Question 1

When actual investment is less than planned investment:

Accepted Answer

A) firms sold less output than expected. 
B) firms sold more output than expected. 
C) the quantity of output sold is the amount the firm expected to sell. 
D) the economy produces short-run equilibrium output. 
A) firms sold less output than expected. 
B) firms sold more output than expected. 
C) the quantity of output sold is the amount the firm expected to sell. 
D) the economy produces short-run equilibrium output.

Question 2

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then transfers must be ______ by approximately ______ to eliminate any output gap.

Accepted Answer

A) decreased; 250 
B) decreased; 200 
C) increased; 250 
D) increased; 200 
A) decreased; 250 
B) decreased; 200 
C) increased; 250 
D) increased; 200

Question 3

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20.The slope of the expenditure line is:

Accepted Answer

A) 0.25. 
B) 0.75. 
C) 290. 
D) 320. 
A) 0.25. 
B) 0.75. 
C) 290. 
D) 320.

Question 4

Short-run equilibrium output is the level of output at which actual output:

Accepted Answer

A) equals potential output. 
B) maximizes firm profits. 
C) equals real GDP per capita. 
D) equals planned aggregate expenditure. 
A) equals potential output. 
B) maximizes firm profits. 
C) equals real GDP per capita. 
D) equals planned aggregate expenditure.

Question 5

In the Keynesian model, a $1 billion increase in autonomous consumption leads to ______ in short-run equilibrium output.

Accepted Answer

A) a $1billion increase 
B) a greater than $1 billion increase 
C) no change 
D) a $1 billion decrease 
A) a $1billion increase 
B) a greater than $1 billion increase 
C) no change 
D) a $1 billion decrease

Question 6

In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will:

Accepted Answer

A) reduce production. 
B) increase production. 
C) increase planned aggregate expenditure. 
D) decrease planned aggregate expenditure. 
A) reduce production. 
B) increase production. 
C) increase planned aggregate expenditure. 
D) decrease planned aggregate expenditure.

Question 7

Dave's Mirror Company expects to sell $1,000,000 worth of mirrors and to produce $1,250,000 worth of mirrors in the coming year.The company purchases $300,000 worth of new equipment during the year.Sales for the year turn out to be $900,000.Actual investment by Dave's Mirror Company equals ______ and planned investment equals _______.

Accepted Answer

A) $250,000; $150,000 
B) $300,000; $200,000 
C) $550,000; $450,000 
D) $650,000; $550,000 
A) $250,000; $150,000 
B) $300,000; $200,000 
C) $550,000; $450,000 
D) $650,000; $550,000

Question 8

The bursting of the housing bubble in 2006 caused ______ to cut back on their spending, thereby shifting the PAE line _____.

Accepted Answer

A) businesses and households; upward 
B) businesses and households; downward 
C) government and businesses; downward 
D) government and businesses; upward 
A) businesses and households; upward 
B) businesses and households; downward 
C) government and businesses; downward 
D) government and businesses; upward

Question 9

Two drawbacks in using fiscal policy as a stabilization tool are that fiscal policy can affect ______ as well as aggregate demand and that fiscal policy is _______.

Accepted Answer

A) consumption; too flexible 
B) potential output; not flexible enough 
C) consumption; offset by automatic stabilizers 
D) potential output; offset by automatic stabilizers 
A) consumption; too flexible 
B) potential output; not flexible enough 
C) consumption; offset by automatic stabilizers 
D) potential output; offset by automatic stabilizers

Question 10

Planned aggregate expenditure (PAE) equals:

Accepted Answer

A) C + Ip + G + NX. 
B) Cp + I + G + NX. 
C) C + I + Gp + NX. 
D) C + I + G + NXp. 
A) C + Ip + G + NX. 
B) Cp + I + G + NX. 
C) C + I + Gp + NX. 
D) C + I + G + NXp.

Question 11

Induced expenditure is the portion of planned aggregate expenditure that:

Accepted Answer

A) equals aggregate output. 
B) equals planned spending. 
C) equals autonomous expenditure. 
D) depends on output. 
A) equals aggregate output. 
B) equals planned spending. 
C) equals autonomous expenditure. 
D) depends on output.

Question 12

Contractionary policies are government stabilization policies intended to decrease:

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 13

House prices in the U.S.increased dramatically _____, and decreased dramatically ______.

Accepted Answer

A) from 2001 to 2006; from 2007 to 2009 
B) from 2007 to 2009; from 2001 to 2006 
C) from 2001 to 2009; from 2006 to 2007 
D) from 2006 to 2009; from 2001 to 2006 
A) from 2001 to 2006; from 2007 to 2009 
B) from 2007 to 2009; from 2001 to 2006 
C) from 2001 to 2009; from 2006 to 2007 
D) from 2006 to 2009; from 2001 to 2006

Question 14

If firms sell less output than expected, planned investment:

Accepted Answer

A) is greater than actual investment. 
B) is less than actual investment. 
C) equals actual investment. 
D) equals zero. 
A) is greater than actual investment. 
B) is less than actual investment. 
C) equals actual investment. 
D) equals zero.

Question 15

The assumption that firms meet the demand for their products at preset prices is the key assumption upon which ______ is built.

Accepted Answer

A) the basic Keynesian model 
B) Okun's Law 
C) the supply and demand model 
D) quantity equation for money 
A) the basic Keynesian model 
B) Okun's Law 
C) the supply and demand model 
D) quantity equation for money

Question 16

The larger the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.

Accepted Answer

A) larger; larger 
B) larger; smaller 
C) smaller; smaller 
D) smaller; larger 
A) larger; larger 
B) larger; smaller 
C) smaller; smaller 
D) smaller; larger

Question 17

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will:

Accepted Answer

A) reduce production. 
B) increase production. 
C) increase planned aggregate expenditure. 
D) decrease planned aggregate expenditure. 
A) reduce production. 
B) increase production. 
C) increase planned aggregate expenditure. 
D) decrease planned aggregate expenditure.

Question 18

Refer to the figure below.   Based on the figure, if the economy is in short-run equilibrium with output equal to 16,000, 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 19

In the basic Keynesian model, an increase 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 20

In the basic Keynesian model, a decline in autonomous spending:

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.

When actual investment is less than planned investment:

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then transfers must be by approximately to eliminate any output gap.

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20.The slope of the expenditure line is:

Short-run equilibrium output is the level of output at which actual output:

In the Keynesian model, a $1 billion increase in autonomous consumption leads to ______ in short-run equilibrium output.

In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will:

The bursting of the housing bubble in 2006 caused __ to cut back on their spending, thereby shifting the PAE line _.

Two drawbacks in using fiscal policy as a stabilization tool are that fiscal policy can affect as well as aggregate demand and that fiscal policy is _.

Planned aggregate expenditure (PAE) equals:

Induced expenditure is the portion of planned aggregate expenditure that:

Contractionary policies are government stabilization policies intended to decrease:

House prices in the U.S.increased dramatically _, and decreased dramatically __.

If firms sell less output than expected, planned investment:

The assumption that firms meet the demand for their products at preset prices is the key assumption upon which ______ is built.

The larger the mpc, the the income-expenditure multiplier and the the effect of a change in autonomous spending on short-run equilibrium output.

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will:

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 16,000, then there is , and could return the economy to potential output (Y*).

In the basic Keynesian model, an increase in government purchases:

In the basic Keynesian model, a decline in autonomous spending:

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

When actual investment is less than planned investment:

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then transfers must be ______ by approximately ______ to eliminate any output gap.

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20.The slope of the expenditure line is:

Short-run equilibrium output is the level of output at which actual output:

In the Keynesian model, a $1 billion increase in autonomous consumption leads to ______ in short-run equilibrium output.

In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will:

The bursting of the housing bubble in 2006 caused ______ to cut back on their spending, thereby shifting the PAE line _____.

Two drawbacks in using fiscal policy as a stabilization tool are that fiscal policy can affect ______ as well as aggregate demand and that fiscal policy is _______.

Planned aggregate expenditure (PAE) equals:

Induced expenditure is the portion of planned aggregate expenditure that:

Contractionary policies are government stabilization policies intended to decrease:

House prices in the U.S.increased dramatically _____, and decreased dramatically ______.

If firms sell less output than expected, planned investment:

The assumption that firms meet the demand for their products at preset prices is the key assumption upon which ______ is built.

The larger the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will:

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 16,000, then there is ______, and ______ could return the economy to potential output (Y*).

In the basic Keynesian model, an increase in government purchases:

In the basic Keynesian model, a decline in autonomous spending:

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

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then transfers must be by approximately to eliminate any output gap.

The bursting of the housing bubble in 2006 caused __ to cut back on their spending, thereby shifting the PAE line _.

Two drawbacks in using fiscal policy as a stabilization tool are that fiscal policy can affect as well as aggregate demand and that fiscal policy is _.

House prices in the U.S.increased dramatically _, and decreased dramatically __.

The larger the mpc, the the income-expenditure multiplier and the the effect of a change in autonomous spending on short-run equilibrium output.

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 16,000, then there is , and could return the economy to potential output (Y*).