Question 1

One basic assumption of the aggregate expenditures model is that

Accepted Answer

A) the economy is operating at full employment. 
B) there is inflation in the economy. 
C) there is no public sector in the economy. 
D) the average price level in the economy is fixeD. 
A) the economy is operating at full employment. 
B) there is inflation in the economy. 
C) there is no public sector in the economy. 
D) the average price level in the economy is fixeD.

Question 2

In a recessionary expenditure gap, the equilibrium level of real GDP is

Accepted Answer

A) less than planned aggregate expenditures. 
B) greater than planned aggregate expenditures. 
C) greater than full-employment GDP. 
D) less than full-employment GDP. 
A) less than planned aggregate expenditures. 
B) greater than planned aggregate expenditures. 
C) greater than full-employment GDP. 
D) less than full-employment GDP.

Question 3

An economy characterized by high unemployment is likely to be

Accepted Answer

A) experiencing a high rate of economic growth. 
B) experiencing hyperinflation. 
C) having a recessionary expenditure gap. 
D) having an inflationary expenditure gap. 
A) experiencing a high rate of economic growth. 
B) experiencing hyperinflation. 
C) having a recessionary expenditure gap. 
D) having an inflationary expenditure gap.

Question 4

If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause

Accepted Answer

A) a rightward shift in the investment demand schedule. 
B) an $8 billion downshift in the consumption schedule. 
C) a $4 billion upshift in the consumption schedule. 
D) a $12 billion downshift in the consumption schedule. 
A) a rightward shift in the investment demand schedule. 
B) an $8 billion downshift in the consumption schedule. 
C) a $4 billion upshift in the consumption schedule. 
D) a $12 billion downshift in the consumption schedule.

Question 5

If the MPC in an economy is 0.8, government could close a recessionary expenditure gap of $100 billion by cutting taxes by

Accepted Answer

A) $80 billion. 
B) $100 billion. 
C) $125 billion. 
D) $200 billion. 
A) $80 billion. 
B) $100 billion. 
C) $125 billion. 
D) $200 billion.

Question 6

The recessionary expenditure gap associated with the recession of 2007-2009 resulted from

Accepted Answer

A) the government's attempt to control hyperinflation. 
B) a major increase in personal and corporate taxes. 
C) a rapid decline in investment spending. 
D) a rapid increase in imports resulting from large tariff reductions. 
A) the government's attempt to control hyperinflation. 
B) a major increase in personal and corporate taxes. 
C) a rapid decline in investment spending. 
D) a rapid increase in imports resulting from large tariff reductions.

Question 7

If net exports are positive,

Accepted Answer

A) the equilibrium GDP must be greater than the full-employment GDP. 
B) imports must exceed exports. 
C) aggregate expenditures are greater at each level of GDP than when net exports are zero or negative. 
D) some other component of aggregate expenditures must be negative. 
A) the equilibrium GDP must be greater than the full-employment GDP. 
B) imports must exceed exports. 
C) aggregate expenditures are greater at each level of GDP than when net exports are zero or negative. 
D) some other component of aggregate expenditures must be negative.

Question 8

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because

Accepted Answer

A) the MPC is smaller in the private sector than it is in the public sector. 
B) declines in government spending always tend to stimulate private investment. 
C) disposable income will fall by some amount smaller than the tax increase. 
D) some of the tax increase will be paid out of income that would otherwise have been saveD. 
A) the MPC is smaller in the private sector than it is in the public sector. 
B) declines in government spending always tend to stimulate private investment. 
C) disposable income will fall by some amount smaller than the tax increase. 
D) some of the tax increase will be paid out of income that would otherwise have been saveD.

Question 9

(Advanced analysis) The given equations describe consumption and investment (in billions of dollars) for a private closed economy.C = 60 + 0.6Y I = I0 = 30 In equilibrium, the level of saving will be

Accepted Answer

A) 30. 
B) 26. 
C) 25. 
D) 60. 
A) 30. 
B) 26. 
C) 25. 
D) 60.

Question 10

If aggregate expenditures exceed GDP in a private closed economy,

Accepted Answer

A) leakages will exceed injections. 
B) planned investment will exceed saving. 
C) unplanned investment in inventories will occur. 
D) saving will exceed planned investment. 
A) leakages will exceed injections. 
B) planned investment will exceed saving. 
C) unplanned investment in inventories will occur. 
D) saving will exceed planned investment.

Question 11

In moving from a private closed to a mixed closed economy in the aggregate expenditures model, taxes

Accepted Answer

A) must be added to gross investment. 
B) must be added to saving. 
C) must be added to consumption and gross investment. 
D) have no impact upon the equilibrium GDP. 
A) must be added to gross investment. 
B) must be added to saving. 
C) must be added to consumption and gross investment. 
D) have no impact upon the equilibrium GDP.

Question 12

If the equilibrium level of GDP in a private open economy is $1,000 billion and consumption is $700 billion at that level of GDP, then

Accepted Answer

A) saving must be $300 billion. 
B) net exports must be $300 billion. 
C) S + C must equal $300 billion. 
D) I g + Xn must equal $300 billion. 
A) saving must be $300 billion. 
B) net exports must be $300 billion. 
C) S + C must equal $300 billion. 
D) I g + Xn must equal $300 billion.

Question 13

If the United States wants to increase its net exports in the short term, it might take steps to

Accepted Answer

A) increase its GDP. 
B) reduce existing tariffs and import quotas. 
C) appreciate the dollar compared to foreign currencies. 
D) depreciate the dollar compared to foreign currencies. 
A) increase its GDP. 
B) reduce existing tariffs and import quotas. 
C) appreciate the dollar compared to foreign currencies. 
D) depreciate the dollar compared to foreign currencies.

Question 14

If households and firms in an economy would save all extra income that they receive so that MPC = 0, then the multiplier in that economy is zero.

Accepted Answer

A) True 
 B)False

Question 15

The difference between the investment demand curve and the investment schedule is that the former shows

Accepted Answer

A) a direct relationship between investment and interest rate, while the latter shows no correlation between investment and income. 
B) an inverse relationship between investment and interest rate, while the latter shows no correlation between investment and income. 
C) a direct relationship between investment and income, while the latter shows no correlation between investment and interest rate. 
D) an inverse relationship between investment and income, while the latter shows no correlation between investment and interest rate. 
A) a direct relationship between investment and interest rate, while the latter shows no correlation between investment and income. 
B) an inverse relationship between investment and interest rate, while the latter shows no correlation between investment and income. 
C) a direct relationship between investment and income, while the latter shows no correlation between investment and interest rate. 
D) an inverse relationship between investment and income, while the latter shows no correlation between investment and interest rate.

Question 16

The $787 billion stimulus package enacted by the Federal government in 2009 to try to deal with the Great Recession was intended to

Accepted Answer

A) shift the aggregate expenditures schedule down. 
B) close an inflationary expenditures gap. 
C) bring inflation down. 
D) push the aggregate expenditures schedule upwarD. 
A) shift the aggregate expenditures schedule down. 
B) close an inflationary expenditures gap. 
C) bring inflation down. 
D) push the aggregate expenditures schedule upwarD.

Question 17

If at some level of GDP the economy is experiencing an unintended decrease in inventories,

Accepted Answer

A) the aggregate level of saving will decline. 
B) the price level will fall. 
C) the business sector will lay off workers. 
D) domestic output will increase. 
A) the aggregate level of saving will decline. 
B) the price level will fall. 
C) the business sector will lay off workers. 
D) domestic output will increase.

Question 18

From the perspective of classical macroeconomic theory, if aggregate spending was temporarily less than output,

Accepted Answer

A) product price would increase, but resource prices would decrease. 
B) product price would decrease, but resource prices would increase. 
C) product and resource prices would decrease, so that aggregate spending would rise, expanding output. 
D) product and resource prices would increase, so that aggregate spending would equal output. 
A) product price would increase, but resource prices would decrease. 
B) product price would decrease, but resource prices would increase. 
C) product and resource prices would decrease, so that aggregate spending would rise, expanding output. 
D) product and resource prices would increase, so that aggregate spending would equal output.

Question 19

In the flow of income and spending, saving and investment are, respectively,

Accepted Answer

A) an injection and a leakage. 
B) a leakage and an injection. 
C) wealth and income. 
D) income and wealth. 
A) an injection and a leakage. 
B) a leakage and an injection. 
C) wealth and income. 
D) income and wealth.

Question 20

One basic assumption of the aggregate expenditures model is that the price level in the economy is fixed.

Accepted Answer

A) True 
 B)False

Exam 31: The Aggregate Expenditures Model

One basic assumption of the aggregate expenditures model is that

In a recessionary expenditure gap, the equilibrium level of real GDP is

An economy characterized by high unemployment is likely to be

If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause

If the MPC in an economy is 0.8, government could close a recessionary expenditure gap of $100 billion by cutting taxes by

The recessionary expenditure gap associated with the recession of 2007-2009 resulted from

If net exports are positive,

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because

(Advanced analysis) The given equations describe consumption and investment (in billions of dollars) for a private closed economy.C = 60 + 0.6Y I = I0 = 30 In equilibrium, the level of saving will be

If aggregate expenditures exceed GDP in a private closed economy,

In moving from a private closed to a mixed closed economy in the aggregate expenditures model, taxes

If the equilibrium level of GDP in a private open economy is $1,000 billion and consumption is $700 billion at that level of GDP, then

If the United States wants to increase its net exports in the short term, it might take steps to

If households and firms in an economy would save all extra income that they receive so that MPC = 0, then the multiplier in that economy is zero.

The difference between the investment demand curve and the investment schedule is that the former shows

The $787 billion stimulus package enacted by the Federal government in 2009 to try to deal with the Great Recession was intended to

If at some level of GDP the economy is experiencing an unintended decrease in inventories,

From the perspective of classical macroeconomic theory, if aggregate spending was temporarily less than output,

In the flow of income and spending, saving and investment are, respectively,

One basic assumption of the aggregate expenditures model is that the price level in the economy is fixed.

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

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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