Question 1

In the private closed economy, equilibrium GDP occurs where C + Ig = GDP.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that a mixed open economy is producing at its equilibrium income and that net exports are zero.If at the equilibrium income the public sector's budget shows a surplus,

Accepted Answer

A)  Ca + I g + Xn + G must exceed GDP.
B)  planned investment must exceed saving.
C)  a recessionary expenditure gap must exist.
D)  saving must exceed planned investment.E) B) and D)
F) B) and C)

Question 3

Equal increases in government purchases and taxes will

Accepted Answer

A)  increase the equilibrium GDP, and the size of that increase varies directly with the size of the MPC.
B)  increase the equilibrium GDP, and the size of that increase is independent of the size of the MPC.
C)  increase the equilibrium GDP, and the size of that increase varies inversely with the size of the MPC.
D)  decrease the equilibrium GDP, and the size of that decrease is independent of the size of the MPC.E) B) and C)
F) All of the above

Question 4

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

Accepted Answer

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.E) C) and D)
F) B) and C)

Question 5

A decrease in taxes will have a larger effect on equilibrium GDP if the marginal propensity to consume is smaller.

Accepted Answer

A) True 
 B)False

Question 6

A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because

Accepted Answer

A)  the increase in government spending will produce a political business cycle.
B)  the increase in government spending is less expansionary than the increase in taxes.
C)  households may save part of the additional income from the tax cut.
D)  households may consume more than the additional income from the tax cut.E) None of the above
F) A) and B)

Question 7

In the aggregate-expenditures model, the average price level is

Accepted Answer

A)  measured along the horizontal axis.
B)  measured along the vertical axis.
C)  not shown on the AE graphs.
D)  shown as a 45-degree line.E) B) and C)
F) A) and C)

Question 8

If the expected rate of return on investment decreases, then most likely the

Accepted Answer

A)  investment schedule will shift upward.
B)  investment schedule will shift downward.
C)  consumption schedule will shift upward.
D)  consumption schedule will shift downwarD.E) A) and C)
F) A) and B)

Question 9

In the aggregate expenditures model, it is assumed that investment

Accepted Answer

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.E) B) and C)
F) A) and C)

Question 10

In a closed private economy, an unplanned decrease in inventories will cause firms to increase real GDP.

Accepted Answer

A) True 
 B)False

Question 11

If the marginal propensity to consume is 0.9 in a private closed economy, a $20 billion decline in investment spending will decrease

Accepted Answer

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

Question 12

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

Accepted Answer

A)  imports.
B)  investment.
C)  taxes.
D)  saving.E) None of the above
F) A) and B)

Question 13

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

Accepted Answer

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

Question 14

A private closed economy will expand when

Accepted Answer

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.E) A) and B)
F) C) and D)

Question 15

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.E) None of the above
F) B) and C)

Question 16

What is the likely result from a depreciation of a nation's currency when its economy is already operating at its full-employment level of output?

Accepted Answer

A)  Net exports would fall and contribute to demand-pull inflation.
B)  Net exports would rise and contribute to demand-pull inflation.
C)  Net exports would fall, but equilibrium GDP would rise.
D)  Net exports would rise, but equilibrium GDP would fall.E) B) and C)
F) B) and D)

Question 17

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

Accepted Answer

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 percentD) All of the above
E) None of the above

Question 18

A tax cut will have a greater effect on equilibrium GDP if the

Accepted Answer

A)  marginal propensity to consume is smaller.
B)  marginal propensity to save is smaller.
C)  marginal propensity to save is larger.
D)  average propensity to consume is larger.E) A) and D)
F) A) and C)

Question 19

Refer to the accompanying table.If an additional lump-sum tax of $20 were imposed, we would expect

Accepted Answer

A)  equilibrium GDP to fall by $30.
B)  equilibrium GDP to fall by $20.
C)  equilibrium GDP to fall by $50.
D)  equilibrium GDP to rise by $24.E) B) and C)
F) B) and D)

Question 20

In which of the following situations for an open mixed economy will the level of GDP contract?

Accepted Answer

A)  when Ca + S + M exceeds Ig + X + T
B)  when Ig + X + T exceeds Ca + S + M
C)  when Sa + M + T exceeds Ig + X + G
D)  when Ig + X + G exceeds Sa + M + TE) B) and C)
F) B) and D)

Exam 31: The Aggregate Expenditures Model

In the private closed economy, equilibrium GDP occurs where C + Ig = GDP.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the aggregate-expenditures model, the average price level is

Correct AnswerverifiedShow Answer

In the aggregate expenditures model, it is assumed that investment

Correct AnswerverifiedShow Answer

In a closed private economy, an unplanned decrease in inventories will cause firms to increase real GDP.

Correct AnswerverifiedShow Answer

A tax cut will have a greater effect on equilibrium GDP if the

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 0.9 in a private closed economy, a $20 billion decline in investment spending will decrease

Correct AnswerverifiedShow Answer

A private closed economy will expand when

Correct AnswerverifiedShow Answer

What is the likely result from a depreciation of a nation's currency when its economy is already operating at its full-employment level of output?

Correct AnswerverifiedShow Answer

In which of the following situations for an open mixed economy will the level of GDP contract?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Equal increases in government purchases and taxes will

Correct AnswerverifiedShow Answer

If the expected rate of return on investment decreases, then most likely the

Correct AnswerverifiedShow Answer

A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because

Correct AnswerverifiedShow Answer

A decrease in taxes will have a larger effect on equilibrium GDP if the marginal propensity to consume is smaller.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that a mixed open economy is producing at its equilibrium income and that net exports are zero.If at the equilibrium income the public sector's budget shows a surplus,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to the accompanying table.If an additional lump-sum tax of $20 were imposed, we would expect

Correct AnswerverifiedShow Answer

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