Question 1

According to the Keynesian aggregate expenditures model, equilibrium and full employment:

Accepted Answer

A)  always occur at the same income level of real GDP. 
B)  may differ, but there is an automatic mechanism that directs the economy toward full-employment equilibrium. 
C)  could never occur at the same level of real GDP. 
D)  do not necessarily occur at the same level of real GDP. 
A)  always occur at the same income level of real GDP. 
B)  may differ, but there is an automatic mechanism that directs the economy toward full-employment equilibrium. 
C)  could never occur at the same level of real GDP. 
D)  do not necessarily occur at the same level of real GDP.

Question 2

Suppose consumers and business decision makers become more optimistic about the future, and aggregate expenditures increase. The most likely result is that:

Accepted Answer

A)  real GDP and employment and income to decline. 
B)  real GDP and employment rise. 
C)  real GDP rises and employment falls. 
D)  real GDP falls and employment rises. 
A)  real GDP and employment and income to decline. 
B)  real GDP and employment rise. 
C)  real GDP rises and employment falls. 
D)  real GDP falls and employment rises.

Question 3

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 4

If imports and exports are equal, the net export line:

Accepted Answer

A)  is horizontal at $0. 
B)  is vertical at $0. 
C)  is horizontal at the value of imports. 
D)  slopes upward starting at the value of exports. 
A)  is horizontal at $0. 
B)  is vertical at $0. 
C)  is horizontal at the value of imports. 
D)  slopes upward starting at the value of exports.

Question 5

A recessionary gap can be defined as:

Accepted Answer

A)  an economy that is operating above its full-employment capacity. 
B)  an economy that is operating at full-employment capacity. 
C)  the amount by which aggregate expenditures exceeds the aggregate expenditures level needed to generate equilibrium real GDP at full employment without inflation 
D)  the amount by which aggregate expenditures falls short of the level needed to generate equilibrium real GDP at full employment without inflation. 
A)  an economy that is operating above its full-employment capacity. 
B)  an economy that is operating at full-employment capacity. 
C)  the amount by which aggregate expenditures exceeds the aggregate expenditures level needed to generate equilibrium real GDP at full employment without inflation 
D)  the amount by which aggregate expenditures falls short of the level needed to generate equilibrium real GDP at full employment without inflation.

Question 6

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 7

If the economy experiences a recessionary gap then:

Accepted Answer

A)  aggregate expenditures exceed the level of spending necessary to provide for full employment. 
B)  Keynesian economics would recommend a reduction in government spending or an increase in taxes. 
C)  Keynesian economics would recommend an increase in government spending or a decrease in taxes. 
D)  the equilibrium level of output and income is above full employment. 
A)  aggregate expenditures exceed the level of spending necessary to provide for full employment. 
B)  Keynesian economics would recommend a reduction in government spending or an increase in taxes. 
C)  Keynesian economics would recommend an increase in government spending or a decrease in taxes. 
D)  the equilibrium level of output and income is above full employment.

Question 8

The formula to compute the spending multiplier is:

Accepted Answer

A)  1 / (MPC + MPS). 
B)  1 / (1 − MP
C) . 
C)  1 / (1 − MPS). 
D)  1 / (C + I). 
A)  1 / (MPC + MPS). 
B)  1 / (1 − MP
C) . 
C)  1 / (1 − MPS). 
D)  1 / (C + I).

Question 9

Answer the following questions: 
a. If aggregate expenditures falls by $5 million, and the MPC is 0.80, explain the process that will drive the economy to a new equilibrium level. 
b. What will be the final result of this initial change?

Accepted Answer

a. The initial $5 million decrease in ag

Question 10

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 11

​ Within the simple Keynesian Cross model, equilibrium takes place:

Accepted Answer

A)  ​ at full employment. 
B)  ​when aggregate spending equals real disposable income. 
C)  ​when the money interest rate and real interest rate are equal. 
D)  ​when actual and expected rates of inflation are equal. 
A)  ​ at full employment. 
B)  ​when aggregate spending equals real disposable income. 
C)  ​when the money interest rate and real interest rate are equal. 
D)  ​when actual and expected rates of inflation are equal.

Question 12

Given full-employment output = $2,800, equilibrium output = $2,500, and MPS = 0.25, which of the following changes would most likely bring the economy to a full-employment level of national output?

Accepted Answer

A)  $300 decrease in taxes. 
B)  $75 increase in government spending. 
C)  $75 decrease in taxes. 
D)  $300 increase in government spending. 
A)  $300 decrease in taxes. 
B)  $75 increase in government spending. 
C)  $75 decrease in taxes. 
D)  $300 increase in government spending.

Question 13

Within the framework of the Keynesian Cross model, if an economy is operating at a real GDP less than full-employment real GDP:

Accepted Answer

A)  a recessionary gap exists 
B)  an inflationary gap exists 
C)  aggregate expenditures will rise 
D)  the general level of prices will rise 
A)  a recessionary gap exists 
B)  an inflationary gap exists 
C)  aggregate expenditures will rise 
D)  the general level of prices will rise

Question 14

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

Accepted Answer

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

Question 15

Assume the economy is in recession, the MPC is 0.80, and an increase of $200 billion in spending is needed in order to reach full employment. The target can be reached if government spending is increased by:

Accepted Answer

A)  $20 billion. 
B)  $200 billion. 
C)  $80 billion. 
D)  $40 billion. 
A)  $20 billion. 
B)  $200 billion. 
C)  $80 billion. 
D)  $40 billion.

Question 16

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)  +100. 
A)  − 100. 
B)  +80. 
C)  − 80. 
D)  +100.

Question 17

At the equilibrium level of real GDP, total production equals total:

Accepted Answer

A)  saving. 
B)  investment. 
C)  net exports. 
D)  spending. 
A)  saving. 
B)  investment. 
C)  net exports. 
D)  spending.

Question 18

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 19

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

Accepted Answer

A)  $2 trillion. 
B)  $3 trillion. 
C)  $4 trillion. 
D)  $5 trillion. 
A)  $2 trillion. 
B)  $3 trillion. 
C)  $4 trillion. 
D)  $5 trillion.

Question 20

A $1 million increase in investment spending will raise equilibrium output (real GDP) by:

Accepted Answer

A)  less than $1 million. 
B)  exactly $1 million. 
C)  between $0.5 and $1.5 million. 
D)  more than $1 million. 
A)  less than $1 million. 
B)  exactly $1 million. 
C)  between $0.5 and $1.5 million. 
D)  more than $1 million.

Exam 19: The Keynesian Model in Action

According to the Keynesian aggregate expenditures model, equilibrium and full employment:

Suppose consumers and business decision makers become more optimistic about the future, and aggregate expenditures increase. The most likely result is that:

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

If imports and exports are equal, the net export line:

A recessionary gap can be defined as:

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?

If the economy experiences a recessionary gap then:

The formula to compute the spending multiplier is:

Answer the following questions: a. If aggregate expenditures falls by $5 million, and the MPC is 0.80, explain the process that will drive the economy to a new equilibrium level. b. What will be the final result of this initial change?

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):

​ Within the simple Keynesian Cross model, equilibrium takes place:

Given full-employment output = $2,800, equilibrium output = $2,500, and MPS = 0.25, which of the following changes would most likely bring the economy to a full-employment level of national output?

Within the framework of the Keynesian Cross model, if an economy is operating at a real GDP less than full-employment real GDP:

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

Assume the economy is in recession, the MPC is 0.80, and an increase of $200 billion in spending is needed in order to reach full employment. The target can be reached if government spending is increased by:

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

At the equilibrium level of real GDP, total production equals total:

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:

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

A $1 million increase in investment spending will raise equilibrium output (real GDP) by:

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

Within the simple Keynesian Cross model, equilibrium takes place:

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: