Question 1

The recessionary expenditure gap associated with the recession of 2007-2009 resulted from

Accepted Answer

A)  the government's attempt to control hyperinflation.
B)  a major increase in personal and corporate taxes.
C)  a rapid decline in investment spending.
D)  a rapid increase in imports resulting from large tariff reductions.

Question 2

If households and firms in an economy would save all extra income that they receive so that MPC = 0, then the multiplier in that economy is zero.

Accepted Answer

A) True 
 B)False

Question 3

The difference between the investment demand curve and the investment schedule is that the former shows

Accepted Answer

A)  a direct relationship between investment and interest rate, while the latter shows no correlation between investment and income.
B)  an inverse relationship between investment and interest rate, while the latter shows no correlation between investment and income.
C)  a direct relationship between investment and income, while the latter shows no correlation between investment and interest rate.
D)  an inverse relationship between investment and income, while the latter shows no correlation between investment and interest rate.

Question 4

If the United States wants to increase its net exports in the short term, it might take steps to

Accepted Answer

A)  increase its GDP.
B)  reduce existing tariffs and import quotas.
C)  appreciate the dollar compared to foreign currencies.
D)  depreciate the dollar compared to foreign currencies.

Question 5

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

Accepted Answer

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 6

If the MPC in an economy is 0.8, government could close a recessionary expenditure gap of $100 billion by cutting taxes by

Accepted Answer

A)  $80 billion.
B)  $100 billion.
C)  $125 billion.
D)  $200 billion.

Question 7

If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause

Accepted Answer

A)  a rightward shift in the investment demand schedule.
B)  an $8 billion downshift in the consumption schedule.
C)  a $4 billion upshift in the consumption schedule.
D)  a $12 billion downshift in the consumption schedule.

Question 8

One basic assumption of the aggregate expenditures model is that

Accepted Answer

A)  the economy is operating at full employment.
B)  there is inflation in the economy.
C)  there is no public sector in the economy.
D)  the average price level in the economy is fixeD.

Question 9

If aggregate expenditures exceed GDP in a private closed economy,

Accepted Answer

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

Question 10

If net exports are positive,

Accepted Answer

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 11

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because

Accepted Answer

A)  the MPC is smaller in the private sector than it is in the public sector.
B)  declines in government spending always tend to stimulate private investment.
C)  disposable income will fall by some amount smaller than the tax increase.
D)  some of the tax increase will be paid out of income that would otherwise have been saveD.

Question 12

In a recessionary expenditure gap, the equilibrium level of real GDP is

Accepted Answer

A)  less than planned aggregate expenditures.
B)  greater than planned aggregate expenditures.
C)  greater than full-employment GDP.
D)  less than full-employment GDP.

Question 13

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

Accepted Answer

A)  saving must be $300 billion.
B)  net exports must be $300 billion.
C)  S + C must equal $300 billion.
D)  I g + Xn must equal $300 billion.

Question 14

In the flow of income and spending, saving and investment are, respectively,

Accepted Answer

A)  an injection and a leakage.
B)  a leakage and an injection.
C)  wealth and income.
D)  income and wealth.

Question 15

In moving from a private closed to a mixed closed economy in the aggregate expenditures model, taxes

Accepted Answer

A)  must be added to gross investment.
B)  must be added to saving.
C)  must be added to consumption and gross investment.
D)  have no impact upon the equilibrium GDP.

Question 16

One basic assumption of the aggregate expenditures model is that the price level in the economy is fixed.

Accepted Answer

A) True 
 B)False

Question 17

An economy characterized by high unemployment is likely to be

Accepted Answer

A)  experiencing a high rate of economic growth.
B)  experiencing hyperinflation.
C)  having a recessionary expenditure gap.
D)  having an inflationary expenditure gap.

Question 18

The $787 billion stimulus package enacted by the Federal government in 2009 to try to deal with the Great Recession was intended to

Accepted Answer

A)  shift the aggregate expenditures schedule down.
B)  close an inflationary expenditures gap.
C)  bring inflation down.
D)  push the aggregate expenditures schedule upwarD.

Question 19

From the perspective of classical macroeconomic theory, if aggregate spending was temporarily less than output,

Accepted Answer

A)  product price would increase, but resource prices would decrease.
B)  product price would decrease, but resource prices would increase.
C)  product and resource prices would decrease, so that aggregate spending would rise, expanding output.
D)  product and resource prices would increase, so that aggregate spending would equal output.

Question 20

(Advanced analysis)  The given equations describe consumption and investment (in billions of dollars)  for a private closed economy.C = 60 + 0.6Y I = I0 = 30 In equilibrium, the level of saving will be

Accepted Answer

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

Exam 31: The Aggregate Expenditures Model

From the perspective of classical macroeconomic theory, if aggregate spending was temporarily less than output,

Correct AnswerverifiedShow Answer

One basic assumption of the aggregate expenditures model is that

Correct AnswerverifiedShow Answer

If aggregate expenditures exceed GDP in a private closed economy,

Correct AnswerverifiedShow Answer

If households and firms in an economy would save all extra income that they receive so that MPC = 0, then the multiplier in that economy is zero.

Correct AnswerverifiedShow Answer

An economy characterized by high unemployment is likely to be

Correct AnswerverifiedShow Answer

If net exports are positive,

Correct AnswerverifiedShow Answer

If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause

Correct AnswerverifiedShow Answer

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The recessionary expenditure gap associated with the recession of 2007-2009 resulted from

Correct AnswerverifiedShow Answer

One basic assumption of the aggregate expenditures model is that the price level in the economy is fixed.

Correct AnswerverifiedShow Answer

If the United States wants to increase its net exports in the short term, it might take steps to

Correct AnswerverifiedShow Answer

In the flow of income and spending, saving and investment are, respectively,

Correct AnswerverifiedShow Answer

The difference between the investment demand curve and the investment schedule is that the former shows

Correct AnswerverifiedShow Answer

In a recessionary expenditure gap, the equilibrium level of real GDP is

Correct AnswerverifiedShow Answer

If the MPC in an economy is 0.8, government could close a recessionary expenditure gap of $100 billion by cutting taxes by

Correct AnswerverifiedShow Answer

In moving from a private closed to a mixed closed economy in the aggregate expenditures model, taxes

Correct AnswerverifiedShow Answer

The $787 billion stimulus package enacted by the Federal government in 2009 to try to deal with the Great Recession was intended to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

(Advanced analysis) The given equations describe consumption and investment (in billions of dollars) for a private closed economy.C = 60 + 0.6Y I = I0 = 30 In equilibrium, the level of saving will be

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified