Question 1

Exhibit 9-2 Keynesian aggregate-expenditures model
 
As shown in Exhibit 9-2, equilibrium GDP is:

Accepted Answer

A)  $1 trillion. 
B)  $3 trillion. 
C)  $5 trillion. 
D)  $6 trillion. 
A)  $1 trillion. 
B)  $3 trillion. 
C)  $5 trillion. 
D)  $6 trillion.

Question 2

If the MPC = .80, and investment rises from $100 to $150, real GDP will increase by:

Accepted Answer

A)  $50. 
B)  $125. 
C)  $200. 
D)  $250. 
A)  $50. 
B)  $125. 
C)  $200. 
D)  $250.

Question 3

In the Keynesian model, if aggregate expenditures exceed aggregate output and inventories of firms fall, then the aggregate output and the business sector could be expected to:

Accepted Answer

A)  increase output. 
B)  decrease output. 
C)  decrease investment. 
D)  hire fewer workers. 
A)  increase output. 
B)  decrease output. 
C)  decrease investment. 
D)  hire fewer workers.

Question 4

A $2,000 decrease in investment will shift the aggregate expenditures curve down by:

Accepted Answer

A)  exactly $2,000 and will decrease the equilibrium level of real GDP by exactly $2,000. 
B)  exactly $2,000 and will decrease the equilibrium level of real GDP by less than $2,000. 
C)  exactly $2,000 and will decrease the equilibrium level of real GDP by more than $2,000. 
D)  less than $2,000 and will decrease the equilibrium level of real GDP by less than $2,000. 
A)  exactly $2,000 and will decrease the equilibrium level of real GDP by exactly $2,000. 
B)  exactly $2,000 and will decrease the equilibrium level of real GDP by less than $2,000. 
C)  exactly $2,000 and will decrease the equilibrium level of real GDP by more than $2,000. 
D)  less than $2,000 and will decrease the equilibrium level of real GDP by less than $2,000.

Question 5

Exhibit 9-5 Keynesian aggregate expenditures model where the MPC is 0.75
​
 
The economy shown in Exhibit 9-5 is:

Accepted Answer

A)  in a recessionary gap. 
B)  in an inflationary gap. 
C)  fully employed. 
D)  substantially underemployed. 
A)  in a recessionary gap. 
B)  in an inflationary gap. 
C)  fully employed. 
D)  substantially underemployed.

Question 6

At the equilibrium level of real GDP, which of the following is true ?

Accepted Answer

A)  Unplanned inventory investment is positive. 
B)  Unplanned inventory investment is negative. 
C)  Aggregate output equals aggregate expenditures. 
D)  Aggregate output plus consumption spending equals aggregate expenditures. 
A)  Unplanned inventory investment is positive. 
B)  Unplanned inventory investment is negative. 
C)  Aggregate output equals aggregate expenditures. 
D)  Aggregate output plus consumption spending equals aggregate expenditures.

Question 7

If consumption expenditures are $200 billion, total investment is $50 billion, government purchases are $40 billion, exports are $45 billion, imports are $40 billion, aggregate expenditures must be:

Accepted Answer

A)  $275 billion. 
B)  $295 billion. 
C)  $320 billion. 
D)  $395 billion. 
A)  $275 billion. 
B)  $295 billion. 
C)  $320 billion. 
D)  $395 billion.

Question 8

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 9

If the marginal propensity to consume (MPC) is 0.80, the value of the spending multiplier is:

Accepted Answer

A)  2. 
B)  5. 
C)  8. 
D)  10. 
A)  2. 
B)  5. 
C)  8. 
D)  10.

Question 10

On the graph of GDP, government spending and net exports are:

Accepted Answer

A)  horizontal lines because they are autonomous expenditures. 
B)  vertical lines because the level of spending is fixed. 
C)  upward sloping because they increase as GDP increases. 
D)  downward sloping because they decrease as GDP increases. 
A)  horizontal lines because they are autonomous expenditures. 
B)  vertical lines because the level of spending is fixed. 
C)  upward sloping because they increase as GDP increases. 
D)  downward sloping because they decrease as GDP increases.

Question 11

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. 
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.

Question 12

In the aggregate expenditures model, if aggregate expenditures (AE) equal $4 trillion and GDP equals $3 trillion, then:

Accepted Answer

A)  inventory depletion equals − $1 trillion. 
B)  inventory accumulation equals $1 trillion. 
C)  investment equals − $1 trillion. 
D)  investment equals $1 trillion. 
A)  inventory depletion equals − $1 trillion. 
B)  inventory accumulation equals $1 trillion. 
C)  investment equals − $1 trillion. 
D)  investment equals $1 trillion.

Question 13

Suppose equilibrium real GDP is currently at $800 billion and investment is $100 billion. If an increase in the interest rate reduces investment from $100 billion to $75 billion, and the MPC is 0.8, the new level of equilibrium real GDP will be:

Accepted Answer

A)  $500 billion. 
B)  $600 billion. 
C)  $675 billion. 
D)  $775 billion. 
A)  $500 billion. 
B)  $600 billion. 
C)  $675 billion. 
D)  $775 billion.

Question 14

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

Accepted Answer

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

Question 15

When the spending of consumers, businesses, government, and foreigners (net exports) is less than the aggregate output level of the economy, the Keynesian model result is that:

Accepted Answer

A)  output will rise. 
B)  output will fall. 
C)  prices will rise. 
D)  inventories will tend to decline. 
A)  output will rise. 
B)  output will fall. 
C)  prices will rise. 
D)  inventories will tend to decline.

Question 16

If the marginal propensity to consume (MPC) is 0.60, what is the spending multiplier?

Accepted Answer

A)  0.4. 
B)  0.6. 
C)  2.5. 
D)  6.0. 
A)  0.4. 
B)  0.6. 
C)  2.5. 
D)  6.0.

Question 17

Using the aggregate expenditure-output model, assume the aggregate expenditures (AE) line is below 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 18

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. 
A)  depletion of $2 trillion. 
B)  depletion of $6 trillion. 
C)  accumulation of $2 trillion. 
D)  accumulation of $6 trillion.

Question 19

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 20

The equilibrium level of real GDP is $1,000, the target level of real GDP is $1,250, and the marginal propensity to consume (MPC) is 0.60. The target can be reached if government spending is:

Accepted Answer

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

Exam 19: The Keynesian Model in Action

Exhibit 9-2 Keynesian aggregate-expenditures model As shown in Exhibit 9-2, equilibrium GDP is:

If the MPC = .80, and investment rises from $100 to $150, real GDP will increase by:

In the Keynesian model, if aggregate expenditures exceed aggregate output and inventories of firms fall, then the aggregate output and the business sector could be expected to:

A $2,000 decrease in investment will shift the aggregate expenditures curve down by:

Exhibit 9-5 Keynesian aggregate expenditures model where the MPC is 0.75 ​ The economy shown in Exhibit 9-5 is:

At the equilibrium level of real GDP, which of the following is true ?

If consumption expenditures are $200 billion, total investment is $50 billion, government purchases are $40 billion, exports are $45 billion, imports are $40 billion, aggregate expenditures must be:

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 consume (MPC) is 0.80, the value of the spending multiplier is:

On the graph of GDP, government spending and net exports are:

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

In the aggregate expenditures model, if aggregate expenditures (AE) equal $4 trillion and GDP equals $3 trillion, then:

Suppose equilibrium real GDP is currently at $800 billion and investment is $100 billion. If an increase in the interest rate reduces investment from $100 billion to $75 billion, and the MPC is 0.8, the new level of equilibrium real GDP will be:

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

When the spending of consumers, businesses, government, and foreigners (net exports) is less than the aggregate output level of the economy, the Keynesian model result is that:

If the marginal propensity to consume (MPC) is 0.60, what is the spending multiplier?

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

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

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

The equilibrium level of real GDP is $1,000, the target level of real GDP is $1,250, and the marginal propensity to consume (MPC) is 0.60. The target can be reached if government spending is:

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 9-5 Keynesian aggregate expenditures model where the MPC is 0.75 The economy shown in Exhibit 9-5 is:

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

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