Question 1

An economic recession in Japan ______ the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n)______ output gap in the East Asian countries.

Accepted Answer

A) reduces;expansionary 
B) increases;expansionary 
C) reduces;recessionary 
D) increases;recessionary

Question 2

Expansionary policies are government stabilization policy actions intended to increase:

Accepted Answer

A) population. 
B) unemployment. 
C) average labor productivity. 
D) planned spending.

Question 3

If firms sell more output than expected,planned investment:

Accepted Answer

A) is greater than actual investment. 
B) is less than actual investment. 
C) equals actual investment. 
D) equals zero.

Question 4

In the short-run Keynesian model,to close a recessionary gap of $1 billion dollars government purchases must be:

Accepted Answer

A) increased by $1 billion. 
B) decreased by $1 billion. 
C) increased by more than $1 billion. 
D) increased by less than $1 billion.

Question 5

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 transfers must be ______ by approximately ______ to eliminate any output gap.

Accepted Answer

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

Question 6

In the Keynesian cross diagram,the vertical intercept of the expenditure line equals ______ and the slope of the expenditure line equals _____.

Accepted Answer

A) induced expenditures;autonomous expenditures 
B) autonomous expenditures;induced expenditures 
C) planned spending;unplanned spending 
D) autonomous expenditures;the mpc

Question 7

The marginal propensity to consume (mpc)is the:

Accepted Answer

A) amount by which disposable income increases when consumption increases by $1. 
B) amount by which consumption increases when disposable income increases by $1. 
C) percentage by which consumption increases when disposable income increases by 1%. 
D) percentage by which disposable income increases when consumption increases by 1%.

Question 8

In the short-run Keynesian model where the marginal propensity to consume is 0.5,to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption,government purchases must be:

Accepted Answer

A) increased by $1 billion. 
B) decreased by $1 billion. 
C) decreased by $0.5 billion. 
D) decreased by $2 billion.

Question 9

When prices are predetermined,the level of output that equals planned aggregate expenditure is called ______ output.

Accepted Answer

A) the natural rate of 
B) potential 
C) short-run equilibrium 
D) induced

Question 10

A fiscal policy action to close an expansionary gap is to:

Accepted Answer

A) decrease taxes. 
B) increase transfer payments. 
C) decrease government purchases. 
D) increase the marginal propensity to consume.

Question 11

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.Short-run equilibrium output in this economy equals:

Accepted Answer

A) 1,000. 
B) 1,160. 
C) 1,280. 
D) 1,440.

Question 12

When real output decreases,planned aggregate expenditures decrease because:

Accepted Answer

A) autonomous expenditures increase. 
B) autonomous expenditures decrease. 
C) induced expenditures increase. 
D) induced expenditures decrease.

Question 13

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.Induced expenditure equals:

Accepted Answer

A) 0.25Y. 
B) 320 + 0.25Y. 
C) 0.75Y. 
D) 290 + 0.75Y.

Question 14

In the short-run Keynesian model,if the mpc equals 0.8,then to increase planned aggregate spending by $20 billion at any output level,government spending must be increased by ______ or net taxes must be decreased by _____.

Accepted Answer

A) $20 billion;$20 billion 
B) more than $20 billion;more than $20 billion 
C) less than $20 billion;less than $20 billion 
D) $20 billion;more than $20 billion

Question 15

The effect of a one-unit increase in autonomous expenditure on short-run equilibrium output is called:

Accepted Answer

A) the marginal propensity to consume. 
B) average labor productivity. 
C) Okun's law. 
D) the income-expenditure multiplier.

Question 16

Menu costs are the costs of:

Accepted Answer

A) running a restaurant. 
B) changing prices. 
C) increasing aggregate demand. 
D) changing production.

Question 17

Data on output and planned aggregate expenditure in Macroland are given below. $$\begin{array} { c c } 
&  \underline{ \text { Planned Aggregate } } \
 \underline{\text { Output (Y) }} &  \underline{ \text { Expenditure (PAE) } } \
 2,000 & 2,300 \
3,000 & 3,200 \
4,000 & 4,100 \
5,000 & 5,000 \
6,000 & 5,900
\end{array}$$
Based on these data,the short-run equilibrium level of output is _____.

Accepted Answer

A) 2,000 
B) 3,200 
C) 4,100 
D) 5,000

Question 18

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

Accepted Answer

A) spending on consumer durables. 
B) planned changes in inventories. 
C) sales of domestically produced goods to foreigners. 
D) interest paid on the government debt.

Question 19

In the Keynesian model,it is assumed that,when demand for a firm's product changes,the firm:

Accepted Answer

A) changes prices to meet the demand. 
B) changes production levels to meet the demand. 
C) changes prices and production levels to meet demand. 
D) changes prices,but hold production levels constant to meet the demand.

Question 20

In Econland autonomous consumption equals 700,the marginal propensity to consume equals 0.80,net taxes are fixed at 50,planned investment is fixed at 100,government purchases are fixed at 100,and net exports are fixed at 40.Autonomous expenditure equals:

Accepted Answer

A) 990. 
B) 940. 
C) 900. 
D) 890.

Exam 22: Spending, Output, and Fiscal Policy

An economic recession in Japan the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n) output gap in the East Asian countries.

Expansionary policies are government stabilization policy actions intended to increase:

If firms sell more output than expected,planned investment:

In the short-run Keynesian model,to close a recessionary gap of $1 billion dollars government purchases must be:

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 transfers must be by approximately to eliminate any output gap.

In the Keynesian cross diagram,the vertical intercept of the expenditure line equals __ and the slope of the expenditure line equals _.

The marginal propensity to consume (mpc) is the:

In the short-run Keynesian model where the marginal propensity to consume is 0.5,to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption,government purchases must be:

When prices are predetermined,the level of output that equals planned aggregate expenditure is called ______ output.

A fiscal policy action to close an expansionary gap is to:

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.Short-run equilibrium output in this economy equals:

When real output decreases,planned aggregate expenditures decrease because:

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.Induced expenditure equals:

In the short-run Keynesian model,if the mpc equals 0.8,then to increase planned aggregate spending by $20 billion at any output level,government spending must be increased by __ or net taxes must be decreased by _.

The effect of a one-unit increase in autonomous expenditure on short-run equilibrium output is called:

Menu costs are the costs of:

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

In the Keynesian model,it is assumed that,when demand for a firm's product changes,the firm:

In Econland autonomous consumption equals 700,the marginal propensity to consume equals 0.80,net taxes are fixed at 50,planned investment is fixed at 100,government purchases are fixed at 100,and net exports are fixed at 40.Autonomous expenditure equals:

Exam 22: Spending, Output, and Fiscal Policy

An economic recession in Japan ______ the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n) ______ output gap in the East Asian countries.

Expansionary policies are government stabilization policy actions intended to increase:

If firms sell more output than expected,planned investment:

In the short-run Keynesian model,to close a recessionary gap of $1 billion dollars government purchases must be:

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 transfers must be ______ by approximately ______ to eliminate any output gap.

In the Keynesian cross diagram,the vertical intercept of the expenditure line equals ______ and the slope of the expenditure line equals _____.

The marginal propensity to consume (mpc) is the:

In the short-run Keynesian model where the marginal propensity to consume is 0.5,to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption,government purchases must be:

When prices are predetermined,the level of output that equals planned aggregate expenditure is called ______ output.

A fiscal policy action to close an expansionary gap is to:

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.Short-run equilibrium output in this economy equals:

When real output decreases,planned aggregate expenditures decrease because:

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.Induced expenditure equals:

In the short-run Keynesian model,if the mpc equals 0.8,then to increase planned aggregate spending by $20 billion at any output level,government spending must be increased by ______ or net taxes must be decreased by _____.

The effect of a one-unit increase in autonomous expenditure on short-run equilibrium output is called:

Menu costs are the costs of:

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

In the Keynesian model,it is assumed that,when demand for a firm's product changes,the firm:

In Econland autonomous consumption equals 700,the marginal propensity to consume equals 0.80,net taxes are fixed at 50,planned investment is fixed at 100,government purchases are fixed at 100,and net exports are fixed at 40.Autonomous expenditure equals:

An economic recession in Japan the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n) output gap in the East Asian countries.

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 transfers must be by approximately to eliminate any output gap.

In the Keynesian cross diagram,the vertical intercept of the expenditure line equals __ and the slope of the expenditure line equals _.

In the short-run Keynesian model,if the mpc equals 0.8,then to increase planned aggregate spending by $20 billion at any output level,government spending must be increased by __ or net taxes must be decreased by _.