Question 1

In the aggregate expenditures model, which of the following variables is assumed to be independent of real GDP?

Accepted Answer

A) profit 
B) saving 
C) investment 
D) consumption 
A) profit 
B) saving 
C) investment 
D) consumption C

Question 2

If the MPC is 0.9, a $20 billion increase in a lump-sum tax will reduce GDP by $200 billion.

Accepted Answer

A) True 
 B)False  False

Question 3

An increase in taxes will have a greater effect on the equilibrium GDP

Accepted Answer

A) if the tax revenues are redistributed through transfer payments. 
B) the larger the MPS. 
C) the smaller the MPC. 
D) the larger the MPC. 
A) if the tax revenues are redistributed through transfer payments. 
B) the larger the MPS. 
C) the smaller the MPC. 
D) the larger the MPC. D

Question 4

The aggregate expenditures model is built upon which of the following assumptions?

Accepted Answer

A) Prices are fixed. 
B) The economy is at full employment. 
C) Prices are fully flexible. 
A) Prices are fixed. 
B) The economy is at full employment. 
C) Prices are fully flexible.

Question 5

If a $10 billion decrease in lump-sum taxes increases equilibrium GDP by $40 billion, then

Accepted Answer

A) the multiplier is 4. 
B) the MPC for this economy is 0.8. 
C) the MPC for this economy is 0.6. 
D) the multiplier is 3. 
A) the multiplier is 4. 
B) the MPC for this economy is 0.8. 
C) the MPC for this economy is 0.6. 
D) the multiplier is 3.

Question 6

In a private closed economy, there will be an unplanned increase in inventories when

Accepted Answer

A) aggregate expenditures exceed GDP. 
B) aggregate expenditures exceed (C + Ig). 
C) (C + Ig) exceeds aggregate expenditures. 
D) GDP exceeds aggregate expenditures. 
A) aggregate expenditures exceed GDP. 
B) aggregate expenditures exceed (C + Ig). 
C) (C + Ig) exceeds aggregate expenditures. 
D) GDP exceeds aggregate expenditures.

Question 7

Ca = 25 + 0.75 (Y - T) Ig = 50 Xn = 10
G = 70
T = 30
(Advanced analysis) The accompanying equations are for a mixed open economy.The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes, respectively.Figures are in billions of dollars.The multiplier for this economy is

Accepted Answer

A) 4. 
B) 3. 
C) 2. 
D) 2.33. 
A) 4. 
B) 3. 
C) 2. 
D) 2.33.

Question 8

C = 26 + 0.75Y I g = 60 X = 24
M = 10
(Advanced analysis) The equations give information for a private open economy.The letters Y, C, I g, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively.Figures are in billions of dollars.The multiplier for the economy is

Accepted Answer

A) 4.6. 
B) 3.33. 
C) 5.0. 
D) 4.0. 
A) 4.6. 
B) 3.33. 
C) 5.0. 
D) 4.0.

Question 9

When a private closed economy is at equilibrium, then (GDP − C) is equal to planned investment.

Accepted Answer

A) True 
 B)False

Question 10

The amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as

Accepted Answer

A) a recessionary expenditure gap. 
B) an inflationary expenditure gap. 
C) the multiplier. 
D) the average propensity to save. 
A) a recessionary expenditure gap. 
B) an inflationary expenditure gap. 
C) the multiplier. 
D) the average propensity to save.

Question 11

Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model?

Accepted Answer

A) the saving schedule 
B) the investment schedule 
C) the consumption schedule 
D) the investment demand curve 
A) the saving schedule 
B) the investment schedule 
C) the consumption schedule 
D) the investment demand curve

Question 12

In the Great Recession of 2007-2009, the aggregate expenditures schedule in the U.S.economy dropped, mostly due to a fall in

Accepted Answer

A) consumption spending. 
B) investment expenditures. 
C) government spending. 
D) net exports. 
A) consumption spending. 
B) investment expenditures. 
C) government spending. 
D) net exports.

Question 13

A lump-sum tax causes the after-tax consumption schedule

Accepted Answer

A) and the before-tax consumption schedule to coincide. 
B) to be steeper than the before-tax consumption schedule. 
C) to be flatter than the before-tax consumption schedule. 
D) to be parallel to the before-tax consumption schedule. 
A) and the before-tax consumption schedule to coincide. 
B) to be steeper than the before-tax consumption schedule. 
C) to be flatter than the before-tax consumption schedule. 
D) to be parallel to the before-tax consumption schedule.

Question 14

In a mixed closed economy,

Accepted Answer

A) government purchases and saving are injections, while investment and taxes are leakages. 
B) taxes and government purchases are leakages, while investment and saving are injections. 
C) taxes and savings are leakages, while investment and government purchases are injections. 
D) taxes and investment are injections, while saving and government purchases are leakages. 
A) government purchases and saving are injections, while investment and taxes are leakages. 
B) taxes and government purchases are leakages, while investment and saving are injections. 
C) taxes and savings are leakages, while investment and government purchases are injections. 
D) taxes and investment are injections, while saving and government purchases are leakages.

Question 15

When planned investment exceeds saving in a private closed economy,

Accepted Answer

A) aggregate expenditures will equal GDP. 
B) aggregate expenditures will exceed GDP. 
C) aggregate expenditures will be less than GDP. 
D) consumption plus investment will equal GDP. 
A) aggregate expenditures will equal GDP. 
B) aggregate expenditures will exceed GDP. 
C) aggregate expenditures will be less than GDP. 
D) consumption plus investment will equal GDP.

Question 16

The U.S.recession of 2007-2009 provides a good example of

Accepted Answer

A) demand-pull inflation. 
B) cost-push inflation. 
C) a recessionary expenditure gap. 
D) the repercussions of hyperinflation. 
A) demand-pull inflation. 
B) cost-push inflation. 
C) a recessionary expenditure gap. 
D) the repercussions of hyperinflation.

Question 17

For a private closed economy, an unintended decline in inventories suggests that

Accepted Answer

A) aggregate expenditures are less than the business sector expected them to be. 
B) aggregate expenditures exceed production. 
C) actual investment exceeds saving. 
D) planned investment is greater than consumption. 
A) aggregate expenditures are less than the business sector expected them to be. 
B) aggregate expenditures exceed production. 
C) actual investment exceeds saving. 
D) planned investment is greater than consumption.

Question 18

One of the most important views expressed by classical macroeconomists was that

Accepted Answer

A) wages and prices are inflexible. 
B) wages and prices are always rising. 
C) demand creates its own supply. 
D) supply creates its own demanD. 
A) wages and prices are inflexible. 
B) wages and prices are always rising. 
C) demand creates its own supply. 
D) supply creates its own demanD.

Question 19

If the MPC is 0.50 and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap is

Accepted Answer

A) $40 billion. 
B) $20 billion. 
C) $60 billion. 
D) $80 billion. 
A) $40 billion. 
B) $20 billion. 
C) $60 billion. 
D) $80 billion.

Question 20

Assume the MPC is 0.8.If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by

Accepted Answer

A) $100 billion. 
B) $90 billion. 
C) $40 billion. 
D) $50 billion. 
A) $100 billion. 
B) $90 billion. 
C) $40 billion. 
D) $50 billion.

Exam 31: The Aggregate Expenditures Model

In the aggregate expenditures model, which of the following variables is assumed to be independent of real GDP?

If the MPC is 0.9, a $20 billion increase in a lump-sum tax will reduce GDP by $200 billion.

An increase in taxes will have a greater effect on the equilibrium GDP

The aggregate expenditures model is built upon which of the following assumptions?

If a $10 billion decrease in lump-sum taxes increases equilibrium GDP by $40 billion, then

In a private closed economy, there will be an unplanned increase in inventories when

C = 26 + 0.75Y I g = 60 X = 24 M = 10 (Advanced analysis) The equations give information for a private open economy.The letters Y, C, I g, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively.Figures are in billions of dollars.The multiplier for the economy is

When a private closed economy is at equilibrium, then (GDP − C) is equal to planned investment.

The amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as

Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model?

In the Great Recession of 2007-2009, the aggregate expenditures schedule in the U.S.economy dropped, mostly due to a fall in

A lump-sum tax causes the after-tax consumption schedule

In a mixed closed economy,

When planned investment exceeds saving in a private closed economy,

The U.S.recession of 2007-2009 provides a good example of

For a private closed economy, an unintended decline in inventories suggests that

One of the most important views expressed by classical macroeconomists was that

If the MPC is 0.50 and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap is

Assume the MPC is 0.8.If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

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