Question 1

The most influential book by John Maynard Keynes is The Wealth of Nations.

Accepted Answer

A) True 
 B)False  False

Question 2

Disposable income and real GDP behave the same way because

Accepted Answer

A)  taxes and transfer payments are not proportional to income. 
B)  disposable income is the same as real GDP. 
C)  taxes and transfer payments are less than 10 percent of income. 
D)  taxes and transfer payments are nearly proportional to income. 
E)  taxes and transfer payments are a negligible fraction of income. 
A)  taxes and transfer payments are not proportional to income. 
B)  disposable income is the same as real GDP. 
C)  taxes and transfer payments are less than 10 percent of income. 
D)  taxes and transfer payments are nearly proportional to income. 
E)  taxes and transfer payments are a negligible fraction of income. D

Question 3

A macroeconomic theory that stresses the fact that shifts in potential GDP are a primary cause of fluctuations in real GDP is known as

Accepted Answer

A)  potential GDP theory. 
B)  real business cycle theory. 
C)  economic cycle theory. 
D)  perennial growth theory. 
E)  None of these 
A)  potential GDP theory. 
B)  real business cycle theory. 
C)  economic cycle theory. 
D)  perennial growth theory. 
E)  None of these B

Question 4

Answer the questions below:
(A)Suppose your boss gives you a $100 raise. Identify the three categories or uses among which you will divide the $100. Hint: Do you get to keep the entire $100?
(B)Suppose the consumption function is C = 100 + 75YD, where YD is disposable income. Prove that the marginal propensity to save is 0.25.

Accepted Answer

(A)Consumption, saving, and ta

Question 5

When does the slope of the expenditure line equal the MPC?

Accepted Answer

The expenditure line is parallel to the

Question 6

The recession that began in December 2007 has been

Accepted Answer

A)  longer lasting and much more severe than the 2001 recession. 
B)  shorter than the 2001 recession, but much more severe. 
C)  longer lasting than the 2001 recession, but less severe. 
D)  the first recession of the 21st century in the United States. 
E)  shorter and less severe than the 2001 recession. 
A)  longer lasting and much more severe than the 2001 recession. 
B)  shorter than the 2001 recession, but much more severe. 
C)  longer lasting than the 2001 recession, but less severe. 
D)  the first recession of the 21st century in the United States. 
E)  shorter and less severe than the 2001 recession.

Question 7

Between December 2007 and June 2009

Accepted Answer

A)  the United States economy was in recession and millions of jobs were lost. 
B)  the United States economy moved upward and millions of jobs were created. 
C)  the United States economy grew, but not many jobs were created. 
D)  the United States economy moved downward, but still many jobs were created. 
E)  the United States economy remained stationary. 
A)  the United States economy was in recession and millions of jobs were lost. 
B)  the United States economy moved upward and millions of jobs were created. 
C)  the United States economy grew, but not many jobs were created. 
D)  the United States economy moved downward, but still many jobs were created. 
E)  the United States economy remained stationary.

Question 8

Along the 45-degree line,

Accepted Answer

A)  spending equals income. 
B)  real GDP equals potential GDP. 
C)  spending is greater than income. 
D)  real GDP equals nominal GDP. 
E)  spending is equal to the marginal propensity to consume times income. 
A)  spending equals income. 
B)  real GDP equals potential GDP. 
C)  spending is greater than income. 
D)  real GDP equals nominal GDP. 
E)  spending is equal to the marginal propensity to consume times income.

Question 9

The consumption function is a straight-line relationship between consumption and income.

Accepted Answer

A) True 
 B)False

Question 10

Economic forecasters seldom differ in their one-year-ahead forecasts of real GDP.

Accepted Answer

A) True 
 B)False

Question 11

The consumption function shows the relationship between consumption and

Accepted Answer

A)  the interest rate. 
B)  the money supply. 
C)  the price level. 
D)  potential GDP. 
E)  income. 
A)  the interest rate. 
B)  the money supply. 
C)  the price level. 
D)  potential GDP. 
E)  income.

Question 12

If government expenditures decrease, the expenditure line will

Accepted Answer

A)  shift up in a parallel direction. 
B)  stay constant. 
C)  shift down in a parallel direction. 
D)  pivot down to the right. 
E)  pivot up to the left. 
A)  shift up in a parallel direction. 
B)  stay constant. 
C)  shift down in a parallel direction. 
D)  pivot down to the right. 
E)  pivot up to the left.

Question 13

Is it possible for economic fluctuations to occur for reasons not associated with changes in aggregate demand? Explain.

Accepted Answer

Yes. Some economists believe t

Question 14

The consumption function for the whole economy

Accepted Answer

A)  looks different when real GDP is used instead of disposable income. 
B)  looks similar for either real GDP or disposable income. 
C)  is nonlinear when real GDP is used. 
D)  is nonlinear when aggregate income is used. 
E)  is nonlinear when disposable income is used instead of real GDP. 
A)  looks different when real GDP is used instead of disposable income. 
B)  looks similar for either real GDP or disposable income. 
C)  is nonlinear when real GDP is used. 
D)  is nonlinear when aggregate income is used. 
E)  is nonlinear when disposable income is used instead of real GDP.

Question 15

Explain the connection between fluctuations in the unemployment rate around the natural rate of unemployment and fluctuations in real GDP around potential GDP.

Accepted Answer

Real GDP rises above potential GDP when

Question 16

One year-ahead-forecasts for real GDP

Accepted Answer

A)  reflect forecasters' beliefs about the determinants of potential GDP over the next year. 
B)  are usually equal to the current year's GDP. 
C)  are usually equal to a weighted average of real GDP over the past five years. 
D)  reflect what forecasters believe will happen to the different spending components of real GDP. 
E)  have no real use and are seldom done. 
A)  reflect forecasters' beliefs about the determinants of potential GDP over the next year. 
B)  are usually equal to the current year's GDP. 
C)  are usually equal to a weighted average of real GDP over the past five years. 
D)  reflect what forecasters believe will happen to the different spending components of real GDP. 
E)  have no real use and are seldom done.

Question 17

The consumption function describes

Accepted Answer

A)  the negative relationship between consumption and government spending. 
B)  the positive relationship between consumption and income. 
C)  the negative relationship between consumption and the interest rate. 
D)  the negative relationship between consumption and income. 
E)  the positive relationship between consumption and the interest rate. 
A)  the negative relationship between consumption and government spending. 
B)  the positive relationship between consumption and income. 
C)  the negative relationship between consumption and the interest rate. 
D)  the negative relationship between consumption and income. 
E)  the positive relationship between consumption and the interest rate.

Question 18

According to the spending balance model, a change in spending causes a change in income, which causes further changes in spending and income.

Accepted Answer

A) True 
 B)False

Question 19

Suppose you are given the following information about the economy:
C = 200 + 0.75Y
I = 50
G = 250
X = 100
(A)Find the aggregate expenditure function (the total amount of spending by the four groups), and plot it on a graph with spending on the vertical axis and output on the horizontal axis.
(B)Suppose current output is 2,800. On your graph, identify this output level and the level of spending associated with it.
(C)Is Y = 2,800 the short-run equilibrium level of output? Please explain and demonstrate graphically.

Accepted Answer

(A)E = C + I + G + X = 200 + 0.75Y + 50

Question 20

Exhibit 23-5  
-If spending was equal to the amount corresponding to point B in Exhibit 23-5,

Accepted Answer

A)  aggregate output would increase. 
B)  aggregate output would decrease. 
C)  spending is too high, and the expenditure line will shift down. 
D)  the economy would be in equilibrium. 
E)  the marginal propensity to consume would increase. 
A)  aggregate output would increase. 
B)  aggregate output would decrease. 
C)  spending is too high, and the expenditure line will shift down. 
D)  the economy would be in equilibrium. 
E)  the marginal propensity to consume would increase.

Exam 11: The Nature and Causes of Economic Fluctuations

The most influential book by John Maynard Keynes is The Wealth of Nations.

Disposable income and real GDP behave the same way because

A macroeconomic theory that stresses the fact that shifts in potential GDP are a primary cause of fluctuations in real GDP is known as

When does the slope of the expenditure line equal the MPC?

The recession that began in December 2007 has been

Between December 2007 and June 2009

Along the 45-degree line,

The consumption function is a straight-line relationship between consumption and income.

Economic forecasters seldom differ in their one-year-ahead forecasts of real GDP.

The consumption function shows the relationship between consumption and

If government expenditures decrease, the expenditure line will

Is it possible for economic fluctuations to occur for reasons not associated with changes in aggregate demand? Explain.

The consumption function for the whole economy

Explain the connection between fluctuations in the unemployment rate around the natural rate of unemployment and fluctuations in real GDP around potential GDP.

One year-ahead-forecasts for real GDP

The consumption function describes

According to the spending balance model, a change in spending causes a change in income, which causes further changes in spending and income.

Exhibit 23-5 -If spending was equal to the amount corresponding to point B in Exhibit 23-5,

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Capital and Financial Markets

Economic Growth and Globalization

International Trade

International Finance

Reading, Understanding, and Creating Graphs

the Miracle of Compound Growth

Present Discounted Value

Deriving the Growth Accounting Formula

Filters