Deck 30: The Aggregate Expenditures Model

Question 1

In the aggregate expenditures model,it is assumed that investment:

A) automatically changes in response to changes in real GDP.
B) changes by less in percentage terms than changes in real GDP.
C) does not respond to changes in interest rates.
D) does not change when real GDP changes.

Answer 1

D

Question 2

If aggregate expenditures exceed GDP in a private closed economy:

A) leakages will exceed injections.
B) planned investment will exceed saving.
C) unplanned investment in inventories will occur.
D) saving will exceed planned investment.

Answer 2

B

Question 3

Assume that in a private closed economy consumption is $240 billion and investment is $50 billion,both at the $280 billion level of domestic output.Thus:

A) saving is $10 billion.
B) unplanned decreases in inventories of $10 billion will occur.
C) the MPC is .80.
D) unplanned increases in inventories of $10 billion will occur.

Answer 3

B

Question 4

Answer the question on the basis of the following data for a private closed economy. $\begin{array}{l}\text { Possible Levels of Domestic }\\\begin{array} { c c c } \underline{\text { Output and Income (GDP = DI) } }&\underline{ \text { Consumption }} \\\$320& \$ 320 \\330 & 327 \\340 & 334 \\350 & 341 \\360 & 348 \\370 & 355 \\380 & 362\end{array}\end{array}$ Refer to the data.At the $370 billion level of DI,the APS is approximately:

A) 4 percent.
B) 7 percent.
C) 1 percent.
D) 16 percent.

Question 5

The equilibrium level of GDP is associated with:

A) an excess of planned investment over saving.
B) no unintended changes in inventories.
C) an unintended decrease in business inventories.
D) an unintended increase in business inventories.

Question 6

If an unintended increase in business inventories occurs:

A) we can expect aggregate production to be unaffected.
B) we can expect businesses to increase the level of production.
C) we can expect businesses to lower the level of production.
D) aggregate expenditures must exceed the domestic output.

Question 7

The aggregate expenditures model is built upon which of the following assumptions?

A) Prices are fixed.
B) The economy is at full employment.
C) Prices are fully flexible.
D) Government spending policy has no ability to affect the level of output.

Question 8

In a private closed economy,when aggregate expenditures exceed GDP:

A) GDP will decline.
B) business inventories will rise.
C) saving will decline.
D) business inventories will fall.

Question 9

A private closed economy will expand when:

A) actual GDP is less than potential GDP.
B) unplanned decreases in inventories occur.
C) aggregate expenditures are less than GDP.
D) unplanned increases in inventories occur.

Question 10

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?

A) Bank panic of 1907.
B) Great Depression.
C) Spectacular economic growth during World War II.
D) Economic expansion of the 1920s.

Question 11

In a private closed economy,when aggregate expenditures equal GDP:

A) consumption equals investment.
B) consumption equals aggregate expenditures.
C) planned investment equals saving.
D) disposable income equals consumption minus saving.

Question 12

If an unintended increase in business inventories occurs at some level of GDP,then GDP:

A) entails a rate of aggregate expenditures in excess of the rate of aggregate production.
B) may be either above or below the equilibrium output.
C) is too low for equilibrium.
D) is too high for equilibrium.

Question 13

Other things equal,the slope of the aggregate expenditures schedule will increase as a result of:

A) a decline in the size of the inflationary gap.
B) an increase in the MPC.
C) an increase in the MPS.
D) a decline in the general price level.

Question 14

If at some level of GDP the economy is experiencing an unintended decrease in inventories:

A) the aggregate level of saving will decline.
B) the price level will fall.
C) the business sector will lay off workers.
D) domestic output will increase.

Question 15

All else equal,a large decline in the real interest rate will shift the:

A) investment demand curve leftward.
B) investment demand curve rightward.
C) investment schedule upward.
D) investment schedule downward.

Question 16

In the United States from 1929 to 1933,real GDP _____________ and the unemployment rate ________________.

A) declined by 27 percent;rose to 25 percent
B) increased by 21 percent;fell to 2 percent
C) declined by 21 percent;rose to 27 percent
D) declined by 40 percent;rose to 50 percent

Question 17

A private closed economy includes:

A) households,businesses,and government,but not international trade.
B) households,businesses,and international trade,but not government.
C) households and businesses,but not government or international trade.
D) households only.

Question 18

The level of aggregate expenditures in the private closed economy is determined by the:

A) expenditures of consumers and businesses.
B) intersection of the saving schedule and the 45-degree line.
C) equality of the MPC and MPS.
D) intersection of the saving and consumption schedules.

Question 19

Answer the question on the basis of the following data for a private closed economy. $\begin{array}{l}\text { Possible Levels of Domestic }\\\begin{array} { c c c } \underline{\text { Output and Income (GDP = DI) } }&\underline{ \text { Consumption }} \\\$320& \$ 320 \\330 & 327 \\340 & 334 \\350 & 341 \\360 & 348 \\370 & 355 \\380 & 362\end{array}\end{array}$ Refer to the data.The MPS is:

A) 7/10.
B) 3/10.
C) 2/5.
D) 3/5.

Question 20

Answer the question on the basis of the following data for a private closed economy. $\begin{array}{l}\text { Possible Levels of Domestic }\\\begin{array} { c c c } \underline{\text { Output and Income (GDP = DI) } }&\underline{ \text { Consumption }} \\\$320& \$ 320 \\330 & 327 \\340 & 334 \\350 & 341 \\360 & 348 \\370 & 355 \\380 & 362\end{array}\end{array}$ Refer to the data for a private closed economy.If gross investment is $12 billion,the equilibrium level of GDP will be:

A) $380.
B) $370.
C) $360.
D) $350.

Question 21

(Advanced analysis)If S = -60 + .25Y and I_g = 60,where S is saving,I_g is gross investment,and Y is gross domestic product (GDP),then the equilibrium level of GDP is:

A) $200.
B) $320.
C) $360.
D) $480.

Question 22

(Advanced analysis)Answer the question on the basis of the following information for a private closed economy,where I_g is gross investment,S is saving,and Y is gross domestic product (GDP). $\begin{array} { l } I _ { g } = \overline { I _ { g } } = 80 \\\mathrm {~S} = - 80 + 0.4 \mathrm { Y }\end{array}$ Refer to the information.In equilibrium,consumption will be:

A) $400.
B) $280.
C) $320.
D) $360.

Question 23

When investment remains the same at each level of GDP in a private closed economy,the slope of the aggregate expenditures schedule:

A) exceeds the MPC.
B) is less than the MPC.
C) equals the MPS.
D) equals the MPC.

Question 24

Actual investment is $62 billion at an equilibrium output level of $620 billion in a private closed economy.The average propensity to save at this level of output is:

A) 0.10.
B) 10.0.
C) 0.62.
D) 0.84.

Question 25

(Advanced analysis)Answer the question on the basis of the following information for a private closed economy. $\begin{array} { l } S = - 20 + 0.4 Y \\I _ { g } = 25 - 3 i\end{array}$ where S is saving,I_g is gross investment,i is the real interest rate,and Y is GDP. Refer to the information.If the real interest rate is 5 (percent),investment will be:

A) $10 and the equilibrium GDP will be $75.
B) $15 and the equilibrium GDP will be $100.
C) $10 and the equilibrium GDP will be $120.
D) $15 and the equilibrium GDP will be $180.

Question 26

(Advanced analysis)Answer the question on the basis of the following data for a private closed economy.The letters Y,C,S,and I are used to represent real GDP,consumption,saving,and investment respectively. $\begin{array}{ccc}\underline{\text { GDP }(Y)} & \underline{\text { Consumption (C) }} & \underline{\text { Investment (I) }} \\\$ \$ 0 & \$ 60 & \$ 30 \\100 & 120 & 40 \\200 & 180 & 50 \\300 & 240 & 60 \\400 & 300 & 70 \\500 & 360 & 80\end{array}$ The equation representing the consumption schedule for the economy is:

A) C = Y - .6S.
B) Y = C + S.
C) C = 60 + .4Y.
D) C = 60 + .6Y.

Question 27

If unintended increases in business inventories occur,we can expect:

A) a decline in GDP and rising unemployment.
B) inflation.
C) an increase in consumption.
D) an offsetting increase in planned investment.

Question 28

For a private closed economy,an unintended decline in inventories suggests that:

A) aggregate expenditures are less than the business sector expected them to be.
B) aggregate expenditures exceed production.
C) actual investment exceeds saving.
D) planned investment is greater than consumption.

Question 29

(Advanced analysis)Answer the question on the basis of the following consumption and investment data for a private closed economy.Figures are in billions of dollars. C = 60 + .6Y
I = I₀ = 30
Refer to the data.In equilibrium,the level of consumption spending will be:

A) 170.
B) 270.
C) 160.
D) 195.

Question 30

(Advanced analysis)Answer the question on the basis of the following information for a private closed economy,where I_g is gross investment,S is saving,and Y is gross domestic product (GDP). $\begin{array} { l } I _ { g } = \overline { I _ { g } } = 80 \\\mathrm {~S} = - 80 + 0.4 \mathrm { Y }\end{array}$ Refer to the information.In equilibrium saving will be:

A) $40.
B) $120.
C) $60.
D) $80.

Question 31

(Advanced analysis)Answer the question on the basis of the following data for a private closed economy.The letters Y,C,S,and I are used to represent real GDP,consumption,saving,and investment respectively. $\begin{array}{ccc}\underline{\text { GDP }(Y)} & \underline{\text { Consumption (C) }} & \underline{\text { Investment (I) }} \\\$ \$ 0 & \$ 60 & \$ 30 \\100 & 120 & 40 \\200 & 180 & 50 \\300 & 240 & 60 \\400 & 300 & 70 \\500 & 360 & 80\end{array}$ Refer to the data.Equilibrium Y (= GDP)is:

A) $100.
B) $200.
C) $300.
D) $400.

Question 32

(Advanced analysis)Answer the question on the basis of the following consumption and investment data for a private closed economy.Figures are in billions of dollars. C = 60 + .6Y
I = I₀ = 30
Refer to the data.In equilibrium,the level of saving will be:

A) 30.
B) 26.
C) 25.
D) 60.

Question 33

In the aggregate expenditures model,technological progress will shift the investment schedule:

A) downward and increase aggregate expenditures.
B) downward and decrease aggregate expenditures.
C) upward and increase aggregate expenditures.
D) upward and decrease aggregate expenditures.

Question 34

At equilibrium real GDP in a private closed economy:

A) the MPC must equal the APC.
B) the slope of the aggregate expenditures schedule equals the MPS.
C) aggregate expenditures and real GDP are equal.
D) planned saving and consumption are equal.

Question 35

In a private closed economy _____ investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where _____ investment is equal to saving.

A) planned;actual
B) actual;planned
C) gross;net
D) net;gross

Question 36

(Advanced analysis)Answer the question on the basis of the following information for a private closed economy. $\begin{array} { l } S = - 20 + 0.4 Y \\I _ { g } = 25 - 3 i\end{array}$ where S is saving,I_g is gross investment,i is the real interest rate,and Y is GDP. Refer to the information.In equilibrium,the level of consumption will be:

A) $80.
B) $95.
C) $65.
D) $70.

Question 37

(Advanced analysis)Answer the question on the basis of the following consumption and investment data for a private closed economy.Figures are in billions of dollars. C = 60 + .6Y
I = I₀ = 30
Refer to the data.The equilibrium level of income (Y)is:

A) 360.
B) 225.
C) 200.
D) 135.

Question 38

(Advanced analysis)Answer the question on the basis of the following information for a private closed economy. $\begin{array} { l } S = - 20 + 0.4 Y \\I _ { g } = 25 - 3 i\end{array}$ where S is saving,I_g is gross investment,i is the real interest rate,and Y is GDP. Refer to the information.In equilibrium,the level of saving will be:

A) $10.
B) $15.
C) $20.
D) $30.

Question 39

(Advanced analysis)Answer the question on the basis of the following data for a private closed economy.The letters Y,C,S,and I are used to represent real GDP,consumption,saving,and investment respectively. $\begin{array}{ccc}\underline{\text { GDP }(Y)} & \underline{\text { Consumption (C) }} & \underline{\text { Investment (I) }} \\\$ \$ 0 & \$ 60 & \$ 30 \\100 & 120 & 40 \\200 & 180 & 50 \\300 & 240 & 60 \\400 & 300 & 70 \\500 & 360 & 80\end{array}$ The equation representing the investment schedule for the economy is:

A) I = .3Y.
B) I = 80 - .3Y.
C) I = 30 + .1Y.
D) I = I₀ = 30.

Question 40

(Advanced analysis)Answer the question on the basis of the following information for a private closed economy,where I_g is gross investment,S is saving,and Y is gross domestic product (GDP). $\begin{array} { l } I _ { g } = \overline { I _ { g } } = 80 \\\mathrm {~S} = - 80 + 0.4 \mathrm { Y }\end{array}$ Refer to the information.The equilibrium GDP will be:

A) $160.
B) $400.
C) $360.
D) $480.

Question 41

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is .5.Aggregate expenditures must have increased by:

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

Question 42

Answer the question below on the basis of the following information for a private closed economy: $$\begin{array}{l}\begin{array} { c c } \underline{\text { Gross Domestic Product }} &\underline{ \text { Consumption }} \\\$100& \$ 120 \\200 & 180 \\300 & 240 \\400 & 300 \\500 & 360\end{array}\\\begin{array} { c c } \underline{\text { Expected Rate of Return }} &\underline{ \text { Amount of Investment }} \\ 25 \% & \$ 0 \\20 & 20 \\15 & 40 \\10 & 60 \\5 & 80\end{array}\end{array}$$ Refer to the information.The data suggest that:

A) the interest rate and the equilibrium GDP are directly related.
B) the interest rate and the equilibrium GDP are inversely related.
C) the interest rate and the equilibrium GDP are unrelated.
D) as the interest rate falls,investment also falls.

Question 43

Answer the question below on the basis of the following information for a private closed economy: $$\begin{array}{l}\begin{array} { c c } \underline{\text { Gross Domestic Product }} &\underline{ \text { Consumption }} \\\$100& \$ 120 \\200 & 180 \\300 & 240 \\400 & 300 \\500 & 360\end{array}\\\begin{array} { c c } \underline{\text { Expected Rate of Return }} &\underline{ \text { Amount of Investment }} \\ 25 \% & \$ 0 \\20 & 20 \\15 & 40 \\10 & 60 \\5 & 80\end{array}\end{array}$$ Refer to the information.If the real interest rate is 10 percent,the equilibrium GDP will be:

A) $100.
B) $200.
C) $300.
D) $400.

Question 44

Planned investment plus unintended increases in inventories equals:

A) actual investment.
B) consumption.
C) consumption minus saving.
D) unintended saving.

Question 45

(Advanced analysis)Answer the question on the basis of the following information for a private closed economy where C is consumption,Y is the gross domestic product,I_g is gross investment,and i is the interest rate: $\begin{aligned}C & = 40 + 0.8 Y \\I _ { g } & = 60 - 2 i \\i & = \bar { i } = 10\end{aligned}$ Refer to the information.The equilibrium level of GDP in this economy is:

A) $240.
B) $300.
C) $360.
D) $400.

Question 46

What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?

A) A decline in the rate of interest.
B) An unintended accumulation of inventories by businesses.
C) A rise in the real GDP.
D) The federal budget will automatically move toward a deficit.

Question 47

(Advanced analysis)Assume the consumption schedule for a private closed economy is C = 40 + .75Y,where C is consumption and Y is gross domestic product.The multiplier for this economy is:

A) 3.
B) 4.
C) 5.
D) 10.

Question 48

(Advanced analysis)Answer the question on the basis of the following information for a private closed economy where C is consumption,Y is the gross domestic product,I_g is gross investment,and i is the interest rate: $\begin{aligned}C & = 40 + 0.8 Y \\l _ { g } & = 60 - 2 i \\i & = \bar { i } = 10\end{aligned}$ Refer to the information.Given that the interest rate is 10 (percent),the amount that businesses will want to invest will be:

A) $58.
B) $60.
C) $40.
D) $20.

Question 49

Actual investment equals saving:

A) at all levels of GDP.
B) at all below-equilibrium levels of GDP.
C) at all above-equilibrium levels of GDP.
D) only at the equilibrium GDP.

Question 50

Answer the question on the basis of the following information for a private closed economy: $\begin{array}{l}\begin{array} { c c } \underline{\text { Gross Domestic Product } }& \underline{\text { Consumption } }\\\$100& \$ 100 \\200 & 160 \\300 & 220 \\400 & 280 \\500 & 340 \\600 & 440\end{array}\\\begin{array} { c c c } \underline{\text { Expected Rate of Return }} & \underline{\text { Amount of Investment }} \\15 \% & \$ 0 \\12 & 40 \\9 & 80 \\6 & 120 \\3 & 160 \\0 & 200\end{array}\end{array}$ Refer to the information.If the real interest rate is 9 percent,the equilibrium GDP will be:

A) $600.
B) $500.
C) $400.
D) $300.

Question 51

Saving is always equal to:

A) planned investment less unintended increases in inventories.
B) actual investment.
C) planned investment.
D) unintended changes in inventories.

Question 52

Unintended changes in inventories:

A) cause the economy to move away from the equilibrium GDP.
B) are treated as components of consumption.
C) bring actual investment and saving into equality only at the equilibrium level of GDP.
D) bring actual investment and saving into equality at all levels of GDP.

Question 53

Answer the question below on the basis of the following information for a private closed economy: $$\begin{array}{l}\begin{array} { c c } \underline{\text { Gross Domestic Product }} &\underline{ \text { Consumption }} \\\$100& \$ 120 \\200 & 180 \\300 & 240 \\400 & 300 \\500 & 360\end{array}\\\begin{array} { c c } \underline{\text { Expected Rate of Return }} &\underline{ \text { Amount of Investment }} \\ 25 \% & \$ 0 \\20 & 20 \\15 & 40 \\10 & 60 \\5 & 80\end{array}\end{array}$$ Refer to the information.If the real interest rate is 20 percent,the equilibrium GDP will be:

A) $100.
B) $200.
C) $300.
D) $400.

Question 54

Investment and saving are,respectively:

A) income and wealth.
B) stocks and flows.
C) injections and leakages.
D) leakages and injections.

Question 55

Which of the following statements is correct for a private closed economy?

A) Saving equals planned investment only at the equilibrium level of GDP.
B) All levels of GDP where planned investment exceeds saving will be too high for equilibrium.
C) Planned and actual investment are identical at all possible levels of GDP.
D) Saving equals actual investment only at the equilibrium level of GDP.

Question 56

(Advanced analysis)In a private closed economy, (a)the marginal propensity to save is 0.25, (b)consumption equals income at $120 billion,and (c)the level of investment is $40 billion.What is the equilibrium level of income?

A) $280 billion.
B) $320 billion.
C) $262 billion.
D) $198 billion.

Question 57

At the $180 billion equilibrium level of income,saving is $38 billion in a private closed economy.Planned investment must be:

A) $138 billion.
B) $126 billion.
C) $38 billion.
D) $180 billion.

Question 58

If the marginal propensity to consume is .9 in a private closed economy,a $20 billion decline in investment spending will decrease:

A) GDP by $20 billion.
B) GDP by $100 billion.
C) saving by $20.
D) consumption by $200 billion.

Question 59

(Advanced analysis)Assume the saving schedule for a private closed economy is S = -20 + .2Y,where S is saving and Y is gross domestic product.The multiplier for this economy is:

A) 3.
B) 4.
C) 5.
D) 10.

Question 60

Answer the question below on the basis of the following information for a private closed economy: $$\begin{array}{l}\begin{array} { c c } \underline{\text { Gross Domestic Product }} &\underline{ \text { Consumption }} \\\$100& \$ 120 \\200 & 180 \\300 & 240 \\400 & 300 \\500 & 360\end{array}\\\begin{array} { c c } \underline{\text { Expected Rate of Return }} &\underline{ \text { Amount of Investment }} \\ 25 \% & \$ 0 \\20 & 20 \\15 & 40 \\10 & 60 \\5 & 80\end{array}\end{array}$$ Refer to the information.The multiplier for this economy is:

A) 2.
B) 2.5.
C) 3.
D) 4.

Question 61

If a nation imposes tariffs and quotas on foreign products,the immediate effect will be to:

A) reduce the rate of domestic inflation.
B) increase efficiency in the world economy.
C) increase domestic output and employment.
D) reduce domestic output and employment.

Question 62

If the dollar appreciates relative to foreign currencies,we would expect:

A) the multiplier to decrease.
B) a country's exports and imports to both fall.
C) a country's net exports to rise.
D) a country's net exports to fall.

Question 63

(Advanced analysis)Answer the question on the basis of the following information for a private open economy.The letters Y,C,I_g,X,and M stand for GDP,consumption,gross investment,exports,and imports respectively.Figures are in billions of dollars. $\begin{array} { l } C = 40 + 0.8 Y \\t _ { g } = \overline { I _ { g } } = 40 \\X = \bar { X } = 20 \\M = \bar { M } = 30\end{array}$ Refer to the information.International trade in this case:

A) has an expansionary effect on GDP.
B) has a contractionary effect on GDP.
C) has no effect on GDP.
D) is causing inflation in this economy.

Question 64

If net exports are positive:

A) the equilibrium GDP must be greater than the full-employment GDP.
B) imports must exceed exports.
C) aggregate expenditures are greater at each level of GDP than when net exports are zero or negative.
D) some other component of aggregate expenditures must be negative.

Question 65

Exports have the same effect on the current size of GDP as:

A) imports.
B) investment.
C) taxes.
D) saving.

Question 66

Answer the question on the basis of the following information for a private closed economy: $\begin{array}{l}\begin{array} { c c } \underline{\text { Gross Domestic Product } }& \underline{\text { Consumption } }\\\$100& \$ 100 \\200 & 160 \\300 & 220 \\400 & 280 \\500 & 340 \\600 & 440\end{array}\\\begin{array} { c c c } \underline{\text { Expected Rate of Return }} & \underline{\text { Amount of Investment }} \\15 \% & \$ 0 \\12 & 40 \\9 & 80 \\6 & 120 \\3 & 160 \\0 & 200\end{array}\end{array}$ Refer to the information.In this economy,a 3 percentage point decrease in the interest rate will:

A) increase equilibrium GDP by $200.
B) increase equilibrium GDP by $50.
C) increase equilibrium GDP by $100.
D) decrease equilibrium GDP by $50.

Question 67

An upward shift of the aggregate expenditures schedule might be caused by:

A) a decrease in exports,with no change in imports.
B) a decrease in imports,with no change in exports.
C) an increase in exports,with an equal decrease in investment spending.
D) an increase in imports,with no change in exports.

Question 68

Complete the following table and answer the question on the basis of the resulting data.All figures are in billions of dollars. $\begin{array}{cccccc}\begin{array}{c}\text { Domestic } \\\text { Output } \\\underline{\text { (GDP = DI) }}\end{array} & \begin{array}{c}\text { Aggregate } \\\text { Expenditures, } \\\underline{\text { Closed Economy }}\end{array} & \begin{array}{c}\\\\\underline{\text { Exports }}\end{array} & \begin{array}{c}\\\\\underline{\text { Imports }}\end{array} & \begin{array}{c}\\\text { Net } \\\underline{\text { Exports }}\end{array} & \begin{array}{c}\text { Aggregate } \\\text { Expenditures, } \\\underline{\text { Open Economy }}\end{array} \\ \$ 200 & \$ 230 & \$ 30 & \$ 20 & \$- & \$- \\250 & 270 & 30 & 20 & -&- \\300 & 310 & 30 & 20 & - & - \\350 & 350 & 30 & 20 & - & - \\400 & 390 & 30 & 20 & - & - \\450 & 430 & 30 & 20 & - & - \\500 & 470 & 30 & 20 & - & -\end{array}$ Refer to the table.For the open economy,the equilibrium GDP and the multiplier are:

A) $300 and 2.5.
B) $450 and 5.
C) $400 and 4.
D) $400 and 5.

Question 69

If net exports decline from zero to some negative amount,the aggregate expenditures schedule would:

A) shift upward.
B) shift downward.
C) not move (net exports do not affect aggregate expenditures).
D) become steeper.

Question 70

Answer the question on the basis of the following information for a private closed economy: $\begin{array}{l}\begin{array} { c c } \underline{\text { Gross Domestic Product } }& \underline{\text { Consumption } }\\\$100& \$ 100 \\200 & 160 \\300 & 220 \\400 & 280 \\500 & 340 \\600 & 440\end{array}\\\begin{array} { c c c } \underline{\text { Expected Rate of Return }} & \underline{\text { Amount of Investment }} \\15 \% & \$ 0 \\12 & 40 \\9 & 80 \\6 & 120 \\3 & 160 \\0 & 200\end{array}\end{array}$ Refer to the information.The multiplier in this economy is:

A) 4.
B) 5.
C) 2.5.
D) 3.5.

Question 71

Complete the following table and answer the question on the basis of the resulting data.All figures are in billions of dollars. $\begin{array}{cccccc}\begin{array}{c}\text { Domestic } \\\text { Output } \\\underline{\text { (GDP = DI) }}\end{array} & \begin{array}{c}\text { Aggregate } \\\text { Expenditures, } \\\underline{\text { Closed Economy }}\end{array} & \begin{array}{c}\\\\\underline{\text { Exports }}\end{array} & \begin{array}{c}\\\\\underline{\text { Imports }}\end{array} & \begin{array}{c}\\\text { Net } \\\underline{\text { Exports }}\end{array} & \begin{array}{c}\text { Aggregate } \\\text { Expenditures, } \\\underline{\text { Open Economy }}\end{array} \\ \$ 200 & \$ 230 & \$ 30 & \$ 20 & \$- & \$- \\250 & 270 & 30 & 20 & -&- \\300 & 310 & 30 & 20 & - & - \\350 & 350 & 30 & 20 & - & - \\400 & 390 & 30 & 20 & - & - \\450 & 430 & 30 & 20 & - & - \\500 & 470 & 30 & 20 & - & -\end{array}$ If the economy was closed to international trade,the equilibrium GDP and the multiplier would be:

A) $300 and 5.
B) $350 and 4.
C) $400 and 4.
D) $350 and 5.

Question 72

(Advanced analysis)Answer the question on the basis of the following information for a private open economy.The letters Y,C,I_g,X,and M stand for GDP,consumption,gross investment,exports,and imports respectively.Figures are in billions of dollars. $\begin{array} { l } C = 40 + 0.8 Y \\t _ { g } = \overline { I _ { g } } = 40 \\X = \bar { X } = 20 \\M = \bar { M } = 30\end{array}$ The equilibrium GDP (=Y)in the economy is:

A) $200.
B) $245.
C) $320.
D) $350.

Question 73

Other things equal,if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S.GDP,then:

A) unemployment will decrease domestically.
B) U.S.real GDP will fall.
C) inflation will occur domestically.
D) U.S.real GDP will rise.

Question 74

If the multiplier in an economy is 5,a $20 billion increase in net exports will:

A) increase GDP by $100 billion.
B) reduce GDP by $4 billion.
C) decrease GDP by $100 billion.
D) increase GDP by $20 billion.

Question 75

(Advanced analysis)Answer the question on the basis of the following information for a private open economy.The letters Y,C,I_g,X,and M stand for GDP,consumption,gross investment,exports,and imports respectively.Figures are in billions of dollars. $\begin{array} { l } C = 40 + 0.8 Y \\t _ { g } = \overline { I _ { g } } = 40 \\X = \bar { X } = 20 \\M = \bar { M } = 30\end{array}$ Refer to the information.In equilibrium,saving is:

A) $20.
B) $30.
C) $40.
D) $50.

Question 76

Imports have the same effect on the current size of GDP as:

A) exports.
B) investment.
C) consumption.
D) saving.

Question 77

If the equilibrium level of GDP in a private open economy is $1,000 billion and consumption is $700 billion at that level of GDP,then:

A) saving must be $300 billion.
B) net exports must be $300 billion.
C) S + C must equal $300 billion.
D) I_g + X_n must equal $300 billion.

Question 78

Other things equal,an increase in an economy's exports will:

A) lower the marginal propensity to import.
B) have no effect on domestic GDP because imports will change by an offsetting amount.
C) decrease its domestic aggregate expenditures and therefore decrease its equilibrium GDP.
D) increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.

Question 79

(Advanced analysis)Answer the question on the basis of the following information for a private open economy.The letters Y,C,I_g,X,and M stand for GDP,consumption,gross investment,exports,and imports respectively.Figures are in billions of dollars. $\begin{array} { l } C = 40 + 0.8 Y \\t _ { g } = \overline { I _ { g } } = 40 \\X = \bar { X } = 20 \\M = \bar { M } = 30\end{array}$ Refer to the information.This nation is incurring:

A) a trade surplus.
B) balance in its international trade.
C) a trade deficit.
D) unemployment.

Question 80

At the equilibrium GDP for a private open economy:

A) net exports may be either positive or negative.
B) imports will always exceed exports.
C) exports will always exceed imports.
D) exports and imports will be equal.