Question 1

Investment spending is a leakage from the circular flow model.

Accepted Answer

A) True 
 B)False

Question 2

Equilibrium GDP occurs when total spending equals total output.

Accepted Answer

A) True 
 B)False

Question 3

If inventories are being depleted,firms may respond by cutting prices.

Accepted Answer

A) True 
 B)False

Question 4

In the basic 45-degree line model,what is the effect of an increase in the price level?

Accepted Answer

A)   There will be movement to the left on the expenditure line.
B)   There will be movement to the right on the expenditure line.
C)   The expenditure line will shift downward.
D)   The expenditure line will shift upward.

Question 5

An inflationary gap will exist when the full employment level of GDP is

Accepted Answer

A)   equal to equilibrium GDP.
B)   greater than equilibrium GDP.
C)   less than equilibrium GDP.
D)   greater than disposable income.

Question 6

When businesses are cutting back production,then it probably t that

Accepted Answer

A)   total spending is greater than total output.
B)   total output is greater than total income.
C)   total spending is less than total output.
D)   inventory levels are decreasing.

Question 7

High unemployment and high rates of inflation are examples of coordination successes.

Accepted Answer

A) True 
 B)False

Question 8

John Maynard Keynes concluded that investment spending is determined by

Accepted Answer

A)   business confidence.
B)   economic expectations.
C)   psychological perceptions about the economy.
D)   All of the above are correct.

Question 9

A recessionary gap exists when the equilibrium level of GDP exceeds potential GDP.

Accepted Answer

A) True 
 B)False

Question 10

The formula for the multiplier can be written as change in

Accepted Answer

A)   Y/change in I.
B)   I/change in Y.
C)   Y/change in C.
D)   Y/change in GDP.

Question 11

If firms are experiencing falling inventories,one can expect that firms will cut production.

Accepted Answer

A) True 
 B)False

Question 12

Table 9-1
 
-In Table 9-1,the equilibrium level of output is

Accepted Answer

A)   2,500.
B)   3,000.
C)   3,500.
D)   4,000.

Question 13

At the equilibrium level of income it must be t that total

Accepted Answer

A)   income equals total spending.
B)   product equals total output.
C)   output equals total inventory.
D)   income equals total saving.

Question 14

If total spending is greater than the value of output,firms will

Accepted Answer

A)   cut prices.
B)   decrease production levels.
C)   tend to raise prices.
D)   see inventories rise.

Question 15

If,at the full employment level of income,the amount that businesses plan to invest is greater than the amount that consumers plan to save,then

Accepted Answer

A)   there will be an inflationary gap.
B)   there will be a deflationary gap.
C)   total demand will fall short of potential GDP.
D)   the economy will suffer from increasing unemployment.

Question 16

Economists are very good at explaining how individual markets work.Economists are less successful at explaining

Accepted Answer

A)   market pricing.
B)   recessions and inflation.
C)   central planning.
D)   business firm profits.

Question 17

For a given price level,an upward shift of the expenditures schedule corresponds to an

Accepted Answer

A)   inward shift of the aggregate demand curve.
B)   outward shift of the aggregate demand curve
C)   outward shift of the aggregate supply curve.
D)   inward shift of the aggregate supply curve.

Question 18

The inflationary gap is the

Accepted Answer

A)   inflation rate that will occur from excess aggregate demand.
B)   budget deficit that caused the inflation to occur.
C)   distance between the equilibrium level of output and the full employment level of output.
D)   gap between expected and actual inflation.

Question 19

In the income-expenditure model,at equilibrium GDP

Accepted Answer

A)   either unemployment or inflation may occur.
B)   inflation can occur but unemployment cannot.
C)   unemployment can occur but inflation cannot.
D)   both unemployment and inflation are impossible.

Question 20

A major Internet service provider decides to spend $70 million to purchase new server equipment.If the marginal propensity to consume is 0.8,the eventual change in GDP will be

Accepted Answer

A)   $40 million.
B)   $50 million.
C)   $90 million.
D)   $350 million.
E)   $850 million.

Exam 9: Demand-Side Equilibrium: Unemployment or Inflation?

In the income-expenditure model,at equilibrium GDP

Correct AnswerverifiedShow Answer

A major Internet service provider decides to spend $70 million to purchase new server equipment.If the marginal propensity to consume is 0.8,the eventual change in GDP will be

Correct AnswerverifiedShow Answer

The formula for the multiplier can be written as change in

Correct AnswerverifiedShow Answer

If inventories are being depleted,firms may respond by cutting prices.

Correct AnswerverifiedShow Answer

High unemployment and high rates of inflation are examples of coordination successes.

Correct AnswerverifiedShow Answer

When businesses are cutting back production,then it probably t that

Correct AnswerverifiedShow Answer

At the equilibrium level of income it must be t that total

Correct AnswerverifiedShow Answer

Equilibrium GDP occurs when total spending equals total output.

Correct AnswerverifiedShow Answer

If,at the full employment level of income,the amount that businesses plan to invest is greater than the amount that consumers plan to save,then

Correct AnswerverifiedShow Answer

Table 9-1 -In Table 9-1,the equilibrium level of output is

Correct AnswerverifiedShow Answer

John Maynard Keynes concluded that investment spending is determined by

Correct AnswerverifiedShow Answer

A recessionary gap exists when the equilibrium level of GDP exceeds potential GDP.

Correct AnswerverifiedShow Answer

Economists are very good at explaining how individual markets work.Economists are less successful at explaining

Correct AnswerverifiedShow Answer

For a given price level,an upward shift of the expenditures schedule corresponds to an

Correct AnswerverifiedShow Answer

If firms are experiencing falling inventories,one can expect that firms will cut production.

Correct AnswerverifiedShow Answer

Investment spending is a leakage from the circular flow model.

Correct AnswerverifiedShow Answer

An inflationary gap will exist when the full employment level of GDP is

Correct AnswerverifiedShow Answer

In the basic 45-degree line model,what is the effect of an increase in the price level?

Correct AnswerverifiedShow Answer

If total spending is greater than the value of output,firms will

Correct AnswerverifiedShow Answer

The inflationary gap is the

Correct AnswerverifiedShow Answer

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