Question 1

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 2

An economic recession in the U.S.______ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n)______ output gap in Canada.

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 3

If short-run equilibrium output equals 50,000 and potential output (Y*)equals 45,000,then this economy has a(n)______ gap that can be closed by _________.

Accepted Answer

A) expansionary;decreasing taxes 
B) expansionary;increasing transfer payments 
C) expansionary;decreasing government purchases 
D) recessionary;increasing government purchases 
A) expansionary;decreasing taxes 
B) expansionary;increasing transfer payments 
C) expansionary;decreasing government purchases 
D) recessionary;increasing government purchases

Question 4

The portion of planned aggregate expenditure that is independent of output is called ______ expenditure.

Accepted Answer

A) potential 
B) planned 
C) actual 
D) autonomous 
A) potential 
B) planned 
C) actual 
D) autonomous

Question 5

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 vertical intercept 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 6

If short-run equilibrium output equals 10,000,the income-expenditure multiplier equals 5,the mpc equals 0.8,and potential output (Y*)equals 9,000,then taxes must be ______ by approximately ______ to eliminate any output gap.

Accepted Answer

A) decreased;250 
B) decreased;200 
C) increased;250 
D) increased;200 
A) decreased;250 
B) decreased;200 
C) increased;250 
D) increased;200

Question 7

If consumption increases by $9 when after-tax disposable income increases by $10,the marginal propensity to consume (mpc)equals:

Accepted Answer

A) 0.1. 
B) 0.9. 
C) 1.0. 
D) 9.0. 
A) 0.1. 
B) 0.9. 
C) 1.0. 
D) 9.0.

Question 8

Firms do not change prices frequently because:

Accepted Answer

A) there are legal prohibitions against doing so. 
B) it is easier to change the quantity of capital used in production. 
C) it is costly to do so. 
D) customers will refuse to patronize firms that change prices frequently. 
A) there are legal prohibitions against doing so. 
B) it is easier to change the quantity of capital used in production. 
C) it is costly to do so. 
D) customers will refuse to patronize firms that change prices frequently.

Question 9

Suppose the stock market crashed,wiping out $5 trillion of household wealth.Consistent with economic models based on historical trends,consumption spending might fall by as much as,but probably not more than,______.

Accepted Answer

A) $35 billion 
B) $200 billion 
C) $350 billion 
D) $2 trillion 
A) $35 billion 
B) $200 billion 
C) $350 billion 
D) $2 trillion

Question 10

A decrease in stock prices alters the consumption function by:

Accepted Answer

A) increasing the mpc. 
B) decreasing the mpc. 
C) increasing the constant term. 
D) decreasing the constant term. 
A) increasing the mpc. 
B) decreasing the mpc. 
C) increasing the constant term. 
D) decreasing the constant term.

Question 11

The vertical intercept of the consumption function equals ______ and the slope equals _____.

Accepted Answer

A) the mpc;autonomous consumption 
B) autonomous consumption;the mpc 
C) the unplanned component of consumption;the planned component of consumption 
D) the planned component of consumption;the unplanned component of consumption 
A) the mpc;autonomous consumption 
B) autonomous consumption;the mpc 
C) the unplanned component of consumption;the planned component of consumption 
D) the planned component of consumption;the unplanned component of consumption

Question 12

Government policies that are used to affect planned aggregate expenditure,with the objective of eliminating output gaps,are called ______ policies.

Accepted Answer

A) structural 
B) cyclical 
C) productivity 
D) stabilization 
A) structural 
B) cyclical 
C) productivity 
D) stabilization

Question 13

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 14

One potential problem with using fiscal policy to close recessionary output gaps is that:

Accepted Answer

A) sustained government deficits can be harmful to long-run economic growth. 
B) decreased government spending can cause inflationary pressure to build. 
C) reductions in interest rates can reduce savings and,therefore,investment. 
D) it may be offset by automatic stabilizers. 
A) sustained government deficits can be harmful to long-run economic growth. 
B) decreased government spending can cause inflationary pressure to build. 
C) reductions in interest rates can reduce savings and,therefore,investment. 
D) it may be offset by automatic stabilizers.

Question 15

In response to the 2007-2009 recession,the Economic Stimulus Act of 2008,under President Bush,was composed of approximately _____;the American Recovery and Reinvestment Act,under President Obama,was composed of approximately ______.

Accepted Answer

A) one-fourth tax cuts and three-fourths spending increases;two-thirds tax cuts and one-third spending increases 
B) half tax cuts and half spending increases;only spending increases 
C) two-thirds tax cuts and one-third spending increases;one-fourth tax cuts and three-fourths spending increases 
D) only tax cuts;half tax cuts and half spending increases 
A) one-fourth tax cuts and three-fourths spending increases;two-thirds tax cuts and one-third spending increases 
B) half tax cuts and half spending increases;only spending increases 
C) two-thirds tax cuts and one-third spending increases;one-fourth tax cuts and three-fourths spending increases 
D) only tax cuts;half tax cuts and half spending increases

Question 16

In the Keynesian model,a $5 billion decrease in autonomous planned investment leads to ______ in short-run equilibrium output.

Accepted Answer

A) a $5 billion increase 
B) a greater than $5 billion decrease 
C) no change 
D) a $5 billion decrease 
A) a $5 billion increase 
B) a greater than $5 billion decrease 
C) no change 
D) a $5 billion decrease

Question 17

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

Question 18

An economic expansion in the U.S.______ 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 19

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 20

The expenditure line in the Keynesian cross diagram represents the:

Accepted Answer

A) equilibrium condition that Y = PAE. 
B) relationship between planned expenditure and output. 
C) relationship between consumption and after-tax disposable income. 
D) equilibrium condition that Y = Y*. 
A) equilibrium condition that Y = PAE. 
B) relationship between planned expenditure and output. 
C) relationship between consumption and after-tax disposable income. 
D) equilibrium condition that Y = Y*.

Exam 22: Spending, Output, and Fiscal Policy

The largest component of planned aggregate expenditure is:

An economic recession in the U.S.______ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n)______ output gap in Canada.

If short-run equilibrium output equals 50,000 and potential output (Y*)equals 45,000,then this economy has a(n)______ gap that can be closed by _________.

The portion of planned aggregate expenditure that is independent of output is called ______ expenditure.

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 vertical intercept of the Expenditure Line is:

If short-run equilibrium output equals 10,000,the income-expenditure multiplier equals 5,the mpc equals 0.8,and potential output (Y*)equals 9,000,then taxes must be ______ by approximately ______ to eliminate any output gap.

If consumption increases by $9 when after-tax disposable income increases by $10,the marginal propensity to consume (mpc)equals:

Firms do not change prices frequently because:

Suppose the stock market crashed,wiping out $5 trillion of household wealth.Consistent with economic models based on historical trends,consumption spending might fall by as much as,but probably not more than,______.

A decrease in stock prices alters the consumption function by:

The vertical intercept of the consumption function equals ______ and the slope equals _____.

Government policies that are used to affect planned aggregate expenditure,with the objective of eliminating output gaps,are called ______ policies.

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

One potential problem with using fiscal policy to close recessionary output gaps is that:

In response to the 2007-2009 recession,the Economic Stimulus Act of 2008,under President Bush,was composed of approximately _____;the American Recovery and Reinvestment Act,under President Obama,was composed of approximately ______.

In the Keynesian model,a $5 billion decrease in autonomous planned investment leads to ______ in short-run equilibrium output.

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

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

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

The expenditure line in the Keynesian cross diagram represents the:

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

Externalities and Property Rights

The Economics of Information

Labor Markets, Poverty, and Income Distribution

The Environment, Health, and Safety

Public Goods and Tax Policy

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Monetary Policy and the Federal Reserve

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

An economic recession in the U.S. the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) output gap in Canada.

If short-run equilibrium output equals 50,000 and potential output (Y*)equals 45,000,then this economy has a(n) gap that can be closed by ___.

If short-run equilibrium output equals 10,000,the income-expenditure multiplier equals 5,the mpc equals 0.8,and potential output (Y*)equals 9,000,then taxes must be by approximately to eliminate any output gap.

The vertical intercept of the consumption function equals __ and the slope equals _.

In response to the 2007-2009 recession,the Economic Stimulus Act of 2008,under President Bush,was composed of approximately _;the American Recovery and Reinvestment Act,under President Obama,was composed of approximately __.

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