Question 1

If the MPS = .25, and investment falls from $100 to $75, real GDP will decrease by:

Accepted Answer

A) $25. 
B) $75. 
C) $150. 
D) $125. 
E) $100. 
A) $25. 
B) $75. 
C) $150. 
D) $125. 
E) $100.

Question 2

Which of the following options could be used to eliminate a recessionary gap?

Accepted Answer

A) Decrease government spending. 
B) Decrease consumption. 
C) Decrease investment. 
D) Decrease taxes. 
A) Decrease government spending. 
B) Decrease consumption. 
C) Decrease investment. 
D) Decrease taxes.

Question 3

To close a recessionary gap using fiscal policy, the government can:

Accepted Answer

A) increase government spending by the size of the gap. 
B) decrease government spending by the size of the gap. 
C) increase government spending by more than the size of the gap. 
D) increase government spending by less than the size of the gap. 
E) decrease government spending by more than the size of the gap. 
A) increase government spending by the size of the gap. 
B) decrease government spending by the size of the gap. 
C) increase government spending by more than the size of the gap. 
D) increase government spending by less than the size of the gap. 
E) decrease government spending by more than the size of the gap.

Question 4

If the spending multiplier is equal to 4, then a $25 initial increase in investment spending will lead to a:

Accepted Answer

A) $25 increase in real GDP. 
B) $1 decrease in real GDP. 
C) $1 increase in real GDP. 
D) $100 decrease in real GDP. 
E) $100 increase in real GDP. 
A) $25 increase in real GDP. 
B) $1 decrease in real GDP. 
C) $1 increase in real GDP. 
D) $100 decrease in real GDP. 
E) $100 increase in real GDP.

Question 5

Assume that full-employment real GDP is Y = $1,200 billion, the current equilibrium real GDP is Y = $1,600 billion, and the MPC = 0.8. In order to bring the economy to a full-employment real GDP,

Accepted Answer

A) a recessionary gap must be bridged by increasing aggregate expenditures by $80 billion. 
B) an inflationary gap must be bridged by cutting aggregate expenditures by $80 billion. 
C) nothing is needed to bring the economy into full employment equilibrium. 
D) a recessionary gap must be bridged by increasing aggregate expenditures by $400 billion. 
E) an inflationary gap must be bridged by cutting aggregate expenditures by $400 billion. 
A) a recessionary gap must be bridged by increasing aggregate expenditures by $80 billion. 
B) an inflationary gap must be bridged by cutting aggregate expenditures by $80 billion. 
C) nothing is needed to bring the economy into full employment equilibrium. 
D) a recessionary gap must be bridged by increasing aggregate expenditures by $400 billion. 
E) an inflationary gap must be bridged by cutting aggregate expenditures by $400 billion.

Question 6

Exhibit 9-6 Keynesian aggregate-expenditure model when the MPC is 2\3   The economy shown in Exhibit 9-6 has a recessionary gap of:

Accepted Answer

A) $1 trillion. 
B) $2 trillion. 
C) $3 trillion. 
D) $5 trillion. 
A) $1 trillion. 
B) $2 trillion. 
C) $3 trillion. 
D) $5 trillion.

Question 7

If the marginal propensity to consume (MPC)is 0.90, a $100 increase in investment spending, other things being equal, will cause an increase in equilibrium real GDP of:

Accepted Answer

A) $90. 
B) $100. 
C) $900. 
D) $1,000. 
A) $90. 
B) $100. 
C) $900. 
D) $1,000.

Question 8

If a nation imports more than it exports, then its net exports are:

Accepted Answer

A) positive. 
B) negative. 
C) zero. 
D) unstable. 
A) positive. 
B) negative. 
C) zero. 
D) unstable.

Question 9

The impact of the multiplier effect is to:

Accepted Answer

A) smooth out the up and down swings of the business cycle. 
B) promote price stability. 
C) magnify small changes in spending into much larger changes in real GDP. 
D) reduce the impact of an increase in investment on output and employment. 
A) smooth out the up and down swings of the business cycle. 
B) promote price stability. 
C) magnify small changes in spending into much larger changes in real GDP. 
D) reduce the impact of an increase in investment on output and employment.

Question 10

An economy that is operating below its full-employment capacity is experiencing a(n):

Accepted Answer

A) tax-induced recession. 
B) recessionary gap. 
C) fiscal drag. 
D) market correction. 
E) inflationary gap. 
A) tax-induced recession. 
B) recessionary gap. 
C) fiscal drag. 
D) market correction. 
E) inflationary gap.

Question 11

Exhibit 9-3 Keynesian aggregate-expenditures model   As shown in Exhibit 9-3, if GDP is $14 trillion, the economy experiences unplanned inventory:

Accepted Answer

A) accumulation of $12 trillion. 
B) depletion of $14 trillion. 
C) accumulation of $2 trillion. 
D) depletion of $4 trillion. 
A) accumulation of $12 trillion. 
B) depletion of $14 trillion. 
C) accumulation of $2 trillion. 
D) depletion of $4 trillion.

Question 12

If an increase in investment of $50 causes an increase in real GDP of $250, the value of the spending multiplier is:

Accepted Answer

A) 5. 
B) .20. 
C) .80. 
D) 3. 
E) 10. 
A) 5. 
B) .20. 
C) .80. 
D) 3. 
E) 10.

Question 13

An economy that is operating below its full-employment capacity is experiencing:

Accepted Answer

A) Say's Law. 
B) unrealizable inflationary expectations. 
C) Keynesian aggregate demand. 
D) an inflationary gap. 
E) a recessionary gap. 
A) Say's Law. 
B) unrealizable inflationary expectations. 
C) Keynesian aggregate demand. 
D) an inflationary gap. 
E) a recessionary gap.

Question 14

Using C to represent consumption, I to represent investment, G to represent government spending, S to represent saving, X to represent exports, and M to represent imports, aggregate expenditures can be represented by:

Accepted Answer

A) C + I + G + (X + M). 
B) (C - S)+ G + (X - M). 
C) C + I + G + (X - M). 
D) C + I + G + (X - M)- S. 
A) C + I + G + (X + M). 
B) (C - S)+ G + (X - M). 
C) C + I + G + (X - M). 
D) C + I + G + (X - M)- S.

Question 15

Exhibit 9-6 Keynesian aggregate-expenditure model when the MPC is 2\3   In Exhibit 9-6, the spending multiplier for this economy is equal to:

Accepted Answer

A) 1 2\3. 
B) 2 1\2. 
C) 3. 
D) 5. 
A) 1 2\3. 
B) 2 1\2. 
C) 3. 
D) 5.

Question 16

Assume the marginal propensity to save is 0.10. Firms become optimistic and increase investment spending by $10 billion. Other things being equal, real GDP will:

Accepted Answer

A) increase by $1 billion. 
B) not change. 
C) increase by $10 billion. 
D) increase by $100 billion. 
A) increase by $1 billion. 
B) not change. 
C) increase by $10 billion. 
D) increase by $100 billion.

Question 17

Assume that an economy's real GDP multiplier is 4. If this economy is in equilibrium at $2,000 billion, then which one of the following actions will bring it to a full employment equilibrium of $1,500 billion?

Accepted Answer

A) $500 billion spending cut. 
B) $500 billion spending increase. 
C) $125 billion spending cut. 
D) $125 billion spending increase. 
E) $2,000 billion spending cut. 
A) $500 billion spending cut. 
B) $500 billion spending increase. 
C) $125 billion spending cut. 
D) $125 billion spending increase. 
E) $2,000 billion spending cut.

Question 18

Exhibit 9-8 Keynesian aggregate-expenditures model   In Exhibit 9-8, the value of the spending multiplier is:

Accepted Answer

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

Question 19

If the value of the marginal propensity to consume (MPC)is 0.90, the value of the spending multiplier is:

Accepted Answer

A) 10. 
B) 1.1. 
C) 90. 
D) 100. 
A) 10. 
B) 1.1. 
C) 90. 
D) 100.

Question 20

Exhibit 9-3 Keynesian aggregate-expenditures model   As shown in Exhibit 9-3, if GDP is $6 trillion, the economy experiences unplanned inventory:

Accepted Answer

A) depletion of $2 trillion. 
B) depletion of $6 trillion. 
C) accumulation of $2 trillion. 
D) accumulation of $6 trillion. 
E) none of these. 
A) depletion of $2 trillion. 
B) depletion of $6 trillion. 
C) accumulation of $2 trillion. 
D) accumulation of $6 trillion. 
E) none of these.

Exam 9: The Keynesian Model in Action

If the MPS = .25, and investment falls from $100 to $75, real GDP will decrease by:

Which of the following options could be used to eliminate a recessionary gap?

To close a recessionary gap using fiscal policy, the government can:

If the spending multiplier is equal to 4, then a $25 initial increase in investment spending will lead to a:

Assume that full-employment real GDP is Y = $1,200 billion, the current equilibrium real GDP is Y = $1,600 billion, and the MPC = 0.8. In order to bring the economy to a full-employment real GDP,

Exhibit 9-6 Keynesian aggregate-expenditure model when the MPC is 2\3 The economy shown in Exhibit 9-6 has a recessionary gap of:

If the marginal propensity to consume (MPC)is 0.90, a $100 increase in investment spending, other things being equal, will cause an increase in equilibrium real GDP of:

If a nation imports more than it exports, then its net exports are:

The impact of the multiplier effect is to:

An economy that is operating below its full-employment capacity is experiencing a(n):

Exhibit 9-3 Keynesian aggregate-expenditures model As shown in Exhibit 9-3, if GDP is $14 trillion, the economy experiences unplanned inventory:

If an increase in investment of $50 causes an increase in real GDP of $250, the value of the spending multiplier is:

An economy that is operating below its full-employment capacity is experiencing:

Using C to represent consumption, I to represent investment, G to represent government spending, S to represent saving, X to represent exports, and M to represent imports, aggregate expenditures can be represented by:

Exhibit 9-6 Keynesian aggregate-expenditure model when the MPC is 2\3 In Exhibit 9-6, the spending multiplier for this economy is equal to:

Assume the marginal propensity to save is 0.10. Firms become optimistic and increase investment spending by $10 billion. Other things being equal, real GDP will:

Assume that an economy's real GDP multiplier is 4. If this economy is in equilibrium at $2,000 billion, then which one of the following actions will bring it to a full employment equilibrium of $1,500 billion?

Exhibit 9-8 Keynesian aggregate-expenditures model In Exhibit 9-8, the value of the spending multiplier is:

If the value of the marginal propensity to consume (MPC)is 0.90, the value of the spending multiplier is:

Exhibit 9-3 Keynesian aggregate-expenditures model As shown in Exhibit 9-3, if GDP is $6 trillion, the economy experiences unplanned inventory:

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

Exhibit 9-6 Keynesian aggregate-expenditure model when the MPC is 2\3 $Exhibit 9-6 Keynesian aggregate-expenditure model when the MPC is 2\3 The economy shown in Exhibit 9-6 has a recessionary gap of:$ The economy shown in Exhibit 9-6 has a recessionary gap of:

Exhibit 9-6 Keynesian aggregate-expenditure model when the MPC is 2\3 $Exhibit 9-6 Keynesian aggregate-expenditure model when the MPC is 2\3 In Exhibit 9-6, the spending multiplier for this economy is equal to:$ In Exhibit 9-6, the spending multiplier for this economy is equal to: