Question 1

In a private closed economy, the two components of aggregate expenditures are

Accepted Answer

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

Question 2

An increase in a lump-sum tax has the same effect on equilibrium GDP as an equal decrease in government purchases.

Accepted Answer

A) True 
 B)False

Question 3

The multiplier effect demonstrates that

Accepted Answer

A) equal increases in government spending and taxes do not change the equilibrium GDP. 
B) equal increases in government spending and taxes reduce the equilibrium GDP. 
C) equal increases in government spending and taxes increase the equilibrium GDP. 
D) taxes have a stronger effect upon equilibrium GDP than do government purchases. 
A) equal increases in government spending and taxes do not change the equilibrium GDP. 
B) equal increases in government spending and taxes reduce the equilibrium GDP. 
C) equal increases in government spending and taxes increase the equilibrium GDP. 
D) taxes have a stronger effect upon equilibrium GDP than do government purchases.

Question 4

The effect of imposing a lump-sum tax is to

Accepted Answer

A) reduce the absolute levels of consumption and saving at each level of GDP and to reduce the size of the multiplier. 
B) reduce the absolute levels of consumption and saving at each level of GDP but to not change the size of the multiplier. 
C) reduce the absolute levels of consumption and saving at each level of GDP and to increase the size of the multiplier. 
D) increase the absolute levels of consumption and saving at each level of GDP and to increase the size of the multiplier. 
A) reduce the absolute levels of consumption and saving at each level of GDP and to reduce the size of the multiplier. 
B) reduce the absolute levels of consumption and saving at each level of GDP but to not change the size of the multiplier. 
C) reduce the absolute levels of consumption and saving at each level of GDP and to increase the size of the multiplier. 
D) increase the absolute levels of consumption and saving at each level of GDP and to increase the size of the multiplier.

Question 5

In the aggregate expenditures model presented in the textbook, investment is assumed to rise with increases in real GDP and fall with decreases in real GDP.

Accepted Answer

A) True 
 B)False

Question 6

If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by

Accepted Answer

A) $3.75 billion. 
B) $6.7 billion. 
C) $8.75 billion. 
D) $20 billion. 
A) $3.75 billion. 
B) $6.7 billion. 
C) $8.75 billion. 
D) $20 billion.

Question 7

Consumption is $141 billion, planned investment is $15 billion, and saving is $15 billion in a private, closed economy.At this level,

Accepted Answer

A) actual investment does not equal planned investment. 
B) there will be unplanned increases in inventories. 
C) there will be unplanned decreases in inventories. 
D) the economy is in equilibrium. 
A) actual investment does not equal planned investment. 
B) there will be unplanned increases in inventories. 
C) there will be unplanned decreases in inventories. 
D) the economy is in equilibrium.

Question 8

Leakages from the income-expenditure stream are

Accepted Answer

A) consumption, saving, and transfer payments. 
B) saving, taxes, and investment. 
C) saving, taxes, and imports. 
D) imports, taxes, and transfer payments. 
A) consumption, saving, and transfer payments. 
B) saving, taxes, and investment. 
C) saving, taxes, and imports. 
D) imports, taxes, and transfer payments.

Question 9

Saving is $15 billion at the $125 billion equilibrium level of output in a closed, private economy.Actual investment must be

Accepted Answer

A) less than saving 
B) greater than saving. 
C) equal to $15 billion. 
D) equal to $125 billion. 
A) less than saving 
B) greater than saving. 
C) equal to $15 billion. 
D) equal to $125 billion.

Question 10

(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 this economy, the equilibrium level of income (Y) is

Accepted Answer

A) 360. 
B) 225. 
C) 200. 
D) 135. 
A) 360. 
B) 225. 
C) 200. 
D) 135.

Question 11

GDP C S Ig $100 $100 $0 $80
200 160 40 80
300 220 80 80
400 280 120 80
500 340 160 80
600 400 200 80
700 460 240 80
Refer to the accompanying information for a closed economy.If both government spending and taxes are zero, the equilibrium level of GDP is

Accepted Answer

A) $200. 
B) $300. 
C) $400. 
D) $500. 
A) $200. 
B) $300. 
C) $400. 
D) $500.

Question 12

If the government increases its purchases by $200 billion but at the same time raises lump-sum taxes by $200 billion, then equilibrium GDP will remain constant.

Accepted Answer

A) True 
 B)False

Question 13

When C + I g = GDP in a private closed economy, S = Ig and there are no unplanned changes in inventories.

Accepted Answer

A) True 
 B)False

Question 14

A private closed economy includes

Accepted Answer

A) households, businesses, and government, but not international trade. 
B) households, businesses, and international trade, but not government. 
C) households and businesses, but not government or international trade. 
D) households only. 
A) households, businesses, and government, but not international trade. 
B) households, businesses, and international trade, but not government. 
C) households and businesses, but not government or international trade. 
D) households only.

Question 15

If the MPC in an economy is 0.75, a $1 billion increase in taxes will ultimately reduce consumption by

Accepted Answer

A) $1 billion. 
B) $0.75 billion. 
C) $3 billion. 
D) $4 billion. 
A) $1 billion. 
B) $0.75 billion. 
C) $3 billion. 
D) $4 billion.

Question 16

If a lump-sum tax of $40 billion is levied at each level of income and the MPC is 0.75, then the saving schedule will shift

Accepted Answer

A) upward by $10 billion. 
B) upward by $25 billion. 
C) downward by $10 billion. 
D) downward by $25 billion. 
A) upward by $10 billion. 
B) upward by $25 billion. 
C) downward by $10 billion. 
D) downward by $25 billion.

Question 17

Unintended changes in inventories

Accepted Answer

A) cause the economy to move away from the equilibrium GDP. 
B) are treated as components of consumption. 
C) bring actual investment and saving into equality only at the equilibrium level of GDP. 
D) bring actual investment and saving into equality at all levels of GDP. 
A) cause the economy to move away from the equilibrium GDP. 
B) are treated as components of consumption. 
C) bring actual investment and saving into equality only at the equilibrium level of GDP. 
D) bring actual investment and saving into equality at all levels of GDP.

Question 18

Other things equal, the slope of the aggregate expenditures schedule will increase as a result of

Accepted Answer

A) a decline in the size of the inflationary gap. 
B) an increase in the MPC. 
C) an increase in the MPS. 
D) a decline in the general price level. 
A) a decline in the size of the inflationary gap. 
B) an increase in the MPC. 
C) an increase in the MPS. 
D) a decline in the general price level.

Question 19

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?

Accepted Answer

A) bank panic of 1907 
B) Great Depression 
C) spectacular economic growth during World War II 
A) bank panic of 1907 
B) Great Depression 
C) spectacular economic growth during World War II

Question 20

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

Accepted Answer

A) a $20 billion reduction 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 increase in government spending 
A) a $20 billion reduction 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 increase in government spending

Exam 31: The Aggregate Expenditures Model

In a private closed economy, the two components of aggregate expenditures are

An increase in a lump-sum tax has the same effect on equilibrium GDP as an equal decrease in government purchases.

The multiplier effect demonstrates that

The effect of imposing a lump-sum tax is to

In the aggregate expenditures model presented in the textbook, investment is assumed to rise with increases in real GDP and fall with decreases in real GDP.

If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by

Consumption is $141 billion, planned investment is $15 billion, and saving is $15 billion in a private, closed economy.At this level,

Leakages from the income-expenditure stream are

Saving is $15 billion at the $125 billion equilibrium level of output in a closed, private economy.Actual investment must be

(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 this economy, the equilibrium level of income (Y) is

GDP C S Ig $100 $100 $0 $80 200 160 40 80 300 220 80 80 400 280 120 80 500 340 160 80 600 400 200 80 700 460 240 80 Refer to the accompanying information for a closed economy.If both government spending and taxes are zero, the equilibrium level of GDP is

If the government increases its purchases by $200 billion but at the same time raises lump-sum taxes by $200 billion, then equilibrium GDP will remain constant.

When C + I g = GDP in a private closed economy, S = Ig and there are no unplanned changes in inventories.

A private closed economy includes

If the MPC in an economy is 0.75, a $1 billion increase in taxes will ultimately reduce consumption by

If a lump-sum tax of $40 billion is levied at each level of income and the MPC is 0.75, then the saving schedule will shift

Unintended changes in inventories

Other things equal, the slope of the aggregate expenditures schedule will increase as a result of

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?

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

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

Filters