Question 1

Planned aggregate expenditure is total:

Accepted Answer

A) value added in the economy. 
B) planned spending on final goods and services. 
C) income of households, businesses, governments, and foreigners. 
D) revenue from the sale of goods and services. 
A) value added in the economy. 
B) planned spending on final goods and services. 
C) income of households, businesses, governments, and foreigners. 
D) revenue from the sale of goods and services.

Question 2

A fiscal policy action to close an expansionary gap is to:

Accepted Answer

A) decrease taxes. 
B) increase transfer payments. 
C) decrease government purchases. 
D) increase the marginal propensity to consume. 
A) decrease taxes. 
B) increase transfer payments. 
C) decrease government purchases. 
D) increase the marginal propensity to consume.

Question 3

When housing prices decrease, household wealth ________, and consumption ________.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases 
A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases

Question 4

If planned aggregate expenditure (PAE)in an economy equals 1,000 + 0.9Y and potential output (Y*)equals 9,000, 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 5

Refer to the accompanying figure.   Based on the Keynesian cross diagram, at short-run equilibrium output,

Accepted Answer

A) there is a recessionary gap. 
B) there is an expansionary gap. 
C) output equals potential output. 
D) firms will be producing more than they can sell. 
A) there is a recessionary gap. 
B) there is an expansionary gap. 
C) output equals potential output. 
D) firms will be producing more than they can sell.

Question 6

In the basic Keynesian model, a tax cut:

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 7

The decision about whether to change prices frequently or infrequently is an application of the:

Accepted Answer

A) principle of comparative advantage. 
B) scarcity principle. 
C) principle of increasing opportunity cost. 
D) cost-benefit principle. 
A) principle of comparative advantage. 
B) scarcity principle. 
C) principle of increasing opportunity cost. 
D) cost-benefit principle.

Question 8

When prices are predetermined, the level of output that equals planned aggregate expenditure is called ________ output.

Accepted Answer

A) the natural rate of 
B) potential 
C) short-run equilibrium 
D) induced 
A) the natural rate of 
B) potential 
C) short-run equilibrium 
D) induced

Question 9

Refer to the accompanying figure.   Based on the figure, if autonomous spending falls from 400 to 200, 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 10

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because:

Accepted Answer

A) the direct changes in spending change the income of producers which leads to additional changes in spending. 
B) multiple deposits are generated when new reserves are produced through fractional reserve banking. 
C) autonomous spending supports more output than induced spending. 
D) planned changes in inventories signal producers to adjust the level of output. 
A) the direct changes in spending change the income of producers which leads to additional changes in spending. 
B) multiple deposits are generated when new reserves are produced through fractional reserve banking. 
C) autonomous spending supports more output than induced spending. 
D) planned changes in inventories signal producers to adjust the level of output.

Question 11

In the basic Keynesian model, a decline in autonomous spending:

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 12

As disposable income decreases, consumption:

Accepted Answer

A) increases. 
B) decreases. 
C) may either increase or decrease depending on the mpc. 
D) may either increase or decrease depending on the wealth effect. 
A) increases. 
B) decreases. 
C) may either increase or decrease depending on the mpc. 
D) may either increase or decrease depending on the wealth effect.

Question 13

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

Accepted Answer

A) purchases of services provided by government employees. 
B) planned changes in inventories. 
C) sales to foreigners of domestically-produced goods. 
D) social security payments. 
A) purchases of services provided by government employees. 
B) planned changes in inventories. 
C) sales to foreigners of domestically-produced goods. 
D) social security payments.

Question 14

Changes in taxes and transfers affect planned spending:

Accepted Answer

A) only when there is an expansionary gap. 
B) autonomously. 
C) directly, by changing induced expenditures. 
D) indirectly, by changing disposable income and, consequently, consumption. 
A) only when there is an expansionary gap. 
B) autonomously. 
C) directly, by changing induced expenditures. 
D) indirectly, by changing disposable income and, consequently, consumption.

Question 15

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The vertical intercept of the expenditure line is:

Accepted Answer

A) 890. 
B) 900. 
C) 940. 
D) 990. 
A) 890. 
B) 900. 
C) 940. 
D) 990.

Question 16

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ________ increase in consumption.

Accepted Answer

A) $13.33 
B) $25 
C) $75 
D) $133 
A) $13.33 
B) $25 
C) $75 
D) $133

Question 17

When actual investment is less than planned investment:

Accepted Answer

A) firms have sold less output than expected. 
B) firms have sold more output than expected. 
C) the quantity of output sold is the amount the firm expected to sell. 
D) the economy produces short-run equilibrium output. 
A) firms have sold less output than expected. 
B) firms have sold more output than expected. 
C) the quantity of output sold is the amount the firm expected to sell. 
D) the economy produces short-run equilibrium output.

Question 18

The four components of planned aggregate expenditure are:

Accepted Answer

A) spending on domestic goods, domestic services, foreign goods, and foreign services. 
B) spending on durable goods, inventory investment, government debt, and net exports. 
C) consumption, planned investment, government transfers, and net interest. 
D) consumption, planned investment, government purchases, and net exports. 
A) spending on domestic goods, domestic services, foreign goods, and foreign services. 
B) spending on durable goods, inventory investment, government debt, and net exports. 
C) consumption, planned investment, government transfers, and net interest. 
D) consumption, planned investment, government purchases, and net exports.

Question 19

Refer to the accompanying figure.   Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ________ and induced expenditure equals ________.

Accepted Answer

A) 1,000; 3,000 
B) 1,000; 4,000 
C) 3,000; 4,000 
D) 4,000; 2,000 
A) 1,000; 3,000 
B) 1,000; 4,000 
C) 3,000; 4,000 
D) 4,000; 2,000

Question 20

House prices in the U.S. increased dramatically ________, and decreased dramatically ________.

Accepted Answer

A) from 2001 to 2006; from 2007 to 2009 
B) from 2007 to 2009; from 2001 to 2006 
C) from 2001 to 2009; from 2006 to 2007 
D) from 2006 to 2009; from 2001 to 2006 
A) from 2001 to 2006; from 2007 to 2009 
B) from 2007 to 2009; from 2001 to 2006 
C) from 2001 to 2009; from 2006 to 2007 
D) from 2006 to 2009; from 2001 to 2006

Exam 25: Spending and Output in the Short Run

Planned aggregate expenditure is total:

A fiscal policy action to close an expansionary gap is to:

When housing prices decrease, household wealth ________, and consumption ________.

If planned aggregate expenditure (PAE)in an economy equals 1,000 + 0.9Y and potential output (Y*)equals 9,000, then this economy has:

Refer to the accompanying figure. Based on the Keynesian cross diagram, at short-run equilibrium output,

In the basic Keynesian model, a tax cut:

The decision about whether to change prices frequently or infrequently is an application of the:

When prices are predetermined, the level of output that equals planned aggregate expenditure is called ________ output.

Refer to the accompanying figure. Based on the figure, if autonomous spending falls from 400 to 200, then the new short-run equilibrium output will equal:

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because:

In the basic Keynesian model, a decline in autonomous spending:

As disposable income decreases, consumption:

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

Changes in taxes and transfers affect planned spending:

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The vertical intercept of the expenditure line is:

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ________ increase in consumption.

When actual investment is less than planned investment:

The four components of planned aggregate expenditure are:

Refer to the accompanying figure. Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ________ and induced expenditure equals ________.

House prices in the U.S. increased dramatically ________, and decreased dramatically ________.

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

When housing prices decrease, household wealth , and consumption .

Refer to the accompanying figure. Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals and induced expenditure equals .

House prices in the U.S. increased dramatically , and decreased dramatically .