Question 1

Mathematically, the value of the spending multiplier in terms of the marginal propensity to consume (MPC)is given by the formula:

Accepted Answer

A) MPC - 1. 
B) (MPC - 1)\ MPC. 
C) 1 \ MPC. 
D) 1 \ (1 - MP
C) . 
A) MPC - 1. 
B) (MPC - 1)\ MPC. 
C) 1 \ MPC. 
D) 1 \ (1 - MP
C) .

Question 2

In the aggregate expenditures model, if an economy operates below equilibrium GDP, there will be:

Accepted Answer

A) unplanned inventory depletion. 
B) unplanned inventory accumulated. 
C) a decrease in GDP. 
D) a decrease in employment. 
A) unplanned inventory depletion. 
B) unplanned inventory accumulated. 
C) a decrease in GDP. 
D) a decrease in employment.

Question 3

If MPC = 0.80, how much should government spending change to increase real GDP by $500?

Accepted Answer

A) - 100. 
B) +80. 
C) - 80. 
D) +500. 
E) +100. 
A) - 100. 
B) +80. 
C) - 80. 
D) +500. 
E) +100.

Question 4

Using the aggregate expenditure-output model, assume the aggregate expenditures (AE)line is above the 45-degree line at full-employment GDP. This vertical distance is called a(n):

Accepted Answer

A) inflationary gap. 
B) recessionary gap. 
C) negative GDP gap. 
D) marginal propensity to consume gap. 
A) inflationary gap. 
B) recessionary gap. 
C) negative GDP gap. 
D) marginal propensity to consume gap.

Question 5

If the marginal propensity to save (MPS)is 0.50, the value of the spending multiplier is:

Accepted Answer

A) 1. 
B) 2. 
C) 4. 
D) 9. 
A) 1. 
B) 2. 
C) 4. 
D) 9.

Question 6

Exhibit 9-7 Keynesian aggregate-expenditures model   In Exhibit 9-7, the value of the spending multiplier is:

Accepted Answer

A) 2. 
B) 3. 
C) 4. 
D) 5. 
E) 6. 
A) 2. 
B) 3. 
C) 4. 
D) 5. 
E) 6.

Question 7

A recessionary gap is the amount that autonomous aggregate expenditures must rise to cause the equilibrium level of real GDP to shift to the full-employment level of real GDP.

Accepted Answer

A) True 
 B)False

Question 8

Assume that an economy's real GDP multiplier is 2 and that this economy is in equilibrium at $500 billion. If the government wants to move this economy to full-employment at $600 billion, while maintaining a balanced budget, it must choose which of the following options?

Accepted Answer

A) Increase government spending and taxes by $100 billion 
B) Decrease government spending and taxes by $100 billion 
C) Increase government spending and taxes by $200 billion 
D) Decrease government spending and taxes by $200 billion 
A) Increase government spending and taxes by $100 billion 
B) Decrease government spending and taxes by $100 billion 
C) Increase government spending and taxes by $200 billion 
D) Decrease government spending and taxes by $200 billion

Question 9

Exhibit 9-1 GDP and consumption data   As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1 trillion, net exports are - $0.5 trillion, and GDP is $7 trillion, then GDP will:

Accepted Answer

A) remain unchanged. 
B) increase by $2 trillion. 
C) decrease by $2 trillion. 
D) increase by $4 trillion. 
E) decrease by $4 trillion. 
A) remain unchanged. 
B) increase by $2 trillion. 
C) decrease by $2 trillion. 
D) increase by $4 trillion. 
E) decrease by $4 trillion.

Question 10

The sum of consumption (C), investment (I), government spending (G), and net exports (X-M)is called:

Accepted Answer

A) autonomous spending. 
B) aggregate expenditures. 
C) Keynesian income 
D) wealth. 
A) autonomous spending. 
B) aggregate expenditures. 
C) Keynesian income 
D) wealth.

Question 11

A change in real GDP divided by a change in investment is called the:

Accepted Answer

A) spending multiplier. 
B) demand multiplier. 
C) equilibrium multiplier. 
D) investment multiplier. 
E) spending multiplier 
A) spending multiplier. 
B) demand multiplier. 
C) equilibrium multiplier. 
D) investment multiplier. 
E) spending multiplier

Question 12

When the MPC gets smaller, the spending multiplier:

Accepted Answer

A) gets larger. 
B) gets smaller. 
C) stays the same. 
D) gets smaller at low real GDP, and larger at high real GDP. 
E) gets larger at low real GDP, and smaller at high real GDP. 
A) gets larger. 
B) gets smaller. 
C) stays the same. 
D) gets smaller at low real GDP, and larger at high real GDP. 
E) gets larger at low real GDP, and smaller at high real GDP.

Question 13

Use the aggregate expenditures model and assume an economy is in equilibrium at $5 trillion which is $250 billion below full-employment GDP. If the marginal propensity to consume (MPC)is 0.60, full-employment GDP can be reached if government spending:

Accepted Answer

A) increases by $60 billion. 
B) increases by $100 billion. 
C) increases by $250 billion. 
D) is held constant. 
A) increases by $60 billion. 
B) increases by $100 billion. 
C) increases by $250 billion. 
D) is held constant.

Question 14

Superhighways, public housing facilities, and defense projects are all ways that the President can:

Accepted Answer

A) close a recessionary gap 
B) close an inflationary gap 
C) combat inflation 
D) raise unemployment 
E) reverse the paradox of thrift 
A) close a recessionary gap 
B) close an inflationary gap 
C) combat inflation 
D) raise unemployment 
E) reverse the paradox of thrift

Question 15

In the aggregate expenditures model, if an economy operates below equilibrium GDP, there will be unplanned inventory depletion.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 9-8 Keynesian aggregate-expenditures model   In Exhibit 9-8, an increase in aggregate expenditures causes:

Accepted Answer

A) a movement down the aggregate demand curve from equilibrium real GDP $600 to equilibrium real GDP $1,000. 
B) a movement up the aggregate demand curve from equilibrium real GDP $1,200 to equilibrium real GDP $1,000. 
C) a shift of the aggregate demand curve to the right, causing equilibrium real GDP to increase from $600 to $1,000. 
D) a shift of the aggregate demand curve to the left, causing equilibrium real GDP to decrease from $1,200 to $1,000. 
E) no change in equilibrium real GDP. 
A) a movement down the aggregate demand curve from equilibrium real GDP $600 to equilibrium real GDP $1,000. 
B) a movement up the aggregate demand curve from equilibrium real GDP $1,200 to equilibrium real GDP $1,000. 
C) a shift of the aggregate demand curve to the right, causing equilibrium real GDP to increase from $600 to $1,000. 
D) a shift of the aggregate demand curve to the left, causing equilibrium real GDP to decrease from $1,200 to $1,000. 
E) no change in equilibrium real GDP.

Question 17

Exhibit 9-1 GDP and consumption data    
As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1 trillion, net exports are - $0.5 trillion, and GDP is $7 trillion, then:

Accepted Answer

A) inventory depletion is - $1.0 trillion. 
B) inventory accumulation is $1.0 trillion. 
C) inventory depletion is - $2.0 trillion. 
D) inventory accumulation is $2.0 trillion. 
A) inventory depletion is - $1.0 trillion. 
B) inventory accumulation is $1.0 trillion. 
C) inventory depletion is - $2.0 trillion. 
D) inventory accumulation is $2.0 trillion.

Question 18

The spending multiplier is:

Accepted Answer

A) 1 \ (1 - MP
C) . 
B) 1 - MPC. 
C) MPC. 
D) MPC \ (1 - MP
C) . 
A) 1 \ (1 - MP
C) . 
B) 1 - MPC. 
C) MPC. 
D) MPC \ (1 - MP
C) .

Question 19

In the aggregate expenditures model, equilibrium occurs if:

Accepted Answer

A) aggregate expenditures (A
E) are greater than GDP. 
B) aggregate expenditures (A
E) are less than GDP. 
C) there is no unplanned inventory depletion or accumulation. 
D) consumption equals investment. 
A) aggregate expenditures (A
E) are greater than GDP. 
B) aggregate expenditures (A
E) are less than GDP. 
C) there is no unplanned inventory depletion or accumulation. 
D) consumption equals investment.

Question 20

Using the Keynesian aggregate expenditures model, which of the following is true?

Accepted Answer

A) Macro equilibrium may occur at levels of real GDP other than full-employment real GDP. 
B) At any macro equilibrium, the actual rate of unemployment must equal the natural rate of unemployment. 
C) If an economy is operating below full employment capacity, the Keynesian model indicates that lower wage rates will automatically adjust the economy back to full employment. 
D) All of these are correct. 
A) Macro equilibrium may occur at levels of real GDP other than full-employment real GDP. 
B) At any macro equilibrium, the actual rate of unemployment must equal the natural rate of unemployment. 
C) If an economy is operating below full employment capacity, the Keynesian model indicates that lower wage rates will automatically adjust the economy back to full employment. 
D) All of these are correct.

Exam 9: The Keynesian Model in Action

Mathematically, the value of the spending multiplier in terms of the marginal propensity to consume (MPC)is given by the formula:

In the aggregate expenditures model, if an economy operates below equilibrium GDP, there will be:

If MPC = 0.80, how much should government spending change to increase real GDP by $500?

Using the aggregate expenditure-output model, assume the aggregate expenditures (AE)line is above the 45-degree line at full-employment GDP. This vertical distance is called a(n):

If the marginal propensity to save (MPS)is 0.50, the value of the spending multiplier is:

Exhibit 9-7 Keynesian aggregate-expenditures model In Exhibit 9-7, the value of the spending multiplier is:

A recessionary gap is the amount that autonomous aggregate expenditures must rise to cause the equilibrium level of real GDP to shift to the full-employment level of real GDP.

Assume that an economy's real GDP multiplier is 2 and that this economy is in equilibrium at $500 billion. If the government wants to move this economy to full-employment at $600 billion, while maintaining a balanced budget, it must choose which of the following options?

Exhibit 9-1 GDP and consumption data As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1 trillion, net exports are - $0.5 trillion, and GDP is $7 trillion, then GDP will:

The sum of consumption (C), investment (I), government spending (G), and net exports (X-M)is called:

A change in real GDP divided by a change in investment is called the:

When the MPC gets smaller, the spending multiplier:

Use the aggregate expenditures model and assume an economy is in equilibrium at $5 trillion which is $250 billion below full-employment GDP. If the marginal propensity to consume (MPC)is 0.60, full-employment GDP can be reached if government spending:

Superhighways, public housing facilities, and defense projects are all ways that the President can:

In the aggregate expenditures model, if an economy operates below equilibrium GDP, there will be unplanned inventory depletion.

Exhibit 9-8 Keynesian aggregate-expenditures model In Exhibit 9-8, an increase in aggregate expenditures causes:

Exhibit 9-1 GDP and consumption data As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1 trillion, net exports are - $0.5 trillion, and GDP is $7 trillion, then:

The spending multiplier is:

In the aggregate expenditures model, equilibrium occurs if:

Using the Keynesian aggregate expenditures model, which of the following is true?

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters