Question 1

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

Accepted Answer

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

Question 2

Automatic stabilizers are provisions in the law which create automatic ______ in government spending or ______ in taxes when real output declines.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) no change; no change 
D) decreases; decreases 
A) increases; increases 
B) increases; decreases 
C) no change; no change 
D) decreases; decreases

Question 3

Refer to the figure below.   Based on the figure, the income-expenditure multiplier equals:

Accepted Answer

A) 0.5. 
B) 2. 
C) 5. 
D) 200. 
A) 0.5. 
B) 2. 
C) 5. 
D) 200.

Question 4

Refer to the figure below.   Based on the figure, if autonomous spending increases from 400 to 600, then the new short-run equilibrium output will equal:

Accepted Answer

A) 1,200. 
B) 400. 
C) 600. 
D) 800. 
A) 1,200. 
B) 400. 
C) 600. 
D) 800.

Question 5

One potential problem with using fiscal policy to close recessionary output gaps is that:

Accepted Answer

A) sustained government deficits can be harmful to long-run economic growth. 
B) decreased government spending can cause inflationary pressure to build. 
C) reductions in interest rates can reduce savings and, therefore, investment. 
D) it may be offset by automatic stabilizers. 
A) sustained government deficits can be harmful to long-run economic growth. 
B) decreased government spending can cause inflationary pressure to build. 
C) reductions in interest rates can reduce savings and, therefore, investment. 
D) it may be offset by automatic stabilizers.

Question 6

The expenditure line in the Keynesian cross diagram represents the:

Accepted Answer

A) equilibrium condition that Y = PAE. 
B) relationship between planned expenditure and output. 
C) relationship between consumption and after-tax disposable income. 
D) equilibrium condition that Y = Y*. 
A) equilibrium condition that Y = PAE. 
B) relationship between planned expenditure and output. 
C) relationship between consumption and after-tax disposable income. 
D) equilibrium condition that Y = Y*.

Question 7

Changes in autonomous consumption could be the result of:

Accepted Answer

A) changes in disposable income. 
B) changes in inflation. 
C) changes in the mpc. 
D) changes in housing prices. 
A) changes in disposable income. 
B) changes in inflation. 
C) changes in the mpc. 
D) changes in housing prices.

Question 8

Refer to the figure below.   Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ______ and induced expenditure equals ______.

Accepted Answer

A) 1,000; 3,000 
B) 1,000; 4,000 
C) 3,000; 4,000 
D) 4,000; 2,000 
A) 1,000; 3,000 
B) 1,000; 4,000 
C) 3,000; 4,000 
D) 4,000; 2,000

Question 9

If firms sell less than expected, actual investment increases because _____, which is counted as investment.

Accepted Answer

A) the unsold goods are added to inventory 
B) the government buys the unsold goods 
C) the unsold goods are distributed to poor households 
D) households buy the unsold goods are bargain prices 
A) the unsold goods are added to inventory 
B) the government buys the unsold goods 
C) the unsold goods are distributed to poor households 
D) households buy the unsold goods are bargain prices

Question 10

The portion of planned aggregate expenditure that is independent of output is called ______ expenditure.

Accepted Answer

A) potential 
B) planned 
C) actual 
D) autonomous 
A) potential 
B) planned 
C) actual 
D) autonomous

Question 11

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 taxes 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 12

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

Accepted Answer

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

Question 13

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, the mpc equals 0.9, and potential output (Y*) equals 9,000, then taxes must be increased by approximately ______ to eliminate any output gap.

Accepted Answer

A) 90 
B) 100 
C) 111 
D) 1,000 
A) 90 
B) 100 
C) 111 
D) 1,000

Question 14

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset an expansionary gap resulting from a $1 billion increase 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 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.The slope of the expenditure line is:

Accepted Answer

A) 0.20. 
B) 0.80. 
C) 0.90. 
D) 0.99. 
A) 0.20. 
B) 0.80. 
C) 0.90. 
D) 0.99.

Question 16

In the basic Keynesian model all of the following are true except:

Accepted Answer

A) planned consumption always equals actual consumption. 
B) planned investment always equals actual investment. 
C) planned government spending always equals actual government spending. 
D) planned net exports always equal actual net exports. 
A) planned consumption always equals actual consumption. 
B) planned investment always equals actual investment. 
C) planned government spending always equals actual government spending. 
D) planned net exports always equal actual net exports.

Question 17

When actual investment is greater 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 the 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 the short-run equilibrium output.

Question 18

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.Induced expenditure equals:

Accepted Answer

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

Question 19

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 9,000, then government purchases must ______ to eliminate any output gap.

Accepted Answer

A) increase by 100 
B) decrease by 100 
C) increase by 1,000 
D) decrease by 1,000 
A) increase by 100 
B) decrease by 100 
C) increase by 1,000 
D) decrease by 1,000

Question 20

Refer to the figure below.   Based on the figure, the income-expenditure multiplier in the economy illustrated equals:

Accepted Answer

A) 0.75 
B) 4 
C) 4,000 
D) 1,000 
A) 0.75 
B) 4 
C) 4,000 
D) 1,000

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

Automatic stabilizers are provisions in the law which create automatic in government spending or in taxes when real output declines.

Refer to the figure below. Based on the figure, the income-expenditure multiplier equals:

Refer to the figure below. Based on the figure, if autonomous spending increases from 400 to 600, then the new short-run equilibrium output will equal:

One potential problem with using fiscal policy to close recessionary output gaps is that:

The expenditure line in the Keynesian cross diagram represents the:

Changes in autonomous consumption could be the result of:

Refer to the figure below. Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals and induced expenditure equals .

If firms sell less than expected, actual investment increases because _____, which is counted as investment.

The portion of planned aggregate expenditure that is independent of output is called ______ expenditure.

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 taxes must be by approximately to eliminate any output gap.

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

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, the mpc equals 0.9, and potential output (Y*) equals 9,000, then taxes must be increased by approximately ______ to eliminate any output gap.

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset an expansionary gap resulting from a $1 billion increase 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.The slope of the expenditure line is:

In the basic Keynesian model all of the following are true except:

When actual investment is greater than planned investment:

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.Induced expenditure equals:

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 9,000, then government purchases must ______ to eliminate any output gap.

Refer to the figure below. Based on the figure, the income-expenditure multiplier in the economy illustrated equals:

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

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

Automatic stabilizers are provisions in the law which create automatic ______ in government spending or ______ in taxes when real output declines.

Refer to the figure below. Based on the figure, the income-expenditure multiplier equals:

Refer to the figure below. Based on the figure, if autonomous spending increases from 400 to 600, then the new short-run equilibrium output will equal:

One potential problem with using fiscal policy to close recessionary output gaps is that:

The expenditure line in the Keynesian cross diagram represents the:

Changes in autonomous consumption could be the result of:

Refer to the figure below. Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ______ and induced expenditure equals ______.

If firms sell less than expected, actual investment increases because _____, which is counted as investment.

The portion of planned aggregate expenditure that is independent of output is called ______ expenditure.

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 taxes must be ______ by approximately ______ to eliminate any output gap.

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

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, the mpc equals 0.9, and potential output (Y*) equals 9,000, then taxes must be increased by approximately ______ to eliminate any output gap.

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset an expansionary gap resulting from a $1 billion increase 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.The slope of the expenditure line is:

In the basic Keynesian model all of the following are true except:

When actual investment is greater than planned investment:

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.Induced expenditure equals:

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 9,000, then government purchases must ______ to eliminate any output gap.

Refer to the figure below. Based on the figure, the income-expenditure multiplier in the economy illustrated equals:

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

Automatic stabilizers are provisions in the law which create automatic in government spending or in taxes when real output declines.

Refer to the figure below. Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals and induced expenditure equals .

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 taxes must be by approximately to eliminate any output gap.