Question 1

One In the News article titled "Everything Is on Sale and That's Not Good" suggests that deflation

Accepted Answer

A) Harms economic growth due to lower profits,more layoffs,and less spending that create a self-reinforcing cycle. 
B) Harms the economy because bankruptcies decrease. 
C) Harms sellers only,but not buyers since they get better deals without worries of job losses. 
D) Results in higher interest rates that further slow the economy. 
A) Harms economic growth due to lower profits,more layoffs,and less spending that create a self-reinforcing cycle. 
B) Harms the economy because bankruptcies decrease. 
C) Harms sellers only,but not buyers since they get better deals without worries of job losses. 
D) Results in higher interest rates that further slow the economy.

Question 2

Injections include all of the following except

Accepted Answer

A) Saving. 
B) Exports. 
C) Government spending. 
D) Investment. 
A) Saving. 
B) Exports. 
C) Government spending. 
D) Investment.

Question 3

Classical economists believe aggregate spending adjusts quickly to equal full-employment output.

Accepted Answer

A) True 
 B)False

Question 4

The cumulative decrease in total spending resulting from an initial decrease in expenditures is equal to the initial decrease multiplied by 1 ÷ MPC.

Accepted Answer

A) True 
 B)False

Question 5

The formula for the multiplier is

Accepted Answer

A) 1/(1 - MPS). 
B) 1/(1 - MP
C) . 
C) 1 - MPS. 
D) 1 - MPC. 
A) 1/(1 - MPS). 
B) 1/(1 - MP
C) . 
C) 1 - MPS. 
D) 1 - MPC.

Question 6

Because saving is a leakage,sudden additional saving results in higher equilibrium income for society,ceteris paribus.

Accepted Answer

A) True 
 B)False

Question 7

An economy with no government and no foreign trade tends to move toward equilibrium GDP because at output levels greater than equilibrium GDP,inventories are

Accepted Answer

A) Increasing,and actual investment exceeds desired investment. 
B) Increasing,and actual investment is less than desired investment. 
C) Decreasing,and actual investment exceeds desired investment. 
D) Decreasing,and actual investment is less than desired investment. 
A) Increasing,and actual investment exceeds desired investment. 
B) Increasing,and actual investment is less than desired investment. 
C) Decreasing,and actual investment exceeds desired investment. 
D) Decreasing,and actual investment is less than desired investment.

Question 8

Calculate the total change in spending because of an initial $100 increase in aggregate demand,given that the MPC = 0.60.

Accepted Answer

A) $100 increase. 
B) $100 decrease. 
C) $250 increase. 
D) $60 increase. 
A) $100 increase. 
B) $100 decrease. 
C) $250 increase. 
D) $60 increase.

Question 9

Cyclical unemployment originates with an imbalance between injections and leakages,not the absolute size of injections or leakages.

Accepted Answer

A) True 
 B)False

Question 10

The output level at which the aggregate demand curve intersects the aggregate supply is always the level at which

Accepted Answer

A) Saving is zero. 
B) Macro equilibrium is achieved. 
C) Full employment is sustainable by the economy. 
D) Micro equilibrium is achieved. 
A) Saving is zero. 
B) Macro equilibrium is achieved. 
C) Full employment is sustainable by the economy. 
D) Micro equilibrium is achieved.

Question 11

Unplanned inventory depletion is a warning sign of

Accepted Answer

A) Impending inflation. 
B) A recessionary gap. 
C) Cyclical unemployment. 
D) Both a recessionary gap and cyclical unemployment. 
A) Impending inflation. 
B) A recessionary gap. 
C) Cyclical unemployment. 
D) Both a recessionary gap and cyclical unemployment.

Question 12

The change in AD is the same size as the change in equilibrium GDP if prices are held constant.

Accepted Answer

A) True 
 B)False

Question 13

A rightward shift in an aggregate demand curve will cause

Accepted Answer

A) No change in prices or output if the aggregate supply curve is upward-sloping. 
B) Higher prices,but not higher output,if the aggregate supply curve is vertical. 
C) Higher prices,but no change in output,if the aggregate supply curve is horizontal. 
D) Higher output,but no change in prices,if the aggregate supply curve is vertical. 
A) No change in prices or output if the aggregate supply curve is upward-sloping. 
B) Higher prices,but not higher output,if the aggregate supply curve is vertical. 
C) Higher prices,but no change in output,if the aggregate supply curve is horizontal. 
D) Higher output,but no change in prices,if the aggregate supply curve is vertical.

Question 14

One In the News article titled "Unemployment Spreading Fast Across U.S.Industries" states that in the next few months the rate of unemployment may rise as high as

Accepted Answer

A) 5 percent. 
B) 6 percent. 
C) 7 percent. 
D) 8 percent. 
A) 5 percent. 
B) 6 percent. 
C) 7 percent. 
D) 8 percent.

Question 15

There is a trade-off between unemployment and inflation when the aggregate

Accepted Answer

A) Supply curve is upward-sloping. 
B) Supply curve is downward-sloping. 
C) Supply curve is vertical. 
D) Demand curve is upward-sloping. 
A) Supply curve is upward-sloping. 
B) Supply curve is downward-sloping. 
C) Supply curve is vertical. 
D) Demand curve is upward-sloping.

Question 16

Assuming an upward-sloping AS curve,if an economy is at full employment and investment spending decreases while all other levels of spending remaining constant,then the price level

Accepted Answer

A) Increases and output decreases. 
B) Decreases and output decreases. 
C) Increases and output increases. 
D) Decreases and output increases. 
A) Increases and output decreases. 
B) Decreases and output decreases. 
C) Increases and output increases. 
D) Decreases and output increases.

Question 17

If the marginal propensity to consume is 0.60,then the multiplier equals

Accepted Answer

A) 2.50. 
B) 0.60. 
C) 1.67. 
D) 0.40. 
A) 2.50. 
B) 0.60. 
C) 1.67. 
D) 0.40.

Question 18

If leakages are greater than injections,equilibrium output will be

Accepted Answer

A) Less than full-employment output,and a recessionary gap will occur. 
B) Less than full-employment output,and an inflationary gap will occur. 
C) More than full-employment output,and a recessionary gap will occur. 
D) More than full-employment output,and an inflationary gap will occur. 
A) Less than full-employment output,and a recessionary gap will occur. 
B) Less than full-employment output,and an inflationary gap will occur. 
C) More than full-employment output,and a recessionary gap will occur. 
D) More than full-employment output,and an inflationary gap will occur.

Question 19

Suppose an economy can be described by the consumption function C = 250 + 0.90YD and I = $300.What is the multiplier?

Accepted Answer

A) 0.1. 
B) 0.9. 
C) 3. 
D) 10. 
A) 0.1. 
B) 0.9. 
C) 3. 
D) 10.

Question 20

Assume a decrease in interest rates causes an initial increase in desired investment and aggregate demand.Additional increases in aggregate demand will

Accepted Answer

A) Be caused by multiplier-induced increases in autonomous investment. 
B) Be caused by increases in induced expenditures. 
C) Be insignificant compared to the initial increase. 
D) Not occur. 
A) Be caused by multiplier-induced increases in autonomous investment. 
B) Be caused by increases in induced expenditures. 
C) Be insignificant compared to the initial increase. 
D) Not occur.

Exam 10: Self-Adjustment or Instability

One In the News article titled "Everything Is on Sale and That's Not Good" suggests that deflation

Injections include all of the following except

Classical economists believe aggregate spending adjusts quickly to equal full-employment output.

The cumulative decrease in total spending resulting from an initial decrease in expenditures is equal to the initial decrease multiplied by 1 ÷ MPC.

The formula for the multiplier is

Because saving is a leakage,sudden additional saving results in higher equilibrium income for society,ceteris paribus.

An economy with no government and no foreign trade tends to move toward equilibrium GDP because at output levels greater than equilibrium GDP,inventories are

Calculate the total change in spending because of an initial $100 increase in aggregate demand,given that the MPC = 0.60.

Cyclical unemployment originates with an imbalance between injections and leakages,not the absolute size of injections or leakages.

The output level at which the aggregate demand curve intersects the aggregate supply is always the level at which

Unplanned inventory depletion is a warning sign of

The change in AD is the same size as the change in equilibrium GDP if prices are held constant.

A rightward shift in an aggregate demand curve will cause

One In the News article titled "Unemployment Spreading Fast Across U.S.Industries" states that in the next few months the rate of unemployment may rise as high as

There is a trade-off between unemployment and inflation when the aggregate

Assuming an upward-sloping AS curve,if an economy is at full employment and investment spending decreases while all other levels of spending remaining constant,then the price level

If the marginal propensity to consume is 0.60,then the multiplier equals

If leakages are greater than injections,equilibrium output will be

Suppose an economy can be described by the consumption function C = 250 + 0.90YD and I = $300.What is the multiplier?

Assume a decrease in interest rates causes an initial increase in desired investment and aggregate demand.Additional increases in aggregate demand will

Economics: the Core Issues

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Suppose an economy can be described by the consumption function C = 250 + 0.90Y_D and I = $300.What is the multiplier?