Question 1

-Which of these figures best illustrates the behavior of real GDP in the U.S. economy over the last few decades?

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 2

If, holding all else equal, the level of household saving decreased and the level of business investment spending increased, the level of economic activity would:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  either increase or decrease, depending on which change was larger.

Question 3

Since the early 1980s:

Accepted Answer

A)  U.S. exports always exceeded U.S. imports. 
B)  U.S. net exports were close to zero each year. 
C)  the U.S. net export position eroded as imports consistently exceeded exports, often by a large amount. 
D)  the U.S. net export position strengthened as exports consistently exceeded imports, often by a large amount.

Question 4

The expectation of:

Accepted Answer

A)  lower future prices can lead to demand-pull inflationary pressure now. 
B)  good economic conditions in the future makes it difficult to recover from a recession. 
C)  an upcoming recession can lead to an increase in the saving leakage and a decrease in the level of economic activity. 
D)  an upcoming recession can lead to an increase in current personal consumption expenditures which will reduce employment in the future.

Question 5

An economy will contract when spending from:

Accepted Answer

A)  transfers and borrowing, and savings and taxes increase. 
B)  transfers and borrowing, and savings and taxes decrease. 
C)  transfers and borrowing increases, and savings and taxes decrease. 
D)  transfers and borrowing decreases, and savings and taxes increase.

Question 6

If transfer payments were increasing at the same time monetary policy was used to increase the interest rate:

Accepted Answer

A)  the two policies would work against one another. 
B)  the combined effect of the two policies would cause the economy to expand more than if either policy were used alone. 
C)  the combined effect of the two policies would cause the economy to contract more than if either policy were used alone. 
D)  any one of the above would be as likely to occur as any other.

Question 7

The primary cause of changes in the level of economic activity is changes in:

Accepted Answer

A)  total spending. 
B)  imports and exports. 
C)  government tax and expenditure policies. 
D)  none of the above.

Question 8

Holding everything else constant, which of the following would cause economic activity to decrease?

Accepted Answer

A)  The value of exports is less than the value of imports. 
B)  Business and household saving is less than investment spending. 
C)  Taxes are less than government purchases and transfer payments. 
D)  Household saving is less than household spending from borrowing.

Question 9

The basic factor causing changes in the level of economic activity is changes in the level of:

Accepted Answer

A)  prices. 
B)  total spending. 
C)  unemployment. 
D)  business income.

Question 10

All other things equal, which of the following statements is true?

Accepted Answer

A)  An economy will contract when investment is equal to saving. 
B)  An economy will contract when investment is less than saving. 
C)  An economy will contract when investment is greater than saving. 
D)  The relationship between investment and saving has no impact on total economic activity.

Question 11

Considering only the household sector, an economy will:

Accepted Answer

A)  expand as spending from transfers and borrowing, and savings and taxes increase. 
B)  contract as spending from transfers and borrowing, and savings and taxes increase. 
C)  expand as spending from transfers and borrowing increases, and contract as savings and taxes increase. 
D)  contract as spending from transfers and borrowing increases, and expand as savings and taxes increase.

Question 12

The economic policy that focuses on changing the size of the spending stream by changing government taxes and/or expenditures is:

Accepted Answer

A)  socialism. 
B)  fiscal policy. 
C)  monetary policy. 
D)  laissez-faire capitalism.

Question 13

The two major categories of government spending are _______ ______.

Accepted Answer

The answer of The two major categories of government spending...

Question 14

Which of the following statements about the multiplier effect is FALSE?

Accepted Answer

A)  It works for increases in spending but not for decreases in spending. 
B)  It can be caused by a change in government purchases of goods and services. 
C)  It occurs when new nonincome-determined spending is injected into the circular flow. 
D)  Its size depends on how much is not spent from each successive round of income that is created.

Question 15

Considering only the household sector, if household saving and taxes are less than spending from borrowing and transfers, then injections into the spending stream are:

Accepted Answer

A)  less than leakages, and the level of economic activity will increase. 
B)  less than leakages, and the level of economic activity will decrease. 
C)  greater than leakages, and the level of economic activity will increase. 
D)  greater than leakages, and the level of economic activity will decrease.

Question 16

Which of the following statements is FALSE?

Accepted Answer

A)  Foreign purchases of U.S.-produced goods cause an injection into the U.S. economy. 
B)  Purchases by U.S. buyers of foreign-produced goods cause a leakage from the U.S. economy. 
C)  U.S. purchases of foreign-produced goods increase output and employment in foreign countries. 
D)  If the value of exports exceeds the value of imports, leakages from the foreign sector exceed injections.

Question 17

Basically, an increase in nonincome-determined spending is subject to a multiplier effect because:

Accepted Answer

A)  businesses take the new dollars coming into the spending stream and save them. 
B)  new dollars injected into the spending stream are spent over and over again as they change hands. 
C)  the government gives favorable tax treatment to dollars that are injected into the spending stream. 
D)  financial institutions pay high interest rates to those who have claims to new spending dollars.

Question 18

How does the relationship between leakages from and injections into the spending stream cause the level of economic activity to change?

Accepted Answer

The answer of How does the relationship between leakages from...

Question 19

If 20% of additional income received by households was NOT spent, the economy's total output would grow by:

Accepted Answer

A)  20% of the initial change in nonincome-determined spending. 
B)  80% of the initial change in nonincome-determined spending. 
C)  20 times the initial change in nonincome-determined spending. 
D)  5 times the initial change in nonincome-determined spending.

Question 20

The four phases of a business cycle, and their correct order, are:

Accepted Answer

A)  peak, trough, recession, and recovery. 
B)  peak, recovery, trough, and recession. 
C)  peak, recession, trough, and recovery. 
D)  peak, recession, recovery, and trough.

Exam 5: Foundations of the Macroeconomy