Question 1

A basic conclusion of Keynesian analysis is that

Accepted Answer

A) Small macro disturbances can lead to much larger macro problems. 
B) The economy self-adjusts to reach full employment and a stable price level. 
C) Equilibrium GDP is consistent with full employment. 
D) Equilibrium GDP is consistent with price level stability. 
A) Small macro disturbances can lead to much larger macro problems. 
B) The economy self-adjusts to reach full employment and a stable price level. 
C) Equilibrium GDP is consistent with full employment. 
D) Equilibrium GDP is consistent with price level stability.

Question 2

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 will be the total decrease in aggregate demand resulting from the initial $240 decrease in investment expenditure after an infinite number of cycles?

Accepted Answer

A) -$960.00. 
B) -$135.00. 
C) -$555.00. 
D) -$240.00. 
A) -$960.00. 
B) -$135.00. 
C) -$555.00. 
D) -$240.00.

Question 3

Suppose lower interest rates suddenly lead to an injection of $325 additional investment spending into the economy and the marginal propensity to consume is 0.80. Table 10.1
$\begin{array}{c}
\begin{array}{|l|}
\hline\
 \text {Spending Cycles}\
\hline \text {First-cycle}\
\text {spending}\
\hline \text {Second-cycle}\
\text {spending}\
\hline \text {Third-cycle}\
\text {spending}\
\hline  
\end{array}
\begin{array}{c|}
\hline \text {Change in this Cycle's Spending}\
\text { and Income}\
\hline\
\quad\quad\quad\quad\quad\quad\quad\quad \$ 325 \
\hline\
\
\hline\
\
\hline
\end{array}
\begin{array}{c|}
\hline \text {Cumulative Increase in Spending}\ 
\text {and Income}\
\hline\
\quad\quad\quad\quad\quad\quad\quad\quad \$325\
\hline\
\
\hline\
\
\hline
\end{array}
\end{array}$
 In Table 10.1,what is the change in the third cycle of spending resulting from the higher initial investment?

Accepted Answer

A) $50. 
B) $208. 
C) $325. 
D) $585. 
A) $50. 
B) $208. 
C) $325. 
D) $585.

Question 4

Undesired inventory depletion results in demand-pull inflation.

Accepted Answer

A) True 
 B)False

Question 5

Given C = 200 + 0.75YD,the multiplier is

Accepted Answer

A) 0.25. 
B) 0.75. 
C) 4. 
D) 1.33. 
A) 0.25. 
B) 0.75. 
C) 4. 
D) 1.33.

Question 6

Injections include

Accepted Answer

A) Business saving. 
B) Taxes. 
C) Exports. 
D) Consumer saving. 
A) Business saving. 
B) Taxes. 
C) Exports. 
D) Consumer saving.

Question 7

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 cumulative decrease in expenditure by the end of the second cycle?

Accepted Answer

A) -$960.00. 
B) -$180.00. 
C) -$480.00. 
D) -$420.00. 
A) -$960.00. 
B) -$180.00. 
C) -$480.00. 
D) -$420.00.

Question 8

When unwanted inventories pile up in retail stores,retail managers will take actions that lead to greater

Accepted Answer

A) Inflation. 
B) Unemployment. 
C) Wages. 
D) Economic growth. 
A) Inflation. 
B) Unemployment. 
C) Wages. 
D) Economic growth.

Question 9

Suppose the MPC in the economy in Figure 10.2 equals 0.5 and the shift from AD0 to AD1 was caused by a decrease in consumption of $12 billion.What will the total decrease in aggregate demand be (for example,AD0 to AD2)as a result of the initial $12 billion decrease?

Accepted Answer

A) $12 billion because there are no multiplier effects associated with a change in consumption. 
B) $600 billion. 
C) $24 billion. 
D) $60 billion. 
A) $12 billion because there are no multiplier effects associated with a change in consumption. 
B) $600 billion. 
C) $24 billion. 
D) $60 billion.

Question 10

In the short run,if AD increases,the unemployment rate will

Accepted Answer

A) Rise,and the price level will rise. 
B) Fall,and the price level will rise. 
C) Rise,and the price level will fall. 
D) Fall,and the price level will fall. 
A) Rise,and the price level will rise. 
B) Fall,and the price level will rise. 
C) Rise,and the price level will fall. 
D) Fall,and the price level will fall.

Question 11

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

Accepted Answer

A) Increased unemployment results. 
B) Any GDP gap disappears. 
C) Inventory levels are less than desired until a new equilibrium is reached. 
D) Changes in consumption spending have no impact on GDP. 
A) Increased unemployment results. 
B) Any GDP gap disappears. 
C) Inventory levels are less than desired until a new equilibrium is reached. 
D) Changes in consumption spending have no impact on GDP.

Question 12

According to the Keynesian view of the macro economy,which of the following is always true at equilibrium?

Accepted Answer

A) Aggregate supply equals aggregate demand. 
B) The economy is at full employment. 
C) The price level is stable. 
D) The price level is too low. 
A) Aggregate supply equals aggregate demand. 
B) The economy is at full employment. 
C) The price level is stable. 
D) The price level is too low.

Question 13

If actual investment exceeds desired investment,then

Accepted Answer

A) A recession can develop. 
B) Leakages are greater than injections. 
C) An inflationary spiral can develop. 
D) Leakages are equal to injections. 
A) A recession can develop. 
B) Leakages are greater than injections. 
C) An inflationary spiral can develop. 
D) Leakages are equal to injections.

Question 14

If leakages are less than injections,equilibrium output will be

Accepted Answer

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

Question 15

If an increase in investment causes an increase in real output beyond the full-employment level,the result will be

Accepted Answer

A) Demand-pull inflation. 
B) An increase in the recessionary GDP gap. 
C) Cost-push inflation. 
D) An increase in undesired inventories. 
A) Demand-pull inflation. 
B) An increase in the recessionary GDP gap. 
C) Cost-push inflation. 
D) An increase in undesired inventories.

Question 16

In Figure 10.1,which of the following could cause a shift from AD0 to AD1,ceteris paribus?

Accepted Answer

A) An increase in consumer confidence. 
B) A decrease in interest rates. 
C) A decrease in government spending on the education. 
D) An increase in exports. 
A) An increase in consumer confidence. 
B) A decrease in interest rates. 
C) A decrease in government spending on the education. 
D) An increase in exports.

Question 17

When the economy is at equilibrium,

Accepted Answer

A) Leakages equal injections. 
B) Inventories must equal zero. 
C) Leakages equal aggregate demand. 
D) There are no leakages. 
A) Leakages equal injections. 
B) Inventories must equal zero. 
C) Leakages equal aggregate demand. 
D) There are no leakages.

Question 18

If investment spending decreases and all other levels of spending remain constant,then aggregate

Accepted Answer

A) Supply increases. 
B) Supply decreases. 
C) Demand increases. 
D) Demand decreases. 
A) Supply increases. 
B) Supply decreases. 
C) Demand increases. 
D) Demand decreases.

Question 19

To illustrate the ultimate impact of the multiplier process when investment spending falls,we should

Accepted Answer

A) Shift the AD curve rightward once. 
B) Shift the AD curve leftward twice,once for the autonomous change and second for the multiplier effect. 
C) Shift the AD curve leftward and then rightward. 
D) Shift the AD curve leftward and then shift the AS curve leftward. 
A) Shift the AD curve rightward once. 
B) Shift the AD curve leftward twice,once for the autonomous change and second for the multiplier effect. 
C) Shift the AD curve leftward and then rightward. 
D) Shift the AD curve leftward and then shift the AS curve leftward.

Question 20

If the MPC = 0.90,the total change in spending resulting from an initial $200 increase in aggregate spending will be

Accepted Answer

A) $2,000. 
B) $200. 
C) $180. 
D) $1,800. 
A) $2,000. 
B) $200. 
C) $180. 
D) $1,800.

Exam 10: Self-Adjustment or Instability

A basic conclusion of Keynesian analysis is that

Undesired inventory depletion results in demand-pull inflation.

Given C = 200 + 0.75YD,the multiplier is

Injections include

When unwanted inventories pile up in retail stores,retail managers will take actions that lead to greater

Suppose the MPC in the economy in Figure 10.2 equals 0.5 and the shift from AD0 to AD1 was caused by a decrease in consumption of $12 billion.What will the total decrease in aggregate demand be (for example,AD0 to AD2)as a result of the initial $12 billion decrease?

In the short run,if AD increases,the unemployment rate will

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

According to the Keynesian view of the macro economy,which of the following is always true at equilibrium?

If actual investment exceeds desired investment,then

If leakages are less than injections,equilibrium output will be

If an increase in investment causes an increase in real output beyond the full-employment level,the result will be

In Figure 10.1,which of the following could cause a shift from AD0 to AD1,ceteris paribus?

When the economy is at equilibrium,

If investment spending decreases and all other levels of spending remain constant,then aggregate

To illustrate the ultimate impact of the multiplier process when investment spending falls,we should

If the MPC = 0.90,the total change in spending resulting from an initial $200 increase in aggregate spending will be

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

Given C = 200 + 0.75Y_D,the multiplier is

Suppose the MPC in the economy in Figure 10.2 equals 0.5 and the shift from AD₀to AD₁ was caused by a decrease in consumption of $12 billion.What will the total decrease in aggregate demand be (for example,AD₀ to AD₂)as a result of the initial $12 billion decrease?

In Figure 10.1,which of the following could cause a shift from AD₀ to AD₁,ceteris paribus?