Question 1

If unintended increases in business inventories occur, we can expect

Accepted Answer

A)  a decline in GDP and rising unemployment. 
B)  inﬂation. 
C)  an increase in consumption. 
D)  an offsetting increase in planned investment. 
A)  a decline in GDP and rising unemployment. 
B)  inﬂation. 
C)  an increase in consumption. 
D)  an offsetting increase in planned investment.

Question 2

Other things equal, an increase in an economy's exports will

Accepted Answer

A)  lower the marginal propensity to import. 
B)  have no effect on domestic GDP because imports will change by an offsetting amount. 
C)  decrease its domestic aggregate expenditures and therefore decrease its equilibrium GDP. 
D)  increase its domestic aggregate expenditures and therefore increase its equilibrium GDP. 
A)  lower the marginal propensity to import. 
B)  have no effect on domestic GDP because imports will change by an offsetting amount. 
C)  decrease its domestic aggregate expenditures and therefore decrease its equilibrium GDP. 
D)  increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.

Question 3

Which of the following statements is incorrect?

Accepted Answer

A)  Given the economy's MPS, a $15 billion reduction in government spending will reduce the equilibrium GDP by more than would a $15 billion increase in taxes. 
B)  Other things unchanged, a tax reduction of $10 billion will increase the equilibrium GDP by $25 billion when the MPS is 0.4. 
C)  If the MPC is 0.8 and GDP has declined by $40 billion, this was caused by a decline in aggregate expenditures of $8 billion. 
D)  A government surplus is anti-inﬂationary; a government deﬁcit is expansionary. 
A)  Given the economy's MPS, a $15 billion reduction in government spending will reduce the equilibrium GDP by more than would a $15 billion increase in taxes. 
B)  Other things unchanged, a tax reduction of $10 billion will increase the equilibrium GDP by $25 billion when the MPS is 0.4. 
C)  If the MPC is 0.8 and GDP has declined by $40 billion, this was caused by a decline in aggregate expenditures of $8 billion. 
D)  A government surplus is anti-inﬂationary; a government deﬁcit is expansionary.

Question 4

Refer to the diagram. The level of government spending

Accepted Answer

A)  is equal to tax collections at each level of GDP. 
B)  is the same at all levels of GDP. 
C)  varies inversely with the level of GDP. 
D)  varies directly with the level of GDP. 
A)  is equal to tax collections at each level of GDP. 
B)  is the same at all levels of GDP. 
C)  varies inversely with the level of GDP. 
D)  varies directly with the level of GDP.

Question 5

In the aggregate expenditures model, it is assumed that investment

Accepted Answer

A)  automatically changes in response to changes in real GDP. 
B)  changes by less in percentage terms than changes in real GDP. 
C)  does not respond to changes in interest rates. 
D)  does not change when real GDP changes. 
A)  automatically changes in response to changes in real GDP. 
B)  changes by less in percentage terms than changes in real GDP. 
C)  does not respond to changes in interest rates. 
D)  does not change when real GDP changes.

Question 6

$$\begin{array}{l}
\begin{array} { | c | c | } 
\hline \text { Gross Domestic Product } & \text { Consumption } \
\hline \$ 100 & \$ 100 \
\hline 200 & 160 \
\hline 300 & 220 \
\hline 400 & 280 \
\hline 500 & 340 \
\hline 600 & 440 \
\hline
\end{array}\\
\begin{array} { | c | c | } 
\hline \text { Expected Rate of Return } & \text { Amount of Investment } \
\hline 15 \% & \$ 0 \
\hline 12 & 40 \
\hline 9 & 80 \
\hline 6 & 120 \
\hline 3 & 160 \
\hline 0 & 200 \
\hline
\end{array}
\end{array}$$ Refer to the tables of information for a private closed economy. If the real interest rate is 9 percent, the equilibrium GDP will be

Accepted Answer

A)  $600. 
B)  $500. 
C)  $400. 
D)  $300. 
A)  $600. 
B)  $500. 
C)  $400. 
D)  $300.

If unintended increases in business inventories occur, we can expect

Other things equal, an increase in an economy's exports will

Which of the following statements is incorrect?

Refer to the diagram. The level of government spending

In the aggregate expenditures model, it is assumed that investment

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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

Exam 11: The Aggregate Expenditures Model

If unintended increases in business inventories occur, we can expect

Other things equal, an increase in an economy's exports will

Which of the following statements is incorrect?

Refer to the diagram. The level of government spending

In the aggregate expenditures model, it is assumed that investment

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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