Question 1

In the aggregate expenditures model, the equilibrium GDP is:

Accepted Answer

A)  Assumed to be equal to the potential GDP level 
B)  Not necessarily equal to the full-employment GDP 
C)  Always above the potential GDP level 
D)  Always less than the full-employment GDP level 
A)  Assumed to be equal to the potential GDP level 
B)  Not necessarily equal to the full-employment GDP 
C)  Always above the potential GDP level 
D)  Always less than the full-employment GDP level B

Question 2

One basic assumption of the aggregate expenditures model is that:

Accepted Answer

A)  The economy is operating at full employment 
B)  There is inflation in the economy 
C)  There is no public sector in the economy 
D)  The average price level in the economy is fixed 
A)  The economy is operating at full employment 
B)  There is inflation in the economy 
C)  There is no public sector in the economy 
D)  The average price level in the economy is fixed D

Question 3

Assume that the marginal propensity to consume in an economy is 0.9. If the economy's full-employment real GDP is $500 billion and its equilibrium real GDP is $550 billion, there is an inflationary expenditure gap of:

Accepted Answer

A)  $5 billion 
B)  $50 billion 
C)  $100 billion 
D)  $500 billion 
A)  $5 billion 
B)  $50 billion 
C)  $100 billion 
D)  $500 billion A

Question 4

Classical economists held the view that in the economy:

Accepted Answer

A)  Demand creates its own supply 
B)  Unemployment is temporary and is soon eliminated 
C)  There is an imbalance between saving and investment 
D)  It is difficult for an economy to adjust because wages and prices are inflexible 
A)  Demand creates its own supply 
B)  Unemployment is temporary and is soon eliminated 
C)  There is an imbalance between saving and investment 
D)  It is difficult for an economy to adjust because wages and prices are inflexible

Question 5

One basic assumption of the aggregate expenditures model is that the price level in the economy is fixed.

Accepted Answer

A) True 
 B)False

Question 6

If the expected rates of return from investment decrease in an economy, there would most likely be a downward shift in the investment schedule for that economy.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is correct?

Accepted Answer

A)  An increase in exports will tend to increase, and an increase in imports will tend to decrease, the equilibrium GDP 
B)  An increase in exports and an increase in imports will both tend to increase the equilibrium GDP 
C)  An increase in exports and an increase in imports will both tend to decrease the equilibrium GDP 
D)  An increase in exports will tend to decrease, and an increase in imports will tend to increase, the equilibrium GDP 
A)  An increase in exports will tend to increase, and an increase in imports will tend to decrease, the equilibrium GDP 
B)  An increase in exports and an increase in imports will both tend to increase the equilibrium GDP 
C)  An increase in exports and an increase in imports will both tend to decrease the equilibrium GDP 
D)  An increase in exports will tend to decrease, and an increase in imports will tend to increase, the equilibrium GDP

Question 8

In the aggregate expenditures model of the economy, equilibrium is attained when planned aggregate spending equals total output.

Accepted Answer

A) True 
 B)False

Question 9

Refer to the graph above for a private closed economy. When output or income is $350 billion there will be:

Accepted Answer

A)  Equilibrium GDP 
B)  Saving exceeding planned investment 
C)  Unplanned increases in inventories 
D)  Unplanned decreases in inventories 
A)  Equilibrium GDP 
B)  Saving exceeding planned investment 
C)  Unplanned increases in inventories 
D)  Unplanned decreases in inventories

Question 10

When planned investment exceeds saving in a private closed economy:

Accepted Answer

A)  Aggregate expenditures will equal GDP 
B)  Aggregate expenditures will exceed GDP 
C)  Aggregate expenditures will be less than GDP 
D)  Consumption plus investment will equal GDP 
A)  Aggregate expenditures will equal GDP 
B)  Aggregate expenditures will exceed GDP 
C)  Aggregate expenditures will be less than GDP 
D)  Consumption plus investment will equal GDP

Question 11

Injections into the income-expenditure stream include:

Accepted Answer

A)  Transfer payments and imports 
B)  Government purchases and exports 
C)  Taxes and imports 
D)  Taxes and transfer payments 
A)  Transfer payments and imports 
B)  Government purchases and exports 
C)  Taxes and imports 
D)  Taxes and transfer payments

Question 12

A rightward shift of the investment demand curve will:

Accepted Answer

A)  Shift the investment schedule downward 
B)  Shift the investment schedule upward 
C)  Decrease the quantity of investment 
D)  Decrease the real rate of interest 
A)  Shift the investment schedule downward 
B)  Shift the investment schedule upward 
C)  Decrease the quantity of investment 
D)  Decrease the real rate of interest

Question 13

When saving is less than planned investment in the aggregate expenditures model of a private closed economy then:

Accepted Answer

A)  Real GDP will decrease 
B)  The rate of interest will decline 
C)  There will be a decline in the price level 
D)  There will be a rise in real GDP 
A)  Real GDP will decrease 
B)  The rate of interest will decline 
C)  There will be a decline in the price level 
D)  There will be a rise in real GDP

Question 14

A constitutional amendment is passed that requires the government to have an annually balanced budget in the sense that changes in spending should be matched by equivalent changes in taxes. Should the government desire to increase GDP by $25 billion and meet the provisions of the law it:

Accepted Answer

A)  Cannot possibly reach its objective without breaking the law 
B)  Could increase spending by $25 billion and reduce taxes by $25 billion 
C)  Could increase spending by $25 billion and increase taxes by $25 billion 
D)  Could increase spending by $30 billion and increase taxes by $25 billion 
A)  Cannot possibly reach its objective without breaking the law 
B)  Could increase spending by $25 billion and reduce taxes by $25 billion 
C)  Could increase spending by $25 billion and increase taxes by $25 billion 
D)  Could increase spending by $30 billion and increase taxes by $25 billion

Question 15

Other things constant, if domestic consumers purchase fewer foreign goods at each level of GDP in the short run:

Accepted Answer

A)  GDP will rise 
B)  GDP will fall 
C)  Foreign countries' GDP will rise 
D)  There will be no change in GDP in this country 
A)  GDP will rise 
B)  GDP will fall 
C)  Foreign countries' GDP will rise 
D)  There will be no change in GDP in this country

Question 16

All figures in the table below are in billions.   Refer to the above data. If exports increased by $15 billion at each level of GDP, all other factors constant, then the equilibrium level of GDP would be:

Accepted Answer

A)  $550 billion 
B)  $600 billion 
C)  $650 billion 
D)  $700 billion 
A)  $550 billion 
B)  $600 billion 
C)  $650 billion 
D)  $700 billion

Question 17

The data below is the consumption schedule in an economy. All figures are in billions of dollars.   Refer to the above table. If a government sector is introduced and a lump-sum tax of $30 billion is imposed at all levels of GDP, then the consumption column in the table becomes:

Accepted Answer

A)  $420, 460, 500, 540, 580 
B)  $426, 466, 506, 546, 586 
C)  $430, 470, 510, 550, 590 
D)  $432, 472, 512, 552, 592 
A)  $420, 460, 500, 540, 580 
B)  $426, 466, 506, 546, 586 
C)  $430, 470, 510, 550, 590 
D)  $432, 472, 512, 552, 592

Question 18

If the real interest rate falls, then the:

Accepted Answer

A)  Investment schedule will shift upward 
B)  Investment schedule will shift downward 
C)  Point moves along the investment schedule to the right 
D)  Consumption schedule will shift downward 
A)  Investment schedule will shift upward 
B)  Investment schedule will shift downward 
C)  Point moves along the investment schedule to the right 
D)  Consumption schedule will shift downward

Question 19

If the economy has a recessionary expenditure gap of $15 billion and the MPS is 0.3, then the equilibrium level of GDP is:

Accepted Answer

A)  $16 billion below the full-employment level 
B)  $21 billion below the full-employment level 
C)  $50 billion below the full-employment level 
D)  $50 billion above the full-employment level 
A)  $16 billion below the full-employment level 
B)  $21 billion below the full-employment level 
C)  $50 billion below the full-employment level 
D)  $50 billion above the full-employment level

Question 20

If the marginal propensity to consume is .80 and both taxes and government purchases increase by $50 billion, GDP will:

Accepted Answer

A)  Increase by $50 billion 
B)  Decrease by $50 billion 
C)  Increase by $10 billion 
D)  Decrease by $10 billion 
A)  Increase by $50 billion 
B)  Decrease by $50 billion 
C)  Increase by $10 billion 
D)  Decrease by $10 billion

Exam 11: The Aggregate Expenditures Model

In the aggregate expenditures model, the equilibrium GDP is:

One basic assumption of the aggregate expenditures model is that:

Assume that the marginal propensity to consume in an economy is 0.9. If the economy's full-employment real GDP is $500 billion and its equilibrium real GDP is $550 billion, there is an inflationary expenditure gap of:

Classical economists held the view that in the economy:

One basic assumption of the aggregate expenditures model is that the price level in the economy is fixed.

If the expected rates of return from investment decrease in an economy, there would most likely be a downward shift in the investment schedule for that economy.

Which of the following statements is correct?

In the aggregate expenditures model of the economy, equilibrium is attained when planned aggregate spending equals total output.

Refer to the graph above for a private closed economy. When output or income is $350 billion there will be:

When planned investment exceeds saving in a private closed economy:

Injections into the income-expenditure stream include:

A rightward shift of the investment demand curve will:

When saving is less than planned investment in the aggregate expenditures model of a private closed economy then:

A constitutional amendment is passed that requires the government to have an annually balanced budget in the sense that changes in spending should be matched by equivalent changes in taxes. Should the government desire to increase GDP by $25 billion and meet the provisions of the law it:

Other things constant, if domestic consumers purchase fewer foreign goods at each level of GDP in the short run:

All figures in the table below are in billions. Refer to the above data. If exports increased by $15 billion at each level of GDP, all other factors constant, then the equilibrium level of GDP would be:

The data below is the consumption schedule in an economy. All figures are in billions of dollars. Refer to the above table. If a government sector is introduced and a lump-sum tax of $30 billion is imposed at all levels of GDP, then the consumption column in the table becomes:

If the real interest rate falls, then the:

If the economy has a recessionary expenditure gap of $15 billion and the MPS is 0.3, then the equilibrium level of GDP is:

If the marginal propensity to consume is .80 and both taxes and government purchases increase by $50 billion, GDP will:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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