Question 1

Which of the following consumption functions has a marginal propensity to consume equal to 0.95?

Accepted Answer

A) C = 95 + 0.87Y 
B) C = 0.95 + 0.87Y 
C) C = 1,000 + 0.05Y 
D) C = 1,000 + 95Y 
E) None of these 
A) C = 95 + 0.87Y 
B) C = 0.95 + 0.87Y 
C) C = 1,000 + 0.05Y 
D) C = 1,000 + 95Y 
E) None of these E

Question 2

The relationship describing how consumption depends on income is known by economists as

Accepted Answer

A) the income function. 
B) the budget constraint function. 
C) the purchasing function. 
D) the affordable function. 
E) None of these 
A) the income function. 
B) the budget constraint function. 
C) the purchasing function. 
D) the affordable function. 
E) None of these E

Question 3

Income has a strong effect on consumption during a recession.

Accepted Answer

A) True 
 B)False  True

Question 4

Suppose real GDP in 2010 is $6,105 billion.If the forecasted rate of growth for the year 2011 is 2.75 percent,then in the year 2011,real GDP will be

Accepted Answer

A) $6,500 billion. 
B) $6,273 billion. 
C) $7,784 billion. 
D) $5,942 billion. 
E) $6,300 billion. 
A) $6,500 billion. 
B) $6,273 billion. 
C) $7,784 billion. 
D) $5,942 billion. 
E) $6,300 billion.

Question 5

According to the spending balance model,a change in spending causes a change in income,which causes further changes in spending and income.

Accepted Answer

A) True 
 B)False

Question 6

Disposable income and real GDP behave the same way because

Accepted Answer

A) taxes and transfer payments are not proportional to income. 
B) disposable income is the same as real GDP. 
C) taxes and transfer payments are less than 10 percent of income. 
D) taxes and transfer payments are nearly proportional to income. 
E) taxes and transfer payments are a negligible fraction of income. 
A) taxes and transfer payments are not proportional to income. 
B) disposable income is the same as real GDP. 
C) taxes and transfer payments are less than 10 percent of income. 
D) taxes and transfer payments are nearly proportional to income. 
E) taxes and transfer payments are a negligible fraction of income.

Question 7

Which of the following statements is true?

Accepted Answer

A) A change in government purchases affects income.However,the change in income does not affect consumption. 
B) A change in government purchases does not affect income or consumption. 
C) A change in government purchases affects GDP,which is the same as income.The change in income affects consumption. 
D) A change in government purchases affects GDP but not income. 
E) A change in government purchases has no effect on GDP,but it does affect consumption. 
A) A change in government purchases affects income.However,the change in income does not affect consumption. 
B) A change in government purchases does not affect income or consumption. 
C) A change in government purchases affects GDP,which is the same as income.The change in income affects consumption. 
D) A change in government purchases affects GDP but not income. 
E) A change in government purchases has no effect on GDP,but it does affect consumption.

Question 8

The size of the MPC determines how a change in spending affects income.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the expenditure line is given by the equation E = 800 + .75Y,and output is equal to 3,000.Which of the following is true?

Accepted Answer

A) There is an incentive for firms to increase output. 
B) Spending is less than income. 
C) Spending is equal to income. 
D) The economy is in equilibrium. 
E) There is too much output. 
A) There is an incentive for firms to increase output. 
B) Spending is less than income. 
C) Spending is equal to income. 
D) The economy is in equilibrium. 
E) There is too much output.

Question 10

Explain the connection between fluctuations in the unemployment rate around the natural rate of unemployment and fluctuations in real GDP around potential GDP.

Accepted Answer

Real GDP rises above potential GDP when

Question 11

If foreigners decide to increase their purchases of U.S.-made goods by $15 million,real GDP will

Accepted Answer

A) remain unchanged. 
B) increase by more than $15 million. 
C) increase by less than $15 million. 
D) increase by $15 million. 
E) decrease by more than $15 million. 
A) remain unchanged. 
B) increase by more than $15 million. 
C) increase by less than $15 million. 
D) increase by $15 million. 
E) decrease by more than $15 million.

Question 12

Keynes's most influential book is called

Accepted Answer

A) The Economic Consequences of the Peace. 
B) Tract on Monetary Reform. 
C) Treatise on Money. 
D) The General Theory of Employment,Interest and Money. 
E) A Self-Adjusting Economy. 
A) The Economic Consequences of the Peace. 
B) Tract on Monetary Reform. 
C) Treatise on Money. 
D) The General Theory of Employment,Interest and Money. 
E) A Self-Adjusting Economy.

Question 13

A conditional forecast of real GDP is

Accepted Answer

A) a forecast using one of the 54 forecasts listed in Blue Chip Economic Indicators. 
B) a forecast based on potential GDP as opposed to the spending components of GDP. 
C) another name for the Blue Chip Consensus forecast. 
D) a forecast that explains what real GDP will be under alternative assumptions about the spending components. 
E) a forecast that is conditional on the time period in which it was made. 
A) a forecast using one of the 54 forecasts listed in Blue Chip Economic Indicators. 
B) a forecast based on potential GDP as opposed to the spending components of GDP. 
C) another name for the Blue Chip Consensus forecast. 
D) a forecast that explains what real GDP will be under alternative assumptions about the spending components. 
E) a forecast that is conditional on the time period in which it was made.

Question 14

Suppose most European economies are in a recession.How would you expect this to affect the European demand for American goods? What happens to net exports? Sketch a diagram that illustrates how this change in net exports affects real GDP in the United States.

Accepted Answer

The recession in Europe result

Question 15

To understand how a change in government purchases affects real GDP in the short run,we need to focus on

Accepted Answer

A) the identity between real GDP and income and the identity between real GDP and potential GDP. 
B) the consumption function and the identity between real GDP and income. 
C) the identity between real GDP and income and the identity between disposable income and real GDP. 
D) the consumption function and the identity between real GDP and disposable income. 
E) the consumption function and the identity between real GDP and potential GDP. 
A) the identity between real GDP and income and the identity between real GDP and potential GDP. 
B) the consumption function and the identity between real GDP and income. 
C) the identity between real GDP and income and the identity between disposable income and real GDP. 
D) the consumption function and the identity between real GDP and disposable income. 
E) the consumption function and the identity between real GDP and potential GDP.

Question 16

The consumption function for the whole economy

Accepted Answer

A) looks different when real GDP is used instead of disposable income. 
B) looks similar for either real GDP or disposable income. 
C) is nonlinear when real GDP is used. 
D) is nonlinear when aggregate income is used. 
E) is nonlinear when disposable income is used instead of real GDP. 
A) looks different when real GDP is used instead of disposable income. 
B) looks similar for either real GDP or disposable income. 
C) is nonlinear when real GDP is used. 
D) is nonlinear when aggregate income is used. 
E) is nonlinear when disposable income is used instead of real GDP.

Question 17

Which of the following statements is true?

Accepted Answer

A) A change in income has no effect on consumption,but a change in consumption will cause income to change. 
B) A change in income will affect consumption,but a change in consumption will not affect income. 
C) A change in income has no effect on consumption,and a change in consumption has no effect on income. 
D) A change in income causes consumption to change,and a change in consumption will cause income to change. 
E) None of these 
A) A change in income has no effect on consumption,but a change in consumption will cause income to change. 
B) A change in income will affect consumption,but a change in consumption will not affect income. 
C) A change in income has no effect on consumption,and a change in consumption has no effect on income. 
D) A change in income causes consumption to change,and a change in consumption will cause income to change. 
E) None of these

Question 18

If firms decide to decrease their purchases of U.S.-produced goods,

Accepted Answer

A) the decrease in investment will have no effect on U.S.income or consumption. 
B) the decrease in investment will cause U.S.income to increase,which will cause consumption to increase. 
C) the decrease in investment will cause U.S.income to decrease,which will cause consumption to decrease. 
D) real GDP will increase by the same amount that investment spending decreased. 
E) real GDP will decrease by the same amount that investment spending decreased. 
A) the decrease in investment will have no effect on U.S.income or consumption. 
B) the decrease in investment will cause U.S.income to increase,which will cause consumption to increase. 
C) the decrease in investment will cause U.S.income to decrease,which will cause consumption to decrease. 
D) real GDP will increase by the same amount that investment spending decreased. 
E) real GDP will decrease by the same amount that investment spending decreased.

Question 19

Economic fluctuations have been common for at least 200 years,but they have diminished in frequency and severity in the United States and many other countries,particularly in the last 25 years.

Accepted Answer

A) True 
 B)False

Question 20

The recession that began in December 2007 proved to be mild and very short-lived.

Accepted Answer

A) True 
 B)False

Exam 23: The Nature and Causes of Economic Fluctuations

Which of the following consumption functions has a marginal propensity to consume equal to 0.95?

The relationship describing how consumption depends on income is known by economists as

Income has a strong effect on consumption during a recession.

Suppose real GDP in 2010 is $6,105 billion.If the forecasted rate of growth for the year 2011 is 2.75 percent,then in the year 2011,real GDP will be

According to the spending balance model,a change in spending causes a change in income,which causes further changes in spending and income.

Disposable income and real GDP behave the same way because

Which of the following statements is true?

The size of the MPC determines how a change in spending affects income.

Suppose the expenditure line is given by the equation E = 800 + .75Y,and output is equal to 3,000.Which of the following is true?

Explain the connection between fluctuations in the unemployment rate around the natural rate of unemployment and fluctuations in real GDP around potential GDP.

If foreigners decide to increase their purchases of U.S.-made goods by $15 million,real GDP will

Keynes's most influential book is called

A conditional forecast of real GDP is

Suppose most European economies are in a recession.How would you expect this to affect the European demand for American goods? What happens to net exports? Sketch a diagram that illustrates how this change in net exports affects real GDP in the United States.

To understand how a change in government purchases affects real GDP in the short run,we need to focus on

The consumption function for the whole economy

Which of the following statements is true?

If firms decide to decrease their purchases of U.S.-produced goods,

Economic fluctuations have been common for at least 200 years,but they have diminished in frequency and severity in the United States and many other countries,particularly in the last 25 years.

The recession that began in December 2007 proved to be mild and very short-lived.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, transfers, and Income Distribution

Public Goods, externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth and Globalization

International Trade

International Finance

Reading,understanding,and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Present Discounted Value

The Miracle of Compound Growth

Deriving the Growth Accounting Formula

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

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