Question 1

Refer to the accompanying figure.   Based on the figure, when PAE = 600 + 0.5Y, short-run equilibrium output equals:

Accepted Answer

A) 1,200. 
B) 400. 
C) 600. 
D) 800. 
A) 1,200. 
B) 400. 
C) 600. 
D) 800.

Question 2

Planned aggregate expenditure (PAE )equals:

Accepted Answer

A) C + I ᵖ + G + NX. 
B) C ᵖ + I + G + NX. 
C) C + I + G ᵖ + NX. 
D) C + I + G + NX ᵖ. 
A) C + I ᵖ + G + NX. 
B) C ᵖ + I + G + NX. 
C) C + I + G ᵖ + NX. 
D) C + I + G + NX ᵖ.

Question 3

In a short-run Keynesian model where the marginal propensity to consume is 0.5, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, government purchases must be:

Accepted Answer

A) increased by $1 billion. 
B) decreased by $1 billion. 
C) increased by $0.5 billion. 
D) increased by $2 billion. 
A) increased by $1 billion. 
B) decreased by $1 billion. 
C) increased by $0.5 billion. 
D) increased by $2 billion.

Question 4

Autonomous expenditure is the portion of planned aggregate expenditure that:

Accepted Answer

A) equals aggregate output. 
B) equals planned spending. 
C) equals induced expenditure. 
D) is independent of output. 
A) equals aggregate output. 
B) equals planned spending. 
C) equals induced expenditure. 
D) is independent of output.

Question 5

All of the following would be included in planned aggregate expenditure EXCEPT:

Accepted Answer

A) spending on consumer durables. 
B) planned changes in inventories. 
C) sales of domestically produced goods to foreigners. 
D) interest paid on the government debt. 
A) spending on consumer durables. 
B) planned changes in inventories. 
C) sales of domestically produced goods to foreigners. 
D) interest paid on the government debt.

Question 6

Refer to the accompanying figure.   Based on the figure, the income-expenditure multiplier in the economy illustrated equals:

Accepted Answer

A) 0.75 
B) 4 
C) 4,000 
D) 1,000 
A) 0.75 
B) 4 
C) 4,000 
D) 1,000

Question 7

An economic expansion in the United States ________ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n)________ output gap in Mexico.

Accepted Answer

A) reduces; expansionary 
B) increases; expansionary 
C) reduces; recessionary 
D) increases; recessionary 
A) reduces; expansionary 
B) increases; expansionary 
C) reduces; recessionary 
D) increases; recessionary

Question 8

If planned aggregate expenditure (PAE )in an economy equals 3,000 + 0.75Y and potential output (Y*)equals 12,000, then this economy has:

Accepted Answer

A) an expansionary gap. 
B) a recessionary gap. 
C) no output gap. 
D) no autonomous expenditure. 
A) an expansionary gap. 
B) a recessionary gap. 
C) no output gap. 
D) no autonomous expenditure.

Question 9

The largest component of planned aggregate expenditure is:

Accepted Answer

A) consumption. 
B) investment. 
C) government purchases. 
D) exports. 
A) consumption. 
B) investment. 
C) government purchases. 
D) exports.

Question 10

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The slope of the expenditure line is:

Accepted Answer

A) 0.25. 
B) 0.75. 
C) 290. 
D) 320. 
A) 0.25. 
B) 0.75. 
C) 290. 
D) 320.

Question 11

Data on output and planned aggregate expenditure in Macroland are given below.    
Based on these data, the short-run equilibrium level of output is:

Accepted Answer

A) 2,000. 
B) 3,200. 
C) 4,100. 
D) 5,000. 
A) 2,000. 
B) 3,200. 
C) 4,100. 
D) 5,000.

Question 12

In the basic Keynesian model, an increase in transfer payments:

Accepted Answer

A) reduces short-run equilibrium output. 
B) increases short-run equilibrium output. 
C) reduces potential output. 
D) increases potential output. 
A) reduces short-run equilibrium output. 
B) increases short-run equilibrium output. 
C) reduces potential output. 
D) increases potential output.

Question 13

For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n):

Accepted Answer

A) expansionary output gap. 
B) recessionary output gap. 
C) increase in potential output. 
D) decrease in potential output. 
A) expansionary output gap. 
B) recessionary output gap. 
C) increase in potential output. 
D) decrease in potential output.

Question 14

Changes in government purchases affect planned spending ________, and changes in taxes and/or transfers affect planned spending ________.

Accepted Answer

A) directly; directly 
B) directly; indirectly 
C) directly; not at all 
D) indirectly; indirectly 
A) directly; directly 
B) directly; indirectly 
C) directly; not at all 
D) indirectly; indirectly

Question 15

For an economy starting at potential output, a decrease in planned investment in the short run results in a(n):

Accepted Answer

A) expansionary output gap. 
B) recessionary output gap. 
C) increase in potential output. 
D) decrease in potential output. 
A) expansionary output gap. 
B) recessionary output gap. 
C) increase in potential output. 
D) decrease in potential output.

Question 16

Refer to the accompanying figure.   Based on the figure, when PAE = 400 + 0.5Y, short-run equilibrium output equals:

Accepted Answer

A) 1,200. 
B) 400. 
C) 600. 
D) 800. 
A) 1,200. 
B) 400. 
C) 600. 
D) 800.

Question 17

In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will:

Accepted Answer

A) reduce production. 
B) increase production. 
C) increase planned aggregate expenditure. 
D) decrease planned aggregate expenditure. 
A) reduce production. 
B) increase production. 
C) increase planned aggregate expenditure. 
D) decrease planned aggregate expenditure.

Question 18

Government policies intended to decrease planned spending and output are called ________ policies.

Accepted Answer

A) aggregate 
B) monetary 
C) fiscal 
D) contractionary 
A) aggregate 
B) monetary 
C) fiscal 
D) contractionary

Question 19

Refer to the accompanying figure.   Based on the figure, if autonomous spending increases from 400 to 600, then the new short-run equilibrium output will equal:

Accepted Answer

A) 1,200. 
B) 400. 
C) 600. 
D) 800. 
A) 1,200. 
B) 400. 
C) 600. 
D) 800.

Question 20

The smaller the mpc, the ________ the income-expenditure multiplier and the ________ the effect of a change in autonomous spending on short-run equilibrium output.

Accepted Answer

A) larger; larger 
B) larger; smaller 
C) smaller; smaller 
D) smaller; larger 
A) larger; larger 
B) larger; smaller 
C) smaller; smaller 
D) smaller; larger

Exam 25: Spending and Output in the Short Run

Refer to the accompanying figure. Based on the figure, when PAE = 600 + 0.5Y, short-run equilibrium output equals:

Planned aggregate expenditure (PAE )equals:

In a short-run Keynesian model where the marginal propensity to consume is 0.5, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, government purchases must be:

Autonomous expenditure is the portion of planned aggregate expenditure that:

All of the following would be included in planned aggregate expenditure EXCEPT:

Refer to the accompanying figure. Based on the figure, the income-expenditure multiplier in the economy illustrated equals:

An economic expansion in the United States ________ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n)________ output gap in Mexico.

If planned aggregate expenditure (PAE )in an economy equals 3,000 + 0.75Y and potential output (Y*)equals 12,000, then this economy has:

The largest component of planned aggregate expenditure is:

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The slope of the expenditure line is:

Data on output and planned aggregate expenditure in Macroland are given below. Based on these data, the short-run equilibrium level of output is:

In the basic Keynesian model, an increase in transfer payments:

For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n):

Changes in government purchases affect planned spending ________, and changes in taxes and/or transfers affect planned spending ________.

For an economy starting at potential output, a decrease in planned investment in the short run results in a(n):

Refer to the accompanying figure. Based on the figure, when PAE = 400 + 0.5Y, short-run equilibrium output equals:

In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will:

Government policies intended to decrease planned spending and output are called ________ policies.

Refer to the accompanying figure. Based on the figure, if autonomous spending increases from 400 to 600, then the new short-run equilibrium output will equal:

The smaller the mpc, the ________ the income-expenditure multiplier and the ________ the effect of a change in autonomous spending on short-run equilibrium output.

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

An economic expansion in the United States the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) output gap in Mexico.

Changes in government purchases affect planned spending , and changes in taxes and/or transfers affect planned spending .

The smaller the mpc, the the income-expenditure multiplier and the the effect of a change in autonomous spending on short-run equilibrium output.