Question 1

In Figure 10.1,suppose this economy is in equilibrium at point a and QF represents full employment output.Which of the following statements is true?

Accepted Answer

A) The economy is experiencing serious inflation problems. 
B) There is no GDP gap. 
C) Inventories are accumulating. 
D) Inventories are falling. 
A) The economy is experiencing serious inflation problems. 
B) There is no GDP gap. 
C) Inventories are accumulating. 
D) Inventories are falling.

Question 2

Full employment is estimated to occur at an unemployment rate

Accepted Answer

A) Between 4 and 6 percent. 
B) Between 1 and 2 percent. 
C) Equal to 0 percent. 
D) Between 10 and 12 percent. 
A) Between 4 and 6 percent. 
B) Between 1 and 2 percent. 
C) Equal to 0 percent. 
D) Between 10 and 12 percent.

Question 3

Assuming an upward-sloping aggregate supply curve,when aggregate demand decreases,unemployment

Accepted Answer

A) Decreases,and the price level decreases. 
B) Increases,and the price level decreases. 
C) Decreases,and the price level increases. 
D) Increases,and the price level increases. 
A) Decreases,and the price level decreases. 
B) Increases,and the price level decreases. 
C) Decreases,and the price level increases. 
D) Increases,and the price level increases.

Question 4

Which of the following is a leakage?

Accepted Answer

A) Imports. 
B) Investment. 
C) Government spending. 
D) Aggregate demand. 
A) Imports. 
B) Investment. 
C) Government spending. 
D) Aggregate demand.

Question 5

The marginal propensity to consume is

Accepted Answer

A) That part of the average consumer dollar that goes to saving. 
B) The same as the spending multiplier. 
C) The change in consumption divided by the change in disposable income. 
D) Always equal to 1. 
A) That part of the average consumer dollar that goes to saving. 
B) The same as the spending multiplier. 
C) The change in consumption divided by the change in disposable income. 
D) Always equal to 1.

Question 6

Suppose lower expectations lead to a decrease of $240 in desired investment in the economy and the marginal propensity to consume is 0.75. Table 10.2
$\begin{array}{c}
\begin{array}{|l|}
\hline\
 \text {Spending Cycles}\
\hline \text {First-cycle}\
\text {spending}\
\hline \text {Second-cycle}\
\text {spending}\
\hline \text {Third-cycle}\
\text {spending}\
\hline  
\end{array}
\begin{array}{c|}
\hline \text {Change in this Cycle's Spending}\
\text { and Income}\
\hline\
\quad\quad\quad\quad\quad\quad\quad\quad -\$ 240 \
\hline\
\
\hline\
\
\hline
\end{array}
\begin{array}{c|}
\hline \text {Cumulative Decrease in }\ 
\text {Spending and Income}\
\hline\
\quad\quad\quad\quad\quad\quad\quad\quad -\$240\
\hline\
\
\hline\
\
\hline
\end{array}
\end{array}$

In Table 10.2,what is the change in the third cycle of spending resulting from the initial drop in investment?

Accepted Answer

A) -$135.00. 
B) -$180.00. 
C) -$420.00. 
D) -$555.00. 
A) -$135.00. 
B) -$180.00. 
C) -$420.00. 
D) -$555.00.

Question 7

A decline in household income that sets off a multiplier process causes

Accepted Answer

A) An increase in AS. 
B) A decrease in AS. 
C) An increase in AD. 
D) A decrease in AD. 
A) An increase in AS. 
B) A decrease in AS. 
C) An increase in AD. 
D) A decrease in AD.

Question 8

Assuming an upward-sloping aggregate supply curve,when aggregate demand increases,unemployment

Accepted Answer

A) Decreases,and the price level decreases. 
B) Increases,and the price level decreases. 
C) Decreases,and the price level increases. 
D) Increases,and the price level increases. 
A) Decreases,and the price level decreases. 
B) Increases,and the price level decreases. 
C) Decreases,and the price level increases. 
D) Increases,and the price level increases.

Question 9

If the multiplier is greater than 1 an initial (autonomous)decrease in aggregate demand will be

Accepted Answer

A) Much smaller than the eventual decline in spending. 
B) Much larger than the eventual decline in spending. 
C) Equal to the eventual decline in spending. 
D) Offset by an increase in planned investment. 
A) Much smaller than the eventual decline in spending. 
B) Much larger than the eventual decline in spending. 
C) Equal to the eventual decline in spending. 
D) Offset by an increase in planned investment.

Question 10

Actual investment equals

Accepted Answer

A) Desired investment plus planned investment. 
B) Planned investment minus undesired investment. 
C) Desired investment plus undesired investment. 
D) Desired investment minus undesired investment. 
A) Desired investment plus planned investment. 
B) Planned investment minus undesired investment. 
C) Desired investment plus undesired investment. 
D) Desired investment minus undesired investment.

Question 11

A leakage is

Accepted Answer

A) An export from the economy. 
B) A decline in the capacity of the economy to produce goods. 
C) Income not spent directly on domestic output but instead diverted from the circular flow. 
D) A decrease in aggregate supply. 
A) An export from the economy. 
B) A decline in the capacity of the economy to produce goods. 
C) Income not spent directly on domestic output but instead diverted from the circular flow. 
D) A decrease in aggregate supply.

Question 12

An inflationary spiral can emerge when

Accepted Answer

A) Desired spending at full employment falls short of full-employment output. 
B) An increase in investment exceeds available savings. 
C) Actual investment equals desired investment. 
D) Desired leakages exceed desired injections. 
A) Desired spending at full employment falls short of full-employment output. 
B) An increase in investment exceeds available savings. 
C) Actual investment equals desired investment. 
D) Desired leakages exceed desired injections.

Question 13

If there is an inflationary spiral,GDP will fall as inventories rise.

Accepted Answer

A) True 
 B)False

Question 14

Consumer saving and business investment are the primary sources of imbalance in a wholly private and closed economy (that is,if there is no government and no foreign trade).

Accepted Answer

A) True 
 B)False

Question 15

Suppose an economy can be described by the consumption function C = 75 + 0.80YD and I = $50.What is the multiplier?

Accepted Answer

A) 0.20. 
B) 0.80. 
C) 5. 
D) 1.25. 
A) 0.20. 
B) 0.80. 
C) 5. 
D) 1.25.

Question 16

Assuming the economy is at full employment,a decrease in aggregate demand will most likely cause a change in which of the following types of unemployment?

Accepted Answer

A) Seasonal. 
B) Cyclical. 
C) Frictional. 
D) Structural. 
A) Seasonal. 
B) Cyclical. 
C) Frictional. 
D) Structural.

Question 17

Assume the equilibrium level of output is less than full employment.To achieve full-employment equilibrium,the aggregate demand curve must shift to the right by

Accepted Answer

A) The amount of the recessionary GDP gap. 
B) An amount less than the recessionary GDP gap because the spending increase causes the multiplier process to occur. 
C) An amount greater than the recessionary GDP gap because the spending increase raises the price level. 
D) An amount less than the recessionary GDP gap because the spending increase raises output and prices. 
A) The amount of the recessionary GDP gap. 
B) An amount less than the recessionary GDP gap because the spending increase causes the multiplier process to occur. 
C) An amount greater than the recessionary GDP gap because the spending increase raises the price level. 
D) An amount less than the recessionary GDP gap because the spending increase raises output and prices.

Question 18

If business inventories decrease below desired levels,then it is most likely that a

Accepted Answer

A) Higher level of unemployment will result. 
B) Lower level of output will occur. 
C) Higher price level will occur. 
D) Recessionary gap will occur. 
A) Higher level of unemployment will result. 
B) Lower level of output will occur. 
C) Higher price level will occur. 
D) Recessionary gap will occur.

Question 19

If the MPC = 0.80,the total change in spending resulting from an initial $500 decrease in aggregate spending will be

Accepted Answer

A) $300. 
B) $800. 
C) $2500. 
D) $833. 
A) $300. 
B) $800. 
C) $2500. 
D) $833.

Question 20

Suppose an economy has an upward-sloping AS curve and an inflationary gap equal to $10 billion.If AD shifts to the left by $10 billion,

Accepted Answer

A) Real output will fall by less than $10 billion. 
B) Real output will fall by $10 billion. 
C) The inflationary gap will be eliminated. 
D) A recessionary gap will be created. 
A) Real output will fall by less than $10 billion. 
B) Real output will fall by $10 billion. 
C) The inflationary gap will be eliminated. 
D) A recessionary gap will be created.

Exam 10: Self-Adjustment or Instability

In Figure 10.1,suppose this economy is in equilibrium at point a and QF represents full employment output.Which of the following statements is true?

Full employment is estimated to occur at an unemployment rate

Assuming an upward-sloping aggregate supply curve,when aggregate demand decreases,unemployment

Which of the following is a leakage?

The marginal propensity to consume is

A decline in household income that sets off a multiplier process causes

Assuming an upward-sloping aggregate supply curve,when aggregate demand increases,unemployment

If the multiplier is greater than 1 an initial (autonomous)decrease in aggregate demand will be

Actual investment equals

A leakage is

An inflationary spiral can emerge when

If there is an inflationary spiral,GDP will fall as inventories rise.

Consumer saving and business investment are the primary sources of imbalance in a wholly private and closed economy (that is,if there is no government and no foreign trade).

Suppose an economy can be described by the consumption function C = 75 + 0.80YD and I = $50.What is the multiplier?

Assuming the economy is at full employment,a decrease in aggregate demand will most likely cause a change in which of the following types of unemployment?

Assume the equilibrium level of output is less than full employment.To achieve full-employment equilibrium,the aggregate demand curve must shift to the right by

If business inventories decrease below desired levels,then it is most likely that a

If the MPC = 0.80,the total change in spending resulting from an initial $500 decrease in aggregate spending will be

Suppose an economy has an upward-sloping AS curve and an inflationary gap equal to $10 billion.If AD shifts to the left by $10 billion,

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

Filters

In Figure 10.1,suppose this economy is in equilibrium at point a and Q_F represents full employment output.Which of the following statements is true?

Suppose an economy can be described by the consumption function C = 75 + 0.80Y_D and I = $50.What is the multiplier?