Question 1

In the aggregate expenditures model, if aggregate expenditures (AE) are greater than GDP, then:

Accepted Answer

A)  inventory is depleted. 
B)  inventory is accumulated. 
C)  inventory is unchanged. 
D)  employment decreases. 
A)  inventory is depleted. 
B)  inventory is accumulated. 
C)  inventory is unchanged. 
D)  employment decreases. A

Question 2

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. C

Question 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:

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. C

Question 4

Assume that full-employment real GDP is Y = $1,200 billion, the current equilibrium real GDP is Y = $800 billion, and the MPC is 0.50. What level of aggregate expenditures will close the recessionary gap?

Accepted Answer

A)  $80 billion. 
B)  $140 billion. 
C)  $200 billion. 
D)  $400 billion. 
A)  $80 billion. 
B)  $140 billion. 
C)  $200 billion. 
D)  $400 billion.

Question 5

If the marginal propensity to consume (MPC) is 0.75, a $50 decrease in government spending, other things being equal, would cause equilibrium real GDP to:

Accepted Answer

A)  increase by $50. 
B)  decrease by $50. 
C)  increase by $200. 
D)  decrease by $200. 
A)  increase by $50. 
B)  decrease by $50. 
C)  increase by $200. 
D)  decrease by $200.

Question 6

An inflationary gap is the amount by which aggregate expenditures ____ the amount required to achieve full-employment equilibrium GDP.

Accepted Answer

A)  exceed 
B)  equal 
C)  fall short of 
D)  are greater than 
A)  exceed 
B)  equal 
C)  fall short of 
D)  are greater than

Question 7

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 8

In the aggregate expenditures model, an increase in government spending causes a(n):

Accepted Answer

A)  upward shift in the aggregate expenditures curve. 
B)  downward shift in the aggregate expenditures curve. 
C)  leftward movement along the aggregate expenditures curve. 
D)  rightward movement along the aggregate expenditures curve. 
A)  upward shift in the aggregate expenditures curve. 
B)  downward shift in the aggregate expenditures curve. 
C)  leftward movement along the aggregate expenditures curve. 
D)  rightward movement along the aggregate expenditures curve.

Question 9

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 
A)  close a recessionary gap 
B)  close an inflationary gap 
C)  combat inflation 
D)  raise unemployment

Question 10

Exhibit 9-5 Keynesian aggregate expenditures model where the MPC is 0.75
​
 
To eliminate the GDP gap shown in Exhibit 9-5, the government should cut its spending by:

Accepted Answer

A)  $0.5 trillion. 
B)  $1 trillion. 
C)  $1.5 trillion. 
D)  $2 trillion. 
A)  $0.5 trillion. 
B)  $1 trillion. 
C)  $1.5 trillion. 
D)  $2 trillion.

Question 11

Use the aggregate expenditures model and assume the marginal propensity to consume (MPC) is 0.80. An increase in government spending of $1 billion would result in an increase in GDP of:

Accepted Answer

A)  $0.8 billion. 
B)  $1.0 billion. 
C)  $5.0 billion. 
D)  $8.0 billion. 
A)  $0.8 billion. 
B)  $1.0 billion. 
C)  $5.0 billion. 
D)  $8.0 billion.

Question 12

If the MPC equals 0.80 then:

Accepted Answer

A)  the MPS equals 1.20. 
B)  the multiplier equals 0.20. 
C)  the multiplier equals 1 divided by 0.80. 
D)  the multiplier equals 5. 
A)  the MPS equals 1.20. 
B)  the multiplier equals 0.20. 
C)  the multiplier equals 1 divided by 0.80. 
D)  the multiplier equals 5.

Question 13

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)  an inflationary gap must be bridged by cutting aggregate expenditures by $400 billion. 
D)  a recessionary gap must be bridged by increasing 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)  an inflationary gap must be bridged by cutting aggregate expenditures by $400 billion. 
D)  a recessionary gap must be bridged by increasing aggregate expenditures by $400 billion.

Question 14

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

Accepted Answer

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

Question 15

​ 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 16

When there is a shift in autonomous expenditure, why is there a multiple expansion of income and real GDP? Trace the multiplier effect through the first four rounds when there is an increase in autonomous expenditure of $40 billion and the marginal propensity to consume is 0.75.

Accepted Answer

There is a multiple expansion of income

Question 17

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

Accepted Answer

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

Question 18

If actual real GDP is greater than the equilibrium level of real GDP (i.e., the aggregate expenditures function is below the 45-degree line), what happens to restore equilibrium to the economy?

Accepted Answer

At the current level of real GDP, aggreg

Question 19

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. 
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.

Question 20

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

Accepted Answer

A)  Decrease consumption 
B)  ​Increase investment 
C)  ​Decrease investment 
D)  ​Increase taxes 
A)  Decrease consumption 
B)  ​Increase investment 
C)  ​Decrease investment 
D)  ​Increase taxes

Exam 19: The Keynesian Model in Action

In the aggregate expenditures model, if aggregate expenditures (AE) are greater than GDP, then:

The impact of the multiplier effect is to:

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 that full-employment real GDP is Y = $1,200 billion, the current equilibrium real GDP is Y = $800 billion, and the MPC is 0.50. What level of aggregate expenditures will close the recessionary gap?

If the marginal propensity to consume (MPC) is 0.75, a $50 decrease in government spending, other things being equal, would cause equilibrium real GDP to:

An inflationary gap is the amount by which aggregate expenditures ____ the amount required to achieve full-employment equilibrium GDP.

In the aggregate expenditures model, equilibrium occurs if:

In the aggregate expenditures model, an increase in government spending causes a(n):

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

Exhibit 9-5 Keynesian aggregate expenditures model where the MPC is 0.75 ​ To eliminate the GDP gap shown in Exhibit 9-5, the government should cut its spending by:

Use the aggregate expenditures model and assume the marginal propensity to consume (MPC) is 0.80. An increase in government spending of $1 billion would result in an increase in GDP of:

If the MPC equals 0.80 then:

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,

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?

When there is a shift in autonomous expenditure, why is there a multiple expansion of income and real GDP? Trace the multiplier effect through the first four rounds when there is an increase in autonomous expenditure of $40 billion and the marginal propensity to consume is 0.75.

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

If actual real GDP is greater than the equilibrium level of real GDP (i.e., the aggregate expenditures function is below the 45-degree line), what happens to restore equilibrium to the economy?

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

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

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

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

Understanding Direct and Inverse Relationships between Variables

Filters

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:

Exhibit 9-5 Keynesian aggregate expenditures model where the MPC is 0.75 To eliminate the GDP gap shown in Exhibit 9-5, the government should cut its spending by:

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

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