Question 1

A recessionary gap exists when the equilibrium level of GDP exceeds potential GDP.

Accepted Answer

A) True 
 B)False  False

Question 2

In the income-expenditure model, at equilibrium GDP

Accepted Answer

A)  either unemployment or inflation may occur. 
B)  inflation can occur but unemployment cannot. 
C)  unemployment can occur but inflation cannot. 
D)  both unemployment and inflation are impossible. 
A)  either unemployment or inflation may occur. 
B)  inflation can occur but unemployment cannot. 
C)  unemployment can occur but inflation cannot. 
D)  both unemployment and inflation are impossible. A

Question 3

When income rises, total expenditures remain constant.

Accepted Answer

A) True 
 B)False  False

Question 4

An expenditure schedule shows the relationship between GDP and total output.

Accepted Answer

A) True 
 B)False

Question 5

Suppose the economy is suffering in a recessionary period.Firms are facing increasing inventories and individual consumers are increasing their saving to prepare for hard times ahead.What is likely to happen to the economy and can it correct itself and grow toward full employment in the short run?

Accepted Answer

The Keynesian view of the economy would

Question 6

If the economy is suffering a recession, inventories are probably falling.

Accepted Answer

A) True 
 B)False

Question 7

The aggregate demand curve

Accepted Answer

A)  slopes upward. 
B)  slopes downward. 
C)  is perfectly vertical. 
D)  is perfectly horizontal. 
A)  slopes upward. 
B)  slopes downward. 
C)  is perfectly vertical. 
D)  is perfectly horizontal.

Question 8

Assume a simple macroeconomic model.When inventories rise unexpectedly,

Accepted Answer

A)  income is above its equilibrium value. 
B)  income will rise until it reaches its equilibrium value. 
C)  total spending is higher than total output. 
D)  All of the above. 
A)  income is above its equilibrium value. 
B)  income will rise until it reaches its equilibrium value. 
C)  total spending is higher than total output. 
D)  All of the above.

Question 9

Figure 9-1
  
-In Figure 9-1, at $7,000 billion real GDP,

Accepted Answer

A)  inventories are increasing. 
B)  spending falls short of output. 
C)  spending exceeds output. 
D)  Both a and b are correct. 
A)  inventories are increasing. 
B)  spending falls short of output. 
C)  spending exceeds output. 
D)  Both a and b are correct.

Question 10

Why do booms and recessions tend to be transmitted across national borders?

Accepted Answer

The GDPs of the major economies are link

Question 11

In the circular flow diagram saving

Accepted Answer

A)  is a leakage and investment is an injection. 
B)  and investment are both injections. 
C)  is an injection and investment is a leakage. 
D)  and investment are both leakages. 
A)  is a leakage and investment is an injection. 
B)  and investment are both injections. 
C)  is an injection and investment is a leakage. 
D)  and investment are both leakages.

Question 12

If retail managers are ordering extra merchandise from their wholesale distributors, then it is probably true that

Accepted Answer

A)  total output is greater than total spending. 
B)  price levels are decreasing. 
C)  inventory levels are increasing. 
D)  inventory levels are decreasing. 
A)  total output is greater than total spending. 
B)  price levels are decreasing. 
C)  inventory levels are increasing. 
D)  inventory levels are decreasing.

Question 13

When aggregate demand exceeds current production

Accepted Answer

A)  both output and the price level are in equilibrium. 
B)  output is not in equilibrium, but the price level is. 
C)  prices are not in equilibrium, but output is. 
D)  neither output nor the price level is in equilibrium. 
A)  both output and the price level are in equilibrium. 
B)  output is not in equilibrium, but the price level is. 
C)  prices are not in equilibrium, but output is. 
D)  neither output nor the price level is in equilibrium.

Question 14

In a capitalist market economy, recessions and inflation can occur because of coordination failures.

Accepted Answer

A) True 
 B)False

Question 15

In a capitalist market economy, the decision to save is made by the same people who make the major investment decisions.

Accepted Answer

A) True 
 B)False

Question 16

A decrease in autonomous consumption would have the same effect on the expenditures schedule as a(n)

Accepted Answer

A)  decrease in investment. 
B)  increase in government purchases. 
C)  increase in net exports. 
D)  decrease in taxes 
A)  decrease in investment. 
B)  increase in government purchases. 
C)  increase in net exports. 
D)  decrease in taxes

Question 17

An economic recession in Japan will cause the aggregate demand curve in the United States to shift to the right.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following questions are not answered by the process of demand side GDP determination?

Accepted Answer

A)  How large is equilibrium GDP? 
B)  Does the economy have unemployment? 
C)  Is demand side equilibrium consistent with supply side equilibrium? 
D)  Does the economy have inflation? 
E)  All of the above are not answered. 
A)  How large is equilibrium GDP? 
B)  Does the economy have unemployment? 
C)  Is demand side equilibrium consistent with supply side equilibrium? 
D)  Does the economy have inflation? 
E)  All of the above are not answered.

Question 19

The expenditure schedule will shift upward when

Accepted Answer

A)  net exports decrease. 
B)  net exports increase. 
C)  total imports increase. 
D)  total exports decrease. 
A)  net exports decrease. 
B)  net exports increase. 
C)  total imports increase. 
D)  total exports decrease.

Question 20

If the level of investment spending increases by $100 and the MPC in the economy is 0.8, then the cumulative spending increase after three rounds of spending is

Accepted Answer

A)  $280. 
B)  $260. 
C)  $244. 
D)  $220. 
A)  $280. 
B)  $260. 
C)  $244. 
D)  $220.

Exam 26: Demand-Side Equilibrium: Unemployment or Inflation?

A recessionary gap exists when the equilibrium level of GDP exceeds potential GDP.

In the income-expenditure model, at equilibrium GDP

When income rises, total expenditures remain constant.

An expenditure schedule shows the relationship between GDP and total output.

Suppose the economy is suffering in a recessionary period.Firms are facing increasing inventories and individual consumers are increasing their saving to prepare for hard times ahead.What is likely to happen to the economy and can it correct itself and grow toward full employment in the short run?

If the economy is suffering a recession, inventories are probably falling.

The aggregate demand curve

Assume a simple macroeconomic model.When inventories rise unexpectedly,

Figure 9-1 -In Figure 9-1, at $7,000 billion real GDP,

Why do booms and recessions tend to be transmitted across national borders?

In the circular flow diagram saving

If retail managers are ordering extra merchandise from their wholesale distributors, then it is probably true that

When aggregate demand exceeds current production

In a capitalist market economy, recessions and inflation can occur because of coordination failures.

In a capitalist market economy, the decision to save is made by the same people who make the major investment decisions.

A decrease in autonomous consumption would have the same effect on the expenditures schedule as a(n)

An economic recession in Japan will cause the aggregate demand curve in the United States to shift to the right.

Which of the following questions are not answered by the process of demand side GDP determination?

The expenditure schedule will shift upward when

If the level of investment spending increases by $100 and the MPC in the economy is 0.8, then the cumulative spending increase after three rounds of spending is

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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