Question 1

In a private closed economy, when aggregate expenditures equal GDP,

Accepted Answer

A) consumption equals investment. 
B) consumption equals aggregate expenditures. 
C) planned investment equals saving. 
D) disposable income equals consumption minus saving. 
A) consumption equals investment. 
B) consumption equals aggregate expenditures. 
C) planned investment equals saving. 
D) disposable income equals consumption minus saving.

Question 2

If the economy is in equilibrium at $400 billion of GDP and the full-employment GDP is $500 billion,

Accepted Answer

A) real and nominal GDP will both increase. 
B) GDP will remain at $400 billion unless aggregate expenditures change. 
C) real GDP will increase, but nominal GDP will decrease. 
D) the price level will increase. 
A) real and nominal GDP will both increase. 
B) GDP will remain at $400 billion unless aggregate expenditures change. 
C) real GDP will increase, but nominal GDP will decrease. 
D) the price level will increase.

Question 3

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because

Accepted Answer

A) government spending is more employment intensive than is either consumption or investment spending. 
B) government spending increases the money supply and a tax reduction does not. 
C) a portion of a tax cut will be saved. 
D) taxes vary directly with income. 
A) government spending is more employment intensive than is either consumption or investment spending. 
B) government spending increases the money supply and a tax reduction does not. 
C) a portion of a tax cut will be saved. 
D) taxes vary directly with income.

Question 4

Which of the following statements concerning the equilibrium level of GDP is incorrect?

Accepted Answer

A) There will be no tendency for businesses to alter the aggregate rate of production. 
B) Full employment will necessarily be realized. 
C) No unintended changes in inventories will occur. 
D) Leakages equal injections. 
A) There will be no tendency for businesses to alter the aggregate rate of production. 
B) Full employment will necessarily be realized. 
C) No unintended changes in inventories will occur. 
D) Leakages equal injections.

Question 5

If an unintended increase in business inventories occurs at some level of GDP, then GDP

Accepted Answer

A) entails a rate of aggregate expenditures in excess of the rate of aggregate production. 
B) may be either above or below the equilibrium output. 
C) is too low for equilibrium. 
D) is too high for equilibrium. 
A) entails a rate of aggregate expenditures in excess of the rate of aggregate production. 
B) may be either above or below the equilibrium output. 
C) is too low for equilibrium. 
D) is too high for equilibrium.

Question 6

When the Federal government provides tax rebate checks to taxpayers, as it did in 2008, the intent is to push the aggregate expenditures schedule in the economy upward.

Accepted Answer

A) True 
 B)False

Question 7

The major economic issue during the Great Depression of the 1930s that concerned John Maynard Keynes was

Accepted Answer

A) rising interest rates. 
B) large trade deficits. 
C) unemployment. 
D) hyperinflation. 
A) rising interest rates. 
B) large trade deficits. 
C) unemployment. 
D) hyperinflation.

Question 8

The equilibrium level of GDP is associated with

Accepted Answer

A) an excess of planned investment over saving. 
B) no unintended changes in inventories. 
C) an unintended decrease in business inventories. 
D) an unintended increase in business inventories.Topic: Other Features of Equilibrium GDP 
A) an excess of planned investment over saving. 
B) no unintended changes in inventories. 
C) an unintended decrease in business inventories. 
D) an unintended increase in business inventories.Topic: Other Features of Equilibrium GDP

Question 9

At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy.Planned investment must be

Accepted Answer

A) $138 billion. 
B) $126 billion. 
C) $38 billion. 
D) $180 billion. 
A) $138 billion. 
B) $126 billion. 
C) $38 billion. 
D) $180 billion.

Question 10

If aggregate expenditures rise by $200 billion and real GDP consequently rises by $500 billion, then the MPC in the economy must be 0.4.

Accepted Answer

A) True 
 B)False

Question 11

If the dollar appreciates relative to foreign currencies, we would expect

Accepted Answer

A) the multiplier to decrease. 
B) a country's exports and imports to both fall. 
C) a country's net exports to rise. 
D) a country's net exports to fall. 
A) the multiplier to decrease. 
B) a country's exports and imports to both fall. 
C) a country's net exports to rise. 
D) a country's net exports to fall.

Question 12

If net exports decline from zero to some negative amount, the aggregate expenditures schedule would

Accepted Answer

A) shift upward. 
B) shift downward. 
C) not move.(Net exports do not affect aggregate expenditures.) 
D) become steeper. 
A) shift upward. 
B) shift downward. 
C) not move.(Net exports do not affect aggregate expenditures.) 
D) become steeper.

Question 13

A constitutional amendment is passed that requires the government to have an annually balanced budget in the sense that changes in spending should be matched by equivalent changes in taxes.Should the government desire to increase GDP by $25 billion and meet the provisions of the law, it

Accepted Answer

A) cannot possibly reach its objective without breaking the law. 
B) could increase spending by $25 billion and reduce taxes by $25 billion. 
C) could increase spending by $25 billion and increase taxes by $25 billion. 
D) could increase spending by $30 billion and increase taxes by $25 billion. 
A) cannot possibly reach its objective without breaking the law. 
B) could increase spending by $25 billion and reduce taxes by $25 billion. 
C) could increase spending by $25 billion and increase taxes by $25 billion. 
D) could increase spending by $30 billion and increase taxes by $25 billion.

Question 14

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.If government desired to raise the equilibrium GDP to $650, it could

Accepted Answer

A) raise G by $45 and reduce T by $10. 
B) raise G by $40 and reduce T by $30. 
C) raise G by $30 or reduce T by $40. 
D) raise both G and T by $40. 
A) raise G by $45 and reduce T by $10. 
B) raise G by $40 and reduce T by $30. 
C) raise G by $30 or reduce T by $40. 
D) raise both G and T by $40.

Question 15

Net exports are negative when

Accepted Answer

A) net exports exceed imports. 
B) depreciation exceeds exports. 
C) exports exceed imports. 
D) imports exceed exports. 
A) net exports exceed imports. 
B) depreciation exceeds exports. 
C) exports exceed imports. 
D) imports exceed exports.

Question 16

At equilibrium real GDP in a private closed economy,

Accepted Answer

A) the MPC must equal the APC. 
B) the slope of the aggregate expenditures schedule equals the MPS. 
C) aggregate expenditures and real GDP are equal. 
D) planned saving and consumption are equal. 
A) the MPC must equal the APC. 
B) the slope of the aggregate expenditures schedule equals the MPS. 
C) aggregate expenditures and real GDP are equal. 
D) planned saving and consumption are equal.

Question 17

A rightward shift of the investment demand curve translates into an upward shift of the investment schedule in the aggregate expenditures model.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following would reduce GDP by the greatest amount?

Accepted Answer

A) a $20 billion increase in taxes 
B) $20 billion increases in both government spending and taxes 
C) $20 billion decreases in both government spending and taxes 
D) a $20 billion decrease in government spending 
A) a $20 billion increase in taxes 
B) $20 billion increases in both government spending and taxes 
C) $20 billion decreases in both government spending and taxes 
D) a $20 billion decrease in government spending

Question 19

If the MPC is 0.8 in a private closed economy, a $30 billion increase in planned investment will increase equilibrium real GDP by $120 billion.

Accepted Answer

A) True 
 B)False

Question 20

If consumers respond to a tax-cut by saving a large portion of the extra disposable income (or using it to reduce their debts), then the tax-cut policy would

Accepted Answer

A) shift the AE curve up significantly. 
B) shift the AE curve down. 
C) cause a reduction in aggregate spending. 
D) not have much effect on the aggregate expenditures curve. 
A) shift the AE curve up significantly. 
B) shift the AE curve down. 
C) cause a reduction in aggregate spending. 
D) not have much effect on the aggregate expenditures curve.

Exam 31: The Aggregate Expenditures Model

In a private closed economy, when aggregate expenditures equal GDP,

If the economy is in equilibrium at $400 billion of GDP and the full-employment GDP is $500 billion,

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because

Which of the following statements concerning the equilibrium level of GDP is incorrect?

If an unintended increase in business inventories occurs at some level of GDP, then GDP

When the Federal government provides tax rebate checks to taxpayers, as it did in 2008, the intent is to push the aggregate expenditures schedule in the economy upward.

The major economic issue during the Great Depression of the 1930s that concerned John Maynard Keynes was

The equilibrium level of GDP is associated with

At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy.Planned investment must be

If aggregate expenditures rise by $200 billion and real GDP consequently rises by $500 billion, then the MPC in the economy must be 0.4.

If the dollar appreciates relative to foreign currencies, we would expect

If net exports decline from zero to some negative amount, the aggregate expenditures schedule would

A constitutional amendment is passed that requires the government to have an annually balanced budget in the sense that changes in spending should be matched by equivalent changes in taxes.Should the government desire to increase GDP by $25 billion and meet the provisions of the law, it

Net exports are negative when

At equilibrium real GDP in a private closed economy,

A rightward shift of the investment demand curve translates into an upward shift of the investment schedule in the aggregate expenditures model.

Which of the following would reduce GDP by the greatest amount?

If the MPC is 0.8 in a private closed economy, a $30 billion increase in planned investment will increase equilibrium real GDP by $120 billion.

If consumers respond to a tax-cut by saving a large portion of the extra disposable income (or using it to reduce their debts), then the tax-cut policy would

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

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An Introduction to Macroeconomics

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Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

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