Question 1

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because:

Accepted Answer

A) the direct changes in spending change the income of producers which leads to additional changes in spending. 
B) multiple deposits are generated when new reserves are produced through fractional reserve banking. 
C) autonomous spending supports more output than induced spending. 
D) planned changes in inventories signal producers to adjust the level of output. 
A) the direct changes in spending change the income of producers which leads to additional changes in spending. 
B) multiple deposits are generated when new reserves are produced through fractional reserve banking. 
C) autonomous spending supports more output than induced spending. 
D) planned changes in inventories signal producers to adjust the level of output. A

Question 2

In the Keynesian cross diagram, the ______ line shows the relationship between planned aggregate expenditure and output, and the ______ line represents the condition that planned aggregate expenditure and output are equal.

Accepted Answer

A) consumption function; 45-degree 
B) 45-degree; consumption function 
C) expenditure; 45-degree 
D) 45 degree; expenditure 
A) consumption function; 45-degree 
B) 45-degree; consumption function 
C) expenditure; 45-degree 
D) 45 degree; expenditure C

Question 3

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output (Y*) equals 11,000, then government purchases must ______ to eliminate any output gap.

Accepted Answer

A) increase by 200 
B) increase by 1,000 
C) increase by 5,000 
D) decrease by 200 
A) increase by 200 
B) increase by 1,000 
C) increase by 5,000 
D) decrease by 200 A

Question 4

Government policies intended to decrease planned spending and output are called ______ policies.

Accepted Answer

A) aggregate 
B) monetary 
C) fiscal 
D) contractionary 
A) aggregate 
B) monetary 
C) fiscal 
D) contractionary

Question 5

In response to the 2007-2009 recession, the Economic Stimulus Act of 2008, under President Bush, was composed of approximately _____; the American Recovery and Reinvestment Act, under President Obama, was composed of approximately ______.

Accepted Answer

A) one-fourth tax cuts and three-fourths spending increases; two-thirds tax cuts and one-third spending increases 
B) half tax cuts and half spending increases; only spending increases 
C) two-thirds tax cuts and one-third spending increases; one-fourth tax cuts and three-fourths spending increases 
D) only tax cuts; half tax cuts and half spending increases 
A) one-fourth tax cuts and three-fourths spending increases; two-thirds tax cuts and one-third spending increases 
B) half tax cuts and half spending increases; only spending increases 
C) two-thirds tax cuts and one-third spending increases; one-fourth tax cuts and three-fourths spending increases 
D) only tax cuts; half tax cuts and half spending increases

Question 6

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, transfers must be:

Accepted Answer

A) increased by $1 billion. 
B) decreased by $1 billion. 
C) increased by $1.33 billion. 
D) decreased by $1.33 billion. 
A) increased by $1 billion. 
B) decreased by $1 billion. 
C) increased by $1.33 billion. 
D) decreased by $1.33 billion.

Question 7

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40.Planned aggregate expenditure equals:

Accepted Answer

A) 990 + 0.20Y. 
B) 900 + 0.80Y. 
C) 940 + 0.80Y. 
D) 990 + 0.80Y. 
A) 990 + 0.20Y. 
B) 900 + 0.80Y. 
C) 940 + 0.80Y. 
D) 990 + 0.80Y.

Question 8

The marginal propensity to consume (mpc) is the:

Accepted Answer

A) amount by which disposable income increases when consumption increases by $1. 
B) amount by which consumption increases when disposable income increases by $1. 
C) percentage by which consumption increases when disposable income increases by 1 percent. 
D) percentage by which disposable income increases when consumption increases by 1 percent. 
A) amount by which disposable income increases when consumption increases by $1. 
B) amount by which consumption increases when disposable income increases by $1. 
C) percentage by which consumption increases when disposable income increases by 1 percent. 
D) percentage by which disposable income increases when consumption increases by 1 percent.

Question 9

All of the following would be included in planned aggregate expenditure except:

Accepted Answer

A) purchases of services provided by government employees. 
B) planned changes in inventories. 
C) sales to foreigners of domestically-produced goods. 
D) social security payments. 
A) purchases of services provided by government employees. 
B) planned changes in inventories. 
C) sales to foreigners of domestically-produced goods. 
D) social security payments.

Question 10

Regarding the fiscal policy responses to the 2007-2009 recession, the Congressional Budget Office (CBO) found that:

Accepted Answer

A) the Bush Administration's fiscal policy worked, but the Obama Administration's did not. 
B) the Obama Administration's fiscal policy worked, but the Bush Administration's did not. 
C) both the Bush Administration's fiscal policy and the Obama Administration's fiscal policy worked. 
D) neither the Bush Administration's fiscal policy nor the Obama Administration's fiscal policy worked.Economic historians report that both tax cuts and increased government spending were successful in stimulating the U.S.economy. 
A) the Bush Administration's fiscal policy worked, but the Obama Administration's did not. 
B) the Obama Administration's fiscal policy worked, but the Bush Administration's did not. 
C) both the Bush Administration's fiscal policy and the Obama Administration's fiscal policy worked. 
D) neither the Bush Administration's fiscal policy nor the Obama Administration's fiscal policy worked.Economic historians report that both tax cuts and increased government spending were successful in stimulating the U.S.economy.

Question 11

A fiscal policy action to close an expansionary gap is to:

Accepted Answer

A) decrease taxes. 
B) increase transfer payments. 
C) decrease government purchases. 
D) increase the marginal propensity to consume. 
A) decrease taxes. 
B) increase transfer payments. 
C) decrease government purchases. 
D) increase the marginal propensity to consume.

Question 12

Refer to the figure below.   Based on the figure and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending increases by 1,000, then the new short-run equilibrium output (Y) is equal to:

Accepted Answer

A) 24,000. 
B) 6,000. 
C) 14,000. 
D) 16,000. 
A) 24,000. 
B) 6,000. 
C) 14,000. 
D) 16,000.

Question 13

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional:

Accepted Answer

A) spending. 
B) autonomous expenditure. 
C) menu costs. 
D) cyclical unemployment. 
A) spending. 
B) autonomous expenditure. 
C) menu costs. 
D) cyclical unemployment.

Question 14

A fiscal policy action to close a recessionary gap is to:

Accepted Answer

A) increase taxes. 
B) increase transfer payments. 
C) decrease government purchases. 
D) decrease the marginal propensity to consume. 
A) increase taxes. 
B) increase transfer payments. 
C) decrease government purchases. 
D) decrease the marginal propensity to consume.

Question 15

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40.Induced expenditure equals:

Accepted Answer

A) 0.20Y. 
B) 990 + 0.20Y. 
C) 0.80Y. 
D) 900 + 0.80Y. 
A) 0.20Y. 
B) 990 + 0.20Y. 
C) 0.80Y. 
D) 900 + 0.80Y.

Question 16

Historically speaking, a one-dollar decrease in household wealth will cause consumer spending to fall by:

Accepted Answer

A) $0.03 to $0.07. 
B) $0.30 to $0.70. 
C) $3.00 to $7.00. 
D) $30.00 to $70.00. 
A) $0.03 to $0.07. 
B) $0.30 to $0.70. 
C) $3.00 to $7.00. 
D) $30.00 to $70.00.

Question 17

Expansionary policies are government stabilization policies intended to increase:

Accepted Answer

A) population. 
B) unemployment. 
C) average labor productivity. 
D) planned spending. 
A) population. 
B) unemployment. 
C) average labor productivity. 
D) planned spending.

Question 18

In the basic Keynesian model, a decrease in government purchases:

Accepted Answer

A) reduces short-run equilibrium output. 
B) increases short-run equilibrium output. 
C) reduces potential output. 
D) increases potential output. 
A) reduces short-run equilibrium output. 
B) increases short-run equilibrium output. 
C) reduces potential output. 
D) increases potential output.

Question 19

Refer to the figure below.   Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is ______, and ______ could return the economy to potential output (Y*).

Accepted Answer

A) an expansionary gap; a decrease in autonomous expenditures of 1,000 
B) an expansionary gap; a decrease in autonomous expenditures of 4,000 
C) a recessionary gap; an increase in autonomous expenditures of 1,000 
D) a recessionary gap; an increase in autonomous expenditures of 4,000 
A) an expansionary gap; a decrease in autonomous expenditures of 1,000 
B) an expansionary gap; a decrease in autonomous expenditures of 4,000 
C) a recessionary gap; an increase in autonomous expenditures of 1,000 
D) a recessionary gap; an increase in autonomous expenditures of 4,000

Question 20

In the basic Keynesian model, a tax cut:

Accepted Answer

A) reduces short-run equilibrium output. 
B) increases short-run equilibrium output. 
C) reduces potential output. 
D) increases potential output. 
A) reduces short-run equilibrium output. 
B) increases short-run equilibrium output. 
C) reduces potential output. 
D) increases potential output.

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because:

In the Keynesian cross diagram, the line shows the relationship between planned aggregate expenditure and output, and the line represents the condition that planned aggregate expenditure and output are equal.

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output (Y*) equals 11,000, then government purchases must ______ to eliminate any output gap.

Government policies intended to decrease planned spending and output are called ______ policies.

In response to the 2007-2009 recession, the Economic Stimulus Act of 2008, under President Bush, was composed of approximately _; the American Recovery and Reinvestment Act, under President Obama, was composed of approximately __.

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, transfers must be:

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40.Planned aggregate expenditure equals:

The marginal propensity to consume (mpc) is the:

All of the following would be included in planned aggregate expenditure except:

Regarding the fiscal policy responses to the 2007-2009 recession, the Congressional Budget Office (CBO) found that:

A fiscal policy action to close an expansionary gap is to:

Refer to the figure below. Based on the figure and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending increases by 1,000, then the new short-run equilibrium output (Y) is equal to:

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional:

A fiscal policy action to close a recessionary gap is to:

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40.Induced expenditure equals:

Historically speaking, a one-dollar decrease in household wealth will cause consumer spending to fall by:

Expansionary policies are government stabilization policies intended to increase:

In the basic Keynesian model, a decrease in government purchases:

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is , and could return the economy to potential output (Y*).

In the basic Keynesian model, a tax cut:

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Monetary Policy and the Federal Reserve

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

Exam 11: Spending, Output, and Fiscal Policy

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because:

In the Keynesian cross diagram, the ______ line shows the relationship between planned aggregate expenditure and output, and the ______ line represents the condition that planned aggregate expenditure and output are equal.

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output (Y*) equals 11,000, then government purchases must ______ to eliminate any output gap.

Government policies intended to decrease planned spending and output are called ______ policies.

In response to the 2007-2009 recession, the Economic Stimulus Act of 2008, under President Bush, was composed of approximately _____; the American Recovery and Reinvestment Act, under President Obama, was composed of approximately ______.

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, transfers must be:

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40.Planned aggregate expenditure equals:

The marginal propensity to consume (mpc) is the:

All of the following would be included in planned aggregate expenditure except:

Regarding the fiscal policy responses to the 2007-2009 recession, the Congressional Budget Office (CBO) found that:

A fiscal policy action to close an expansionary gap is to:

Refer to the figure below. Based on the figure and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending increases by 1,000, then the new short-run equilibrium output (Y) is equal to:

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional:

A fiscal policy action to close a recessionary gap is to:

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40.Induced expenditure equals:

Historically speaking, a one-dollar decrease in household wealth will cause consumer spending to fall by:

Expansionary policies are government stabilization policies intended to increase:

In the basic Keynesian model, a decrease in government purchases:

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is ______, and ______ could return the economy to potential output (Y*).

In the basic Keynesian model, a tax cut:

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Monetary Policy and the Federal Reserve

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

In the Keynesian cross diagram, the line shows the relationship between planned aggregate expenditure and output, and the line represents the condition that planned aggregate expenditure and output are equal.

In response to the 2007-2009 recession, the Economic Stimulus Act of 2008, under President Bush, was composed of approximately _; the American Recovery and Reinvestment Act, under President Obama, was composed of approximately __.

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is , and could return the economy to potential output (Y*).