Question 1

In the short run,

Accepted Answer

A)  spending determines income,but not the other way around 
B)  income determines spending,but not the other way around 
C)  spending determines the interest rate,but not the other way around 
D)  spending determines income,and income determines spending 
E)  spending determines the productivity,and productivity determines spending. 
A)  spending determines income,but not the other way around 
B)  income determines spending,but not the other way around 
C)  spending determines the interest rate,but not the other way around 
D)  spending determines income,and income determines spending 
E)  spending determines the productivity,and productivity determines spending.

Question 2

Which of the following would lead to a rightward movement along the aggregate expenditure line rather than a shift of the line itself?

Accepted Answer

A)  A reduction of the marginal propensity to consume 
B)  A decrease in income of $100 billion 
C)  An increase in income of $50 billion 
D)  An increase in the interest rate 
E)  A $50 billion decrease in autonomous consumption spending 
A)  A reduction of the marginal propensity to consume 
B)  A decrease in income of $100 billion 
C)  An increase in income of $50 billion 
D)  An increase in the interest rate 
E)  A $50 billion decrease in autonomous consumption spending

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

If the marginal propensity to consume is 0.7,the expenditure multiplier is

Accepted Answer

A)  7.0 
B)  0.7 
C)  3.0 
D)  3.3 
E)  not determinable without additional information. 
A)  7.0 
B)  0.7 
C)  3.0 
D)  3.3 
E)  not determinable without additional information.

Question 5

In the short-run macro model,what is the relationship between income and investment spending?

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 6

Which of the following is considered to be the major cause of the recession of 2001?

Accepted Answer

A)  A decrease in defense spending 
B)  A spike in oil prices and the collapse of the housing bubble 
C)  A decline in oil prices and the collapse of the housing bubble 
D)  Federal Reserve policy 
E)  None of the above. 
A)  A decrease in defense spending 
B)  A spike in oil prices and the collapse of the housing bubble 
C)  A decline in oil prices and the collapse of the housing bubble 
D)  Federal Reserve policy 
E)  None of the above.

Question 7

Suppose the MPC is 0.9.If autonomous consumption spending increases by $20 billion,equilibrium output will

Accepted Answer

A)  increase by $22.2 billion 
B)  increase by $200 billion 
C)  not change because the MPC only changes consumption when income changes 
D)  not change because the expenditures multiplier only applies to changes in investment spending and government purchases 
E)  increase by $18 billion 
A)  increase by $22.2 billion 
B)  increase by $200 billion 
C)  not change because the MPC only changes consumption when income changes 
D)  not change because the expenditures multiplier only applies to changes in investment spending and government purchases 
E)  increase by $18 billion

Question 8

If the expenditure multiplier is 3.5 and investment spending increases by $2,000 billion,what will be the change in GDP?

Accepted Answer

A)  $2,000 billion 
B)  $5,000 billion 
C)  $571.4 billion 
D)  $3,500 billion 
E)  $7,000 billion 
A)  $2,000 billion 
B)  $5,000 billion 
C)  $571.4 billion 
D)  $3,500 billion 
E)  $7,000 billion

Question 9

If the expenditure multiplier is 2.5 and investment spending increases by $2,000 billion,what will be the change in GDP?

Accepted Answer

A)  $2,000 billion 
B)  $5,000 billion 
C)  $571.4 billion 
D)  $3,500 billion 
E)  $7,000 billion 
A)  $2,000 billion 
B)  $5,000 billion 
C)  $571.4 billion 
D)  $3,500 billion 
E)  $7,000 billion

Question 10

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 11

-The graph shown in Figure 11-4 shows

Accepted Answer

A)  equilibrium in the short-run macro model 
B)  when inventories will accumulate and when they will shrink 
C)  how an increase in GDP will increase government tax revenues 
D)  how an increase in aggregate expenditure will increase GDP 
E)  every point at which aggregate expenditure equals GDP 
A)  equilibrium in the short-run macro model 
B)  when inventories will accumulate and when they will shrink 
C)  how an increase in GDP will increase government tax revenues 
D)  how an increase in aggregate expenditure will increase GDP 
E)  every point at which aggregate expenditure equals GDP

Question 12

If firms increase their investment spending,the resulting change in equilibrium GDP is equal to the change in investment spending

Accepted Answer

A)  multiplied by 2.5 
B)  alone 
C)  multiplied by the expenditure multiplier 
D)  divided by the marginal propensity to consume 
E)  plus the change in consumption spending 
A)  multiplied by 2.5 
B)  alone 
C)  multiplied by the expenditure multiplier 
D)  divided by the marginal propensity to consume 
E)  plus the change in consumption spending

Question 13

Suppose the economy is in equilibrium when business firms decide to increase investment spending by $100 billion.According to the short-run macro model,what would be the effect on equilibrium real GDP?

Accepted Answer

A)  There would be no effect;the increased investment spending would be offset by decreased spending in other sectors. 
B)  It would increase by $100 billion. 
C)  It would increase by more than $100 billion. 
D)  It would increase,but by less than $100 billion. 
E)  It would decline by $100 billion. 
A)  There would be no effect;the increased investment spending would be offset by decreased spending in other sectors. 
B)  It would increase by $100 billion. 
C)  It would increase by more than $100 billion. 
D)  It would increase,but by less than $100 billion. 
E)  It would decline by $100 billion.

Question 14

Which of the following would lead to an upward shift of the consumption-income line?

Accepted Answer

A)  A decrease in income 
B)  A decrease in population 
C)  An increase in income 
D)  An increase in wealth 
E)  An increase in the interest rate 
A)  A decrease in income 
B)  A decrease in population 
C)  An increase in income 
D)  An increase in wealth 
E)  An increase in the interest rate

Question 15

If aggregate expenditure exceeds GDP,we expect inventories to shrink and firms to increase production.

Accepted Answer

A) True 
 B)False

Question 16

The focus of the short-run macro model is on the role of

Accepted Answer

A)  spending in explaining economic fluctuations 
B)  labor in explaining economic fluctuations 
C)  financial markets in explaining economic fluctuations 
D)  output in explaining economic fluctuations 
E)  resources in explaining economic fluctuations. 
A)  spending in explaining economic fluctuations 
B)  labor in explaining economic fluctuations 
C)  financial markets in explaining economic fluctuations 
D)  output in explaining economic fluctuations 
E)  resources in explaining economic fluctuations.

Question 17

What is the difference between actual investment (as defined in GDP)and planned investment?

Accepted Answer

A)  Planned investment does not include unplanned inventory changes;actual investment does. 
B)  There is no difference;they are the same. 
C)  Planned investment does not include depreciation;actual investment does. 
D)  Planned investment includes inventories;actual investment does not. 
E)  Planned investment includes depreciation;actual investment does not. 
A)  Planned investment does not include unplanned inventory changes;actual investment does. 
B)  There is no difference;they are the same. 
C)  Planned investment does not include depreciation;actual investment does. 
D)  Planned investment includes inventories;actual investment does not. 
E)  Planned investment includes depreciation;actual investment does not.

Question 18

Renee plans to graduate and enter the job market in the spring.Economists are forecasting a recession during the spring.As a result,she

Accepted Answer

A)  is happy because unemployment rates are low during a recession 
B)  is happy because salaries are usually higher during a recession 
C)  does not care because the availability of jobs is not affected by whether there is a recession 
D)  is unhappy because it is generally difficult to find a job during a recession 
E)  favors increasing taxes to help head off the recession 
A)  is happy because unemployment rates are low during a recession 
B)  is happy because salaries are usually higher during a recession 
C)  does not care because the availability of jobs is not affected by whether there is a recession 
D)  is unhappy because it is generally difficult to find a job during a recession 
E)  favors increasing taxes to help head off the recession

Question 19

The slope of the consumption function can be determined by dividing the change in

Accepted Answer

A)  real consumption spending by the change in real disposable income 
B)  nominal spending by the change in nominal disposable income 
C)  real disposable income by the change in real consumption spending 
D)  nominal disposable income by the change in nominal consumption spending 
E)  total consumption spending by the change in autonomous consumption spending 
A)  real consumption spending by the change in real disposable income 
B)  nominal spending by the change in nominal disposable income 
C)  real disposable income by the change in real consumption spending 
D)  nominal disposable income by the change in nominal consumption spending 
E)  total consumption spending by the change in autonomous consumption spending

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 23: The Short-Run Macro Model

In the short run,

Which of the following would lead to a rightward movement along the aggregate expenditure line rather than a shift of the line itself?

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

If the marginal propensity to consume is 0.7,the expenditure multiplier is

In the short-run macro model,what is the relationship between income and investment spending?

Which of the following is considered to be the major cause of the recession of 2001?

Suppose the MPC is 0.9.If autonomous consumption spending increases by $20 billion,equilibrium output will

If the expenditure multiplier is 3.5 and investment spending increases by $2,000 billion,what will be the change in GDP?

If the expenditure multiplier is 2.5 and investment spending increases by $2,000 billion,what will be the change in GDP?

The consumption function

-The graph shown in Figure 11-4 shows

If firms increase their investment spending,the resulting change in equilibrium GDP is equal to the change in investment spending

Suppose the economy is in equilibrium when business firms decide to increase investment spending by $100 billion.According to the short-run macro model,what would be the effect on equilibrium real GDP?

Which of the following would lead to an upward shift of the consumption-income line?

If aggregate expenditure exceeds GDP,we expect inventories to shrink and firms to increase production.

The focus of the short-run macro model is on the role of

What is the difference between actual investment (as defined in GDP)and planned investment?

Renee plans to graduate and enter the job market in the spring.Economists are forecasting a recession during the spring.As a result,she

The slope of the consumption function can be determined by dividing the change in

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

What Is Economics

Scarcity,choice,and Economic Systems

Scarcity, choice, and Economic Systems: Part A

Working With Supply and Demand

Elasticity

Consumer Choice

Production and Cost

How Firms Make Decisions: Profit Maximization

Perfect Competition

Perfect Competition: Part A

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

labor Markets: Part A

Capital and Financial Markets

Economic Efficiency and the Competitive Ideal

Governments Role in Economic Efficiency

Comparative Advantage and the Gains From International Trade

What Macroeconomics Tries to Explain

Production, income, and Employment

The Price Level and Inflation

The Classical Long-Run Model

Part A: The Classical Model in an Open Economy

Economic Growth and Rising Living Standards

Economic Fluctuations

Fiscal Policy

Money,banks,and the Federal Reserve

The Money Market and Monetary Policy

Feedback Effects From GDP to the Money Market

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Appendix-finding Equilibrium GDP Algebraically

Appendix: Capital and Leverage

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