question

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:

answer

planned investment must exceed savings

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In an effort to stop the U.S. recession of 2007-2009, the federal government

answer

reduced taxes and increased government spending

question

If government spends $80 billion at each level of GDP, and imposes a lump-sum tax of $100

answer

equilibrium GDP will now be 350

question

It is true that

answer

equal increases in government spending and taxes increase the equilibrium GDP

question

If gross investment is $10 at all levels of GDP, the equilibrium GDP will be

answer

220

question

Unintended changes in inventories

answer

bring actual investment and saving into equality at all levels of GDP

question

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

answer

an increase in the MPC

question

If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to

answer

increase by $45 billion

question

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

answer

is too high for equilibrium

question

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

answer

38 million

question

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

answer

investment

question

Equal increases in government purchases and taxes will

answer

increase the equilibrium GDP and the size of that increase is independent of the size of the MPC

question

If the economy was closed to international trade, the equilibrium GDP and the multiplier would be

answer

$350 and 5

question

Classical macroeconomics was dealt severe blows by

answer

the Great Depression and Keynes's macroeconomic theory

question

In The General Theory of Employment, Interest, and Money

answer

John Maynard Keynes attacked the classical economist's contention that recession or depression will automatically cure itself

question

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

answer

30

question

A recessionary expenditure gap is

answer

the amount by which the full-employment GDP exceeds the level of aggregate expenditures

question

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

answer

5

question

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

answer

a decrease in imports, with no change in exports

question

If gross investment is Ig1, the equilibrium GDP and the level of consumption will be

answer

h and hf respectively

question

Other things equal, an interest rate increase will

answer

leave curve A in place but shift curve B downward

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Curve A:

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is an investment demand curve and curve B is an investment schedule. and curve B are totally unrelated.

question

The marginal propensity to consume is

answer

fe/de

question

Aggregate saving in this economy will be zero when

answer

GDP is 60 billion

question

Gross investment

answer

is independent of the level of GDP

question

At the $200 level of GDP

answer

consumption is $200 and planned investment is $50 so that aggregate expenditures are $250

question

f net exports are Xn2, the GDP in the open economy will exceed GDP in the closed economy by

answer

bd

question

Other things equal, an interest rate reduction coupled with a rightward shift in curve A will

answer

shift curve B upward

question

If the full-employment real GDP is $70, the

answer

recessionary and inflationary expenditure gaps are both $0

question

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

answer

0.10

question

If government desired to raise the equilibrium GDP to $650, it could

answer

raise G by $30 or reduce T by $40

question

In equilibrium saving will be

answer

$80

question

Actual investment equals savingat all levels of GDP

answer

at all levels of GDP

question

The equation representing the investment schedule for the economy is

answer

I = 30 + .1Y.

question

where S is saving, Ig is gross investment, i is the real interest rate, and Y is GDP

answer

$65

question

In this economy, a 3 percentage point decrease in the interest rate will

answer

increase equilibrium GDP by $100

question

If the real interest rate is 10 percent, the equilibrium GDP will be

answer

$300

question

If net exports are positive

answer

aggregate expenditures are greater at each level of GDP than when net exports are zero or negative

question

If aggregate expenditures exceed GDP in a private closed economy

answer

planned investment will exceed saving

question

in the aggregate expenditures model, a reduction in taxes may

answer

increase saving

question

In which of the following situations for a mixed open economy will the level of GDP expand

answer

When Ig + X + G exceeds Sa + M + T.

question

Which of the following statements concerning the equilibrium level of GDP is incorrect

answer

Full employment will necessarily be realized

question

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

answer

The great depression

question

Which of the following would reduce GDP by the greatest amount?

answer

A $20 billion decrease in government spending

question

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

answer

$50 billion

question

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

answer

Saving equals planned investment only at the equilibrium level of GDP.

question

At the equilibrium level of GDP, the APC and APS

answer

are 5/6 and 1/6 respectively

question

Other things equal, curve B will shift upward when

answer

curve A shifts to the right

question

At the $300 level of GDP

answer

aggregate expenditures and GDP are equal

question

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

answer

investment schedule upward

question

In equilibrium, the level of saving will be:

answer

$10

question

A recessionary expenditure gap exists if

answer

the aggregate expenditures schedule lies below the 45-degree line at the full-employment GDP

question

(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

answer

225

question

A private closed economy includes:

answer

households and businesses, but not government or international trade

question

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

answer

shift downward

question

The data suggest that:

answer

the interest rate and the equilibrium GDP are inversely related

question

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

answer

a country's net exports to fall.

question

If the economy is in equilibrium at $400 billion of GDP and the full-employment GDP is $500 billion

answer

GDP will remain at $400 billion unless aggregate expenditures change

question

In a mixed open economy, the equilibrium GDP exists where

answer

Ca + Ig + Xn + G = GDP

question

Suppose the economy is operating at its full-employment-noninflationary GDP and the MPC is .75. The federal government now finds that it must increase spending on military goods by $21 billion in response to deterioration in the international political situation. To sustain full-employment-noninflationary GDP, government must:

answer

increase taxes by $28 billion

question

Which of the following would increase GDP by the greatest amount?

answer

A $20 billion increase in government spending

question

It is true that:

answer

equal increases in government spending and taxes increase the equilibrium GDP.

question

In a mixed open economy, the equilibrium GDP is determined at that point where:

answer

Sa + M + T = Ig + X + G.

question

The after-tax MPC in the economy shown is

answer

.67

question

Other things equal, an interest rate decrease will

answer

leave curve A in place but shift curve B upward

question

The multiplier is

answer

3

question

At the equilibrium level of GDP, investment and saving are both

answer

$50

question

In equilibrium, consumption will be

answer

$320

question

An exchange rate:

answer

is the price that the currencies of any two nations exchange for one another

question

The equilibrium GDP will be

answer

$400

question

The equilibrium level of income (Y) is

answer

225

question

If a lump-sum tax of $40 billion is imposed and the MPC is .6, the saving schedule will shift

answer

downward by $16 billion.

question

If the MPS is .25 and the economy has a recessionary expenditure gap of $5 billion, then equilibrium GDP is

answer

$20 billion below the full-employment GDP

question

If a $10 billion decrease in lump-sum taxes increases equilibrium GDP by $40 billion, then

answer

the MPC for this economy is .8.

question

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

answer

increase GDP by $100 billion.

question

The equilibrium level of GDP is associated with

answer

no unintended changes in inventories

question

Planned investment plus unintended increases in inventories equals

answer

actual investment

question

Saving is always equal to

answer

actual investment.

question

The U.S. recession of 2007-2009 provides a good example of:

answer

a recessionary expenditure gap

question

The mpc and mps are

answer

both .5

question

The sizes of the multipliers associated with changes in investment and government spending in this economy are

answer

both 2.5

question

If the full-employment real GDP is $100, the

answer

recessionary expenditure gap is $10

question

An increase in net exports of $10 would

answer

increase real GDP by $30

question

he equation representing the investment schedule for the economy is

answer

I = 30 + .1Y.

question

Which two aggregate expenditure schedules AE in the diagram for a private closed economy have the same MPC, assuming investment is the same at each level of income?

answer

I = 30 + .1Y.

question

In The General Theory of Employment, Interest, and Money:

answer

John Maynard Keynes attacked the classical economist's contention that recession or depression will automatically cure itself

question

The equilibrium GDP will be:

answer

$400

question

Given that the interest rate is 10 (percent), the amount that businesses will want to invest will be:

answer

$40

question

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

answer

$480

question

At the equilibrium GDP for a private open economy:

answer

net exports may be either positive or negative.

question

Assume in a private closed economy that the equilibrium level of income is $380 and the MPS is .25. Now suppose government collects taxes of $50 and spends the entire amount. As a result:

answer

the equilibrium level of income will rise to $430.

question

At the $370 billion level of DI, the APS is approximately

answer

4%

question

If the MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by

answer

$9 billion

question

In a mixed open economy, the equilibrium GDP exists where:

answer

Ca + Ig + Xn + G = GDP.

question

If gross investment is $10 at all levels of GDP, the equilibrium GDP will be:

answer

@220

question

The level of aggregate expenditures in a mixed open economy is comprised of

answer

Ca + Ig + Xn + G.

question

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

answer

a rapid decline in investment spending

question

At the $200 level of GDP:

answer

consumption is $200 and planned investment is $50 so that aggregate expenditures are $250

question

If the full-employment level of GDP is B and aggregate expenditures are at AE2, the

answer

economy is in equilibrium, at full employment.

question

The equation representing the consumption schedule for the economy is

answer

C = 60 + .6Y.

question

A lump-sum tax causes the after-tax consumption schedule

answer

to be parallel to the before-tax consumption schedule.

question

Which aggregate expenditure schedule AE in the diagram for a private closed economy implies the largest MPC, assuming investment is the same at each level of income?

answer

AE4.

question

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

answer

increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.

question

In which of the following situations for a mixed open economy will the level of GDP expand?

answer

When Ig + X + G exceeds Sa + M + T.

question

The MPC and MPS are:

answer

.5

question

In this economy, investment

answer

is $40 billion at all levels of GDP.

question

The location of curve B depends on the

answer

interest rate together with the location of curve A.

question

In equilibrium, saving is:

answer

30

question

This nation is incurring

answer

A TRADE DEFICIT

question

Equilibrium Y (= GDP) is:

answer

300

question

The equilibrium GDP for the open economy is

answer

400

question

At equilibrium real GDP in a private closed economy:

answer

aggregate expenditures and real GDP are equal.

question

The multiplier in this economy is

answer

2.5

question

If an additional lump-sum tax of $20 were imposed, we would expect:

answer

equilibrium GDP to fall by $30

question

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

answer

saving by 20$

question

If government now spends $80 billion at each level of GDP and taxes remain at zero, the equilibrium GDP

answer

will rise to $500.

question

What do investment and government expenditures have in common?

answer

Both represent injections to the circular flow

question

Investment and saving are, respectively

answer

injections and leakage

question

In an aggregate expenditures diagram, a lump-sum tax (T) will

answer

shift the C + Ig + Xn line downward by an amount equal to T × MPC.

question

The effect of imposing a lump-sum tax is to

answer

reduce the absolute levels of consumption and saving at each level of GDP but to not change the size of the multiplier

question

In a mixed open economy, which of the following all affect the equilibrium GDP in the same direction?

answer

Sa, T, and M.

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