Question 1

If equilibrium GDP exceeds full-employment GDP,

Accepted Answer

A) The difference is the recessionary GDP gap. 
B) The difference is the inflationary GDP gap. 
C) Inventories will accumulate. 
D) Leakages must be greater than injections. 
A) The difference is the recessionary GDP gap. 
B) The difference is the inflationary GDP gap. 
C) Inventories will accumulate. 
D) Leakages must be greater than injections.

Question 2

Refer to Figure 10.3.Inflation increases most rapidly as the economy moves from

Accepted Answer

A) AD3 to AD2. 
B) AD2 to AD1. 
C) AD1 to AD0. 
D) AD2 to AD3. 
A) AD3 to AD2. 
B) AD2 to AD1. 
C) AD1 to AD0. 
D) AD2 to AD3.

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 second cycle of spending resulting from the higher initial investment?

Accepted Answer

A) $65. 
B) $1,625. 
C) $325. 
D) $260. 
A) $65. 
B) $1,625. 
C) $325. 
D) $260.

Question 4

Disposable income is less than GDP due to

Accepted Answer

A) Taxes by governments along with exports. 
B) Income held by businesses. 
C) Taxes by governments and income held back as saving by businesses. 
D) Taxes by governments along with imports. 
A) Taxes by governments along with exports. 
B) Income held by businesses. 
C) Taxes by governments and income held back as saving by businesses. 
D) Taxes by governments along with imports.

Question 5

If the marginal propensity to save is 0.10 and the initial decline in investment is $100,by how much will aggregate demand eventually decrease?

Accepted Answer

A) $100. 
B) $900. 
C) $1,000. 
D) $10,000. 
A) $100. 
B) $900. 
C) $1,000. 
D) $10,000.

Question 6

The impact of the multiplier effect depends on the size of the initial change in expenditures.

Accepted Answer

A) True 
 B)False

Question 7

Macro disturbances can be caused by changes in

Accepted Answer

A) Investment only. 
B) Government spending only. 
C) Consumption,investment,government spending,or exports. 
D) Exports only because this is the only type of expenditure that is not controllable. 
A) Investment only. 
B) Government spending only. 
C) Consumption,investment,government spending,or exports. 
D) Exports only because this is the only type of expenditure that is not controllable.

Question 8

Which of the following situations may lead to a decrease in the level of cyclical unemployment?

Accepted Answer

A) Undesired inventory accumulation. 
B) Total value of goods supplied exceeds total value of goods demanded. 
C) A period of significant inflation. 
D) Desired saving exceeds desired investment. 
A) Undesired inventory accumulation. 
B) Total value of goods supplied exceeds total value of goods demanded. 
C) A period of significant inflation. 
D) Desired saving exceeds desired investment.

Question 9

The recessionary GDP gap represents the

Accepted Answer

A) Amount by which aggregate demand must increase to reach full employment. 
B) Value of the goods and services that could be produced but were not due to unemployed resources. 
C) Leakages minus injections. 
D) Amount by which actual investment differs from desired investment. 
A) Amount by which aggregate demand must increase to reach full employment. 
B) Value of the goods and services that could be produced but were not due to unemployed resources. 
C) Leakages minus injections. 
D) Amount by which actual investment differs from desired investment.

Question 10

John Maynard Keynes argued that

Accepted Answer

A) Macro failure is likely to occur,and it isn't likely to go away quickly. 
B) Macro failure is unlikely to occur. 
C) Macro failure is likely to occur but will go away quickly. 
D) None of the choices are correct. 
A) Macro failure is likely to occur,and it isn't likely to go away quickly. 
B) Macro failure is unlikely to occur. 
C) Macro failure is likely to occur but will go away quickly. 
D) None of the choices are correct.

Question 11

Inventory depletion is a warning sign of

Accepted Answer

A) Inflation. 
B) Deflation. 
C) A drop in AS. 
D) A drop in AD. 
A) Inflation. 
B) Deflation. 
C) A drop in AS. 
D) A drop in AD.

Question 12

What are leakages,and how do they affect the economy?

Accepted Answer

A leakage is income not spent directly o

Question 13

Keynes believed that the combination of unplanned and alternating AD shifts reinforced by multiplier effects causes recurring business cycles.

Accepted Answer

A) True 
 B)False

Question 14

Gross business saving is defined as

Accepted Answer

A) Depreciation allowances and retained earnings. 
B) Depreciation allowances less retained earnings. 
C) Retained earnings less depreciation allowances. 
D) Depreciation allowances and retained earnings and stockholder dividends. 
A) Depreciation allowances and retained earnings. 
B) Depreciation allowances less retained earnings. 
C) Retained earnings less depreciation allowances. 
D) Depreciation allowances and retained earnings and stockholder dividends.

Question 15

The marginal propensity to consume is

Accepted Answer

A) Total consumption in a given period divided by total disposable income. 
B) The percentage of total disposable income spent on consumption. 
C) That part of the average consumer dollar that goes to the purchase of final goods. 
D) The fraction of each additional dollar of disposable income spent on consumption. 
A) Total consumption in a given period divided by total disposable income. 
B) The percentage of total disposable income spent on consumption. 
C) That part of the average consumer dollar that goes to the purchase of final goods. 
D) The fraction of each additional dollar of disposable income spent on consumption.

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

Accepted Answer

A) A GDP gap emerges. 
B) The price level increases. 
C) Output increases. 
D) The unemployment rate falls. 
A) A GDP gap emerges. 
B) The price level increases. 
C) Output increases. 
D) The unemployment rate falls.

Question 17

Equilibrium occurs when the aggregate demand curve intersects the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 18

The multiplier process can occur when a decrease in investment spending

Accepted Answer

A) Increases household saving,causing consumers to buy more goods and services. 
B) Reduces household incomes,causing consumers to buy fewer goods and services. 
C) Increases household incomes,causing consumers to buy fewer goods and services. 
D) Reduces household incomes,causing consumers to buy more goods and services. 
A) Increases household saving,causing consumers to buy more goods and services. 
B) Reduces household incomes,causing consumers to buy fewer goods and services. 
C) Increases household incomes,causing consumers to buy fewer goods and services. 
D) Reduces household incomes,causing consumers to buy more goods and services.

Question 19

A demand-pull inflation problem can best be solved by

Accepted Answer

A) An increase in production of goods and services. 
B) A reduction in desired spending. 
C) An increase in aggregate demand. 
D) A reduction in aggregate supply. 
A) An increase in production of goods and services. 
B) A reduction in desired spending. 
C) An increase in aggregate demand. 
D) A reduction in aggregate supply.

Question 20

If desired investment exceeds actual investment,then

Accepted Answer

A) A recessionary GDP gap will emerge. 
B) Inventories are less than the desired level. 
C) Inventories are accumulating beyond desired levels. 
D) Cyclical unemployment exists. 
A) A recessionary GDP gap will emerge. 
B) Inventories are less than the desired level. 
C) Inventories are accumulating beyond desired levels. 
D) Cyclical unemployment exists.

Exam 10: Self-Adjustment or Instability

If equilibrium GDP exceeds full-employment GDP,

Refer to Figure 10.3.Inflation increases most rapidly as the economy moves from

Disposable income is less than GDP due to

If the marginal propensity to save is 0.10 and the initial decline in investment is $100,by how much will aggregate demand eventually decrease?

The impact of the multiplier effect depends on the size of the initial change in expenditures.

Macro disturbances can be caused by changes in

Which of the following situations may lead to a decrease in the level of cyclical unemployment?

The recessionary GDP gap represents the

John Maynard Keynes argued that

Inventory depletion is a warning sign of

What are leakages,and how do they affect the economy?

Keynes believed that the combination of unplanned and alternating AD shifts reinforced by multiplier effects causes recurring business cycles.

Gross business saving is defined as

The marginal propensity to consume is

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

Equilibrium occurs when the aggregate demand curve intersects the aggregate supply curve.

The multiplier process can occur when a decrease in investment spending

A demand-pull inflation problem can best be solved by

If desired investment exceeds actual investment,then

Economics: the Core Issues

The Useconomy: a Global View

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National Income Accounting

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Theory Versus Reality

Consumer Choice

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