percent.The spending multiplier for this economy is equal to _____.

Accepted Answer

A) 0.54 
B) 0.80 
C) 1.25 
D) 1.41 
E) 1.85

Exam 15: Income and Expenditures Equilibrium

In a closed economy that does not have international trade, the spending multiplier equals _____.

At each round of the multiplier process, increases in income:

The percentage of a change in income that is spent domestically is:

The table given below reports the value of real GDP and its components consumption (C) , investment (I) , exports, and imports for two consecutive years. Table 10.3 Consider Table 10.3 to calculate the value of the MPC.

A major drawback of the Keynesian approach to macroeconomic equilibrium is the assumption that the supply of goods and services in the economy always adjusts to aggregate expenditures

Suppose an economy operates at a real GDP level of $855, where saving = $400;investment = $95;government spending = $365;taxes = $130;imports = $210;exports = $170.Which of the following statements is true in the light of the given information?

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4 Calculate the marginal propensity to save for the economy from the information given in Table 10.4.

The table given below shows the levels of national income (Y) and the corresponding levels of saving (S) , investment (I) , export (X) , and import (M) of an open economy. Table 10.2 Consider the economy described in Table 10.2.At an income level of $2, 100:

Savings are good for a family.If all families increase savings, the economy is better off.This fallacy of composition is called:

Assume that a GDP gap can be closed by a $200 initial change in planned spending.The MPS is 0.3 and the MPI equals 0.1.If the economy is currently in equilibrium with an income level of $600, potential GDP equals:

The figure given below shows the aggregate expenditure curve of an open economy. Figure 10.1 In the figure: C₁: Consumption I₁: Investment G₁: Government spending X₁: Net Exports According to Figure 10.1, when real GDP is at G:

The Keynesian region of the aggregate supply curve is:

The portion of the aggregate supply curve that is a positive function of the general price level represents excess capacity and unemployed resources.

If an economy consumes 75 percent of any increase in real GDP and spends 10 percent of this increased income on imports, then a decline in government spending by $60 million will result in a total reduction in equilibrium income of:

When the price level in an economy falls, the demand for bonds and other nonmonetary financial assets rises.

The figure given below shows the macroeconomic equilibrium of a country. Figure 10.7 Refer to Figure 10.7.What is the size of the GDP gap if potential GDP equals $3, 000?

Scenario 10.2 A hypothetical open economy has a marginal propensity to import (MPI) equal to 0.2 and a marginal propensity to consume equal to 0.7.Assume that the economy is initially in equilibrium. Refer to Scenario 10.2.What is the marginal propensity to save of this economy?

If the spending multiplier equals 5 and equilibrium income is $2 billion below potential GDP, then _____ to reach the potential real GDP level.

Suppose the marginal propensity to consume is 0.63, the marginal propensity to import equals 0.08, and personal income taxes amount to 9 percent.The spending multiplier for this economy is equal to _____.

Exam 15: Income and Expenditures Equilibrium

In a closed economy that does not have international trade, the spending multiplier equals _____.

At each round of the multiplier process, increases in income:

The percentage of a change in income that is spent domestically is:

The table given below reports the value of real GDP and its components consumption (C) , investment (I) , exports, and imports for two consecutive years. Table 10.3 Consider Table 10.3 to calculate the value of the MPC.

A major drawback of the Keynesian approach to macroeconomic equilibrium is the assumption that the supply of goods and services in the economy always adjusts to aggregate expenditures

Suppose an economy operates at a real GDP level of $855, where saving = $400;investment = $95;government spending = $365;taxes = $130;imports = $210;exports = $170.Which of the following statements is true in the light of the given information?

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4 Calculate the marginal propensity to save for the economy from the information given in Table 10.4.

The table given below shows the levels of national income (Y) and the corresponding levels of saving (S) , investment (I) , export (X) , and import (M) of an open economy. Table 10.2 Consider the economy described in Table 10.2.At an income level of $2, 100:

Savings are good for a family.If all families increase savings, the economy is better off.This fallacy of composition is called:

Assume that a GDP gap can be closed by a $200 initial change in planned spending.The MPS is 0.3 and the MPI equals 0.1.If the economy is currently in equilibrium with an income level of $600, potential GDP equals:

The figure given below shows the aggregate expenditure curve of an open economy. Figure 10.1 In the figure: C1: Consumption I1: Investment G1: Government spending X1: Net Exports According to Figure 10.1, when real GDP is at G:

The Keynesian region of the aggregate supply curve is:

The portion of the aggregate supply curve that is a positive function of the general price level represents excess capacity and unemployed resources.

If an economy consumes 75 percent of any increase in real GDP and spends 10 percent of this increased income on imports, then a decline in government spending by $60 million will result in a total reduction in equilibrium income of:

When the price level in an economy falls, the demand for bonds and other nonmonetary financial assets rises.

The figure given below shows the macroeconomic equilibrium of a country. Figure 10.7 Refer to Figure 10.7.What is the size of the GDP gap if potential GDP equals $3, 000?

Scenario 10.2 A hypothetical open economy has a marginal propensity to import (MPI) equal to 0.2 and a marginal propensity to consume equal to 0.7.Assume that the economy is initially in equilibrium. Refer to Scenario 10.2.What is the marginal propensity to save of this economy?

If the spending multiplier equals 5 and equilibrium income is $2 billion below potential GDP, then _____ to reach the potential real GDP level.

Suppose the marginal propensity to consume is 0.63, the marginal propensity to import equals 0.08, and personal income taxes amount to 9 percent.The spending multiplier for this economy is equal to _____.

The figure given below shows the aggregate expenditure curve of an open economy. Figure 10.1 In the figure: C₁: Consumption I₁: Investment G₁: Government spending X₁: Net Exports According to Figure 10.1, when real GDP is at G: