Question 1

Which of the following solutions to recessions came from the short-run macro model?

Accepted Answer

A)  A non-interventionist wait and see solution 
B)  Increasing taxes 
C)  Decreasing the federal deficit to jump-start the economy 
D)  Increasing government spending to jump-start the economy 
E)  None of the above 
A)  A non-interventionist wait and see solution 
B)  Increasing taxes 
C)  Decreasing the federal deficit to jump-start the economy 
D)  Increasing government spending to jump-start the economy 
E)  None of the above

Question 2

The marginal propensity to consume is greater than zero but less than one.

Accepted Answer

A) True 
 B)False

Question 3

Suppose each of the following news items appears on the evening news.Which one would most likely cause consumption spending to increase?

Accepted Answer

A)  "Layoffs reach record high" 
B)  "Government to increase taxes with the start of the next quarter" 
C)  "Stock market drops 10%" 
D)  "Government to issue tax rebates at the end of next month" 
E)  "Bankruptcies increase 20% over the last six months". 
A)  "Layoffs reach record high" 
B)  "Government to increase taxes with the start of the next quarter" 
C)  "Stock market drops 10%" 
D)  "Government to issue tax rebates at the end of next month" 
E)  "Bankruptcies increase 20% over the last six months".

Question 4

In the short-run macro model,what is the relationship between income and government purchases?

Accepted Answer

A)  It is positive and stable. 
B)  It is positive but unstable. 
C)  It is negative and stable. 
D)  It is negative but unstable. 
E)  There is no relationship between the two variables. 
A)  It is positive and stable. 
B)  It is positive but unstable. 
C)  It is negative and stable. 
D)  It is negative but unstable. 
E)  There is no relationship between the two variables.

Question 5

The consumption function

Accepted Answer

A)  illustrates the relationship between real disposable income and real consumption spending 
B)  illustrates the relationship between the price level and real consumption spending 
C)  is the relationship between productivity and real consumption spending 
D)  shows how real consumption increases when real disposable income decreases 
E)  illustrates the relationship between real consumption spending and employment 
A)  illustrates the relationship between real disposable income and real consumption spending 
B)  illustrates the relationship between the price level and real consumption spending 
C)  is the relationship between productivity and real consumption spending 
D)  shows how real consumption increases when real disposable income decreases 
E)  illustrates the relationship between real consumption spending and employment

Question 6

To construct a graph that would enable us to find equilibrium GDP,we would need to plot

Accepted Answer

A)  the consumption-income line 
B)  a line showing the sum of consumption and investment at each income level 
C)  the investment spending line 
D)  the consumption-income line and the government expenditures line 
E)  an aggregate expenditure line and the 45-degree line from the origin 
A)  the consumption-income line 
B)  a line showing the sum of consumption and investment at each income level 
C)  the investment spending line 
D)  the consumption-income line and the government expenditures line 
E)  an aggregate expenditure line and the 45-degree line from the origin

Question 7

If autonomous consumption is $1,000,the MPC is 0.75,net taxes are $500,investment spending is $800,and government purchases equals $500,and NX = $0,what is equilibrium GDP?

Accepted Answer

A)  $1,800 
B)  $1,925 
C)  $2,566.7 
D)  $7,200 
E)  $7,700 
A)  $1,800 
B)  $1,925 
C)  $2,566.7 
D)  $7,200 
E)  $7,700

Question 8

If expectations of future income become more optimistic,which of the following would occur?

Accepted Answer

A)  Nothing would occur. 
B)  The consumption-income line would shift downward. 
C)  The consumption-income line would shift upward. 
D)  There would be an rightward movement along the consumption-income line. 
E)  There would be a leftward movement along the consumption-income line. 
A)  Nothing would occur. 
B)  The consumption-income line would shift downward. 
C)  The consumption-income line would shift upward. 
D)  There would be an rightward movement along the consumption-income line. 
E)  There would be a leftward movement along the consumption-income line.

Question 9

What is the main difference in the classical model as compared to the short-run macro model?

Accepted Answer

A)  In the classical model the economy automatically operates at potential GDP while in the short run model the economy can operate at a different level of GDP 
B)  In the short run model the economy automatically operates at potential GDP while in the classical model the economy can operate at a different level of GDP 
C)  Fiscal policy has no effect in the short run model but is very effective in the classical model 
D)  There is no difference in the predictions of the two models 
E)  The classical model does a better job in predicting recessions than the short-run macro model 
A)  In the classical model the economy automatically operates at potential GDP while in the short run model the economy can operate at a different level of GDP 
B)  In the short run model the economy automatically operates at potential GDP while in the classical model the economy can operate at a different level of GDP 
C)  Fiscal policy has no effect in the short run model but is very effective in the classical model 
D)  There is no difference in the predictions of the two models 
E)  The classical model does a better job in predicting recessions than the short-run macro model

Question 10

Aggregate expenditure includes final spending by households,businesses,and government on final goods and services.

Accepted Answer

A) True 
 B)False

Question 11

If the marginal propensity to consume is 0.75,net taxes are fixed at $2,000 and real income rises by $12,000,by how much will real consumption spending increase?

Accepted Answer

A)  $9,000 
B)  $8,000 
C)  $7,500 
D)  $7,000 
E)  $10,000 
A)  $9,000 
B)  $8,000 
C)  $7,500 
D)  $7,000 
E)  $10,000

Question 12

In the short-run macro model,cyclical unemployment is caused by insufficient spending.

Accepted Answer

A) True 
 B)False

Question 13

In the short-run macro model,aggregate expenditures are found by which of the following formulas?

Accepted Answer

A)  AE = C + I + G + NX 
B)  AE = Ip + T + S + G 
C)  AE = C + Ip - T + NX 
D)  AE = C + Ip + G + NX 
E)  AE = C + Ip + G - NX 
A)  AE = C + I + G + NX 
B)  AE = Ip + T + S + G 
C)  AE = C + Ip - T + NX 
D)  AE = C + Ip + G + NX 
E)  AE = C + Ip + G - NX

Question 14

If an initial increase in investment spending of $30 caused equilibrium output to increase by $120,what is the value of the MPC?

Accepted Answer

A)  0.25 
B)  0.50 
C)  0.60 
D)  0.75 
E)  0.80 
A)  0.25 
B)  0.50 
C)  0.60 
D)  0.75 
E)  0.80

Question 15

Which of the following serve as automatic stabilizers?

Accepted Answer

A)  Transfer payments 
B)  Prices 
C)  Imports 
D)  All of the above serve as automatic stabilizers 
E)  None of the above serve as automatic stabilizers 
A)  Transfer payments 
B)  Prices 
C)  Imports 
D)  All of the above serve as automatic stabilizers 
E)  None of the above serve as automatic stabilizers

Question 16

The multiplier effect

Accepted Answer

A)  tells us nothing about how increases in investment spending affect GDP 
B)  tells us that a change in investment spending changes equilibrium GDP by more than the change in investment 
C)  works only for increases in investment 
D)  is relevant only in situations where the marginal propensity to consume cannot be determined 
E)  is relevant only in situations in which the MPC is between 0.5 and 0.7. 
A)  tells us nothing about how increases in investment spending affect GDP 
B)  tells us that a change in investment spending changes equilibrium GDP by more than the change in investment 
C)  works only for increases in investment 
D)  is relevant only in situations where the marginal propensity to consume cannot be determined 
E)  is relevant only in situations in which the MPC is between 0.5 and 0.7.

Question 17

Which of the following would lead to a decrease in autonomous consumption spending?

Accepted Answer

A)  a decrease in disposable income 
B)  an increase in disposable income 
C)  an increase in the interest rate 
D)  more optimistic expectations about future income 
E)  an increase in wealth 
A)  a decrease in disposable income 
B)  an increase in disposable income 
C)  an increase in the interest rate 
D)  more optimistic expectations about future income 
E)  an increase in wealth

Question 18

Which of the following components of government spending and revenue serves as an automatic stabilizer?

Accepted Answer

A)  the wealth effect 
B)  the multiplier 
C)  unemployment insurance 
D)  military spending 
E)  property taxes 
A)  the wealth effect 
B)  the multiplier 
C)  unemployment insurance 
D)  military spending 
E)  property taxes

Question 19

If the marginal propensity to consumer is 0.9,what is the value of the expenditure multiplier?

Accepted Answer

A)  1.0 
B)  1.9 
C)  10 
D)  0.1 
E)  0.9 
A)  1.0 
B)  1.9 
C)  10 
D)  0.1 
E)  0.9

Question 20

Use the table below to determine the impact on consumption spending of a $100 increase in net taxes.

Accepted Answer

A)  Consumption will decrease by $80. 
B)  Consumption will increase by $80. 
C)  The marginal propensity to consume will increase to .91. 
D)  The marginal propensity to consume will decrease to .73. 
E)  The change in net taxes will not change consumption. 
A)  Consumption will decrease by $80. 
B)  Consumption will increase by $80. 
C)  The marginal propensity to consume will increase to .91. 
D)  The marginal propensity to consume will decrease to .73. 
E)  The change in net taxes will not change consumption.

Which of the following solutions to recessions came from the short-run macro model?

The marginal propensity to consume is greater than zero but less than one.

Suppose each of the following news items appears on the evening news.Which one would most likely cause consumption spending to increase?

In the short-run macro model,what is the relationship between income and government purchases?

The consumption function

To construct a graph that would enable us to find equilibrium GDP,we would need to plot

If autonomous consumption is $1,000,the MPC is 0.75,net taxes are $500,investment spending is $800,and government purchases equals $500,and NX = $0,what is equilibrium GDP?

If expectations of future income become more optimistic,which of the following would occur?

What is the main difference in the classical model as compared to the short-run macro model?

Aggregate expenditure includes final spending by households,businesses,and government on final goods and services.

If the marginal propensity to consume is 0.75,net taxes are fixed at $2,000 and real income rises by $12,000,by how much will real consumption spending increase?

In the short-run macro model,cyclical unemployment is caused by insufficient spending.

In the short-run macro model,aggregate expenditures are found by which of the following formulas?

If an initial increase in investment spending of $30 caused equilibrium output to increase by $120,what is the value of the MPC?

Which of the following serve as automatic stabilizers?

The multiplier effect

Which of the following would lead to a decrease in autonomous consumption spending?

Which of the following components of government spending and revenue serves as an automatic stabilizer?

If the marginal propensity to consumer is 0.9,what is the value of the expenditure multiplier?

Use the table below to determine the impact on consumption spending of a $100 increase in net taxes.

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters

Exam 11: The Short-run Macro Model

Which of the following solutions to recessions came from the short-run macro model?

The marginal propensity to consume is greater than zero but less than one.

Suppose each of the following news items appears on the evening news.Which one would most likely cause consumption spending to increase?

In the short-run macro model,what is the relationship between income and government purchases?

The consumption function

To construct a graph that would enable us to find equilibrium GDP,we would need to plot

If autonomous consumption is $1,000,the MPC is 0.75,net taxes are $500,investment spending is $800,and government purchases equals $500,and NX = $0,what is equilibrium GDP?

If expectations of future income become more optimistic,which of the following would occur?

What is the main difference in the classical model as compared to the short-run macro model?

Aggregate expenditure includes final spending by households,businesses,and government on final goods and services.

If the marginal propensity to consume is 0.75,net taxes are fixed at $2,000 and real income rises by $12,000,by how much will real consumption spending increase?

In the short-run macro model,cyclical unemployment is caused by insufficient spending.

In the short-run macro model,aggregate expenditures are found by which of the following formulas?

If an initial increase in investment spending of $30 caused equilibrium output to increase by $120,what is the value of the MPC?

Which of the following serve as automatic stabilizers?

The multiplier effect

Which of the following would lead to a decrease in autonomous consumption spending?

Which of the following components of government spending and revenue serves as an automatic stabilizer?

If the marginal propensity to consumer is 0.9,what is the value of the expenditure multiplier?

Use the table below to determine the impact on consumption spending of a $100 increase in net taxes.

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters