question

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

answer

Great Depression

question

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

answer

Prices are fixed.

question

A private closed economy includes:

answer

households and businesses, but not government or international trade.

question

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

answer

declined by 27 percent; rose to 25 percent

question

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

answer

does not change when real GDP changes.

question

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

answer

investment schedule upward.

question

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

answer

expenditures of consumers and businesses.

question

possible levels of domestic output and income: $320 330 340 350 360 370 380 Consumption: $320 327 334 341 348 355 362 Refer to the above data. The MPS is:

answer

3/10.

question

possible levels of domestic output and income: $320 330 340 350 360 370 380 Consumption: $320 327 334 341 348 355 362 Refer to the above data. At the $370 billion level of DI the APS is approximately:

answer

4 percent.

question

possible levels of domestic output and income: $320 330 340 350 360 370 380 Consumption: $320 327 334 341 348 355 362 Refer to the above data for a private closed economy. If gross investment is $12 billion, the equilibrium level of GDP will be:

answer

$360.

question

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

answer

an increase in the MPC.

question

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

answer

planned investment equals saving.

question

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

answer

business inventories will fall.

question

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

answer

is too high for equilibrium.

question

The equilibrium level of GDP is associated with:

answer

no unintended changes in inventories.

question

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

answer

domestic output will increase.

question

If an unintended increase in business inventories occurs:

answer

we can expect businesses to lower the level of production.

question

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:

answer

unplanned decreases in inventories of $10 billion will occur.

question

A private closed economy will expand when:

answer

unplanned decreases in inventories occur.

question

If aggregate expenditures exceed GDP in a private closed economy:

answer

planned investment will exceed saving.

question

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

answer

aggregate expenditures exceed production.

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 Refer to the above data. The equilibrium level of income (Y) is:

answer

225.

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 Refer to the above data. In equilibrium the level of consumption spending will be:

answer

195.

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 Refer to the above data. In equilibrium the level of saving will be:

answer

30.

question

(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. GDP: $0 100 200 300 400 500 Consumption: $60 120 180 240 300 360 Investment: $30 40 50 60 70 80 The equation representing the consumption schedule for the above economy is:

answer

C = 60 + .6Y.

question

(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. GDP: $0 100 200 300 400 500 Consumption: $60 120 180 240 300 360 Investment: $30 40 50 60 70 80 The equation representing the investment schedule for the above economy is:

answer

I = 30 + .1Y.

question

(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. GDP: $0 100 200 300 400 500 Consumption: $60 120 180 240 300 360 Investment: $30 40 50 60 70 80 Refer to the above data. Equilibrium Y (= GDP) is:

answer

$300.

question

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

answer

equals the MPC.

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 unintended increases in business inventories occur, we can expect:

answer

a decline in GDP and rising unemployment.

question

(Advanced analysis) Answer the question on the basis of the following information for a private closed economy, where Ig is gross investment, S is saving, and Y is gross domestic product (GDP). Ig=Ig=80 S=-80+0.4Y Refer to the above information. The equilibrium GDP will be:

answer

$400.

question

(Advanced analysis) Answer the question on the basis of the following information for a private closed economy, where Ig is gross investment, S is saving, and Y is gross domestic product (GDP). Ig=Ig=80 S=-80+0.4Y Refer to the above information. In equilibrium consumption will be:

answer

$320.

question

(Advanced analysis) Answer the question on the basis of the following information for a private closed economy, where Ig is gross investment, S is saving, and Y is gross domestic product (GDP). Ig=Ig=80 S=-80+0.4Y Refer to the above information. In equilibrium saving will be:

answer

$80.

question

(Advanced analysis) Answer the question on the basis of the following information for a private closed economy. S=-20+0.4Y Ig=25-3i where S is saving, Ig is gross investment, i is the real interest rate, and Y is GDP. Refer to the above information. If the real interest rate is 5 (percent), investment will be:

answer

$10 and the equilibrium GDP will be $75.

question

(Advanced analysis) Answer the question on the basis of the following information for a private closed economy. S=-20+0.4Y Ig=25-3i where S is saving, Ig is gross investment, i is the real interest rate, and Y is GDP. Refer to the above information. Refer to the above information. In equilibrium the level of saving will be:

answer

$10.

question

(Advanced analysis) Answer the question on the basis of the following information for a private closed economy. S=-20+0.4Y Ig=25-3i where S is saving, Ig is gross investment, i is the real interest rate, and Y is GDP. Refer to the above information. Refer to the above information. In equilibrium the level of consumption will be:

answer

$65.

question

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.

answer

actual; planned

question

(Advanced analysis) 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

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

answer

upward and increase aggregate expenditures.

question

At equilibrium real GDP in a private closed economy:

answer

aggregate expenditures and real GDP are equal.

question

(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, Ig is gross investment, and i is the interest rate: C= 40 +0.8Y Ig= 60-2i i=i=10 Refer to the above information. Given that the interest rate is 10 (percent), the amount that businesses will want to invest will be:

answer

$40.

question

(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, Ig is gross investment, and i is the interest rate: C= 40 +0.8Y Ig= 60-2i i=i=10 Refer to the above information. The equilibrium level of GDP in this economy is:

answer

$400.

question

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

answer

a rise in the real GDP

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

answer

$38 billion.

question

Planned investment plus unintended increases in inventories equals:

answer

actual investment.

question

actual investment

answer

Saving is always equal to:

question

Actual investment equals saving:

answer

at all levels of GDP.

question

Unintended changes in inventories:

answer

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

question

Investment and saving are, respectively:

answer

injections and leakages.

question

(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?

answer

$280 billion

question

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

answer

saving by $20.

question

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by:

answer

$50 billion.

question

(Advanced analysis) Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y, where C is consumption and Y is gross domestic product. The multiplier for this economy is:

answer

4.

question

(Advanced analysis) Assume the saving schedule for a private closed economy is S = -20 + 0.2Y, where S is saving and Y is gross domestic product. The multiplier for this economy is:

answer

5.

question

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

answer

saving.

question

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

answer

investment

question

At the equilibrium GDP for a private open economy:

answer

net exports may be either positive or negative.

question

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:

answer

U.S. real GDP will fall.

question

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

answer

shift downward.

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

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

answer

a decrease in imports, with no change in exports.

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

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

answer

a country's net exports to fall.

question

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

answer

increase domestic output and employment.

question

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

answer

increase GDP by $100 billion.

question

(Advanced analysis) Answer the question on the basis of the following information for a private open economy: C=40+0.80Y Ig=Ig=40 X=X=20 M=M=30 The equilibrium GDP (=Y) in the above economy is:

answer

$350.

question

(Advanced analysis) Answer the question on the basis of the following information for a private open economy: C=40+0.80Y Ig=Ig=40 X=X=20 M=M=30 Refer to the above information. In equilibrium, saving is:

answer

$30.

question

(Advanced analysis) Answer the question on the basis of the following information for a private open economy: C=40+0.80Y Ig=Ig=40 X=X=20 M=M=30 Refer to the above information. This nation is incurring:

answer

a trade deficit.

question

(Advanced analysis) Answer the question on the basis of the following information for a private open economy: C=40+0.80Y Ig=Ig=40 X=X=20 M=M=30 Refer to the above information. International trade in this case:

answer

has a contractionary effect on GDP.

question

If the equilibrium level of GDP in a private open economy is $1000 billion and consumption is $700 billion at that level of GDP, then:

answer

Ig + Xn must equal $300 billion.

question

An exchange rate:

answer

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

question

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

answer

increase the dollar price of foreign currencies.

question

her things equal, serious recession in the economies of U.S. trading partners will:

answer

depress real output and employment in the U.S. economy.

question

(Advanced analysis) Answer the question on the basis of the following information for a private open economy. The letters Y, C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports respectively. Figures are in billions of dollars. C=26+0.75Y Ig=60 X=24 M=10 The equilibrium GDP for the above open economy is:

answer

$400

question

(Advanced analysis) Answer the question on the basis of the following information for a private open economy. The letters Y, C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports respectively. Figures are in billions of dollars. C=26+0.75Y Ig=60 X=24 M=10 The multiplier for the above economy is:

answer

4.0.

question

In a mixed open economy the equilibrium GDP exists where:

answer

Ca + Ig + Xn + G = GDP.

question

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

answer

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

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 saving.

question

Other things equal, if $100 billion of government purchases (G) is added to private spending (C + Ig + Xn), GDP will:

answer

increase by more than $100 billion.

question

Suppose the economy's multiplier is 2. Other things equal, a $25 billion decrease in government expenditures on national defense will cause equilibrium GDP to:

answer

decrease by $50 billion.

question

Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by:

answer

$40 billion.

question

Other things equal, the multiplier effect associated with a change in government spending is:

answer

equal to that associated with a change in investment or consumption.

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

If a lump-sum income tax of $25 billion is levied and the MPS is 0.20, the:

answer

consumption schedule will shift downward by $20 billion.

question

Which of the following statements is incorrect?

answer

Other things unchanged, a tax reduction of $10 billion will increase the equilibrium GDP by $25 billion when the MPS is 0.4.

question

Suppose the economy is operating at its full-employment-noninflationary GDP and the MPC is 0.75. 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

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because:

answer

a portion of a tax cut will be saved.

question

In a mixed open economy, if aggregate expenditures exceed GDP:

answer

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

question

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:

answer

some of the tax increase will be paid out of income that would otherwise have been saved.

question

The following schedule contains data for a private closed economy. All figures are in billions. Use these data in answering the question. GDP: C $140 $150 180 180 220 210 260 240 300 270 Refer to the above data. If gross investment is $10 at all levels of GDP, the equilibrium GDP will be:

answer

$220.

question

The following schedule contains data for a private closed economy. All figures are in billions. Use these data in answering the question. GDP: C $140 $150 180 180 220 210 260 240 300 270 Refer to the above data. If a lump-sum tax of $20 is imposed, the consumption schedule will become:

answer

GDP: C: $140 $130 180 160 220 190 260 220 300 250

question

Which of the following is a correct statement of the impacts of a lump-sum tax?

answer

Disposable income will decline by the amount of the tax and consumption at each level of GDP will decline by the amount of the tax multiplied by the MPC.

question

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

answer

Ca + Ig + Xn + G.

question

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

answer

an $8 billion downshift in the consumption schedule.

question

In a mixed closed economy:

answer

taxes and savings are leakages, while investment and government purchases are injections.

question

An increase in taxes will have a greater effect on the equilibrium GDP:

answer

the larger the MPC.

question

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

answer

to be parallel to the before-tax consumption schedule.

question

(Advanced analysis) Answer the question on the basis of the following information for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes respectively. Figures are in billions of dollars. Ca=25+0.75(Y-T) Ig=Ig=50 Xn=Xn=10 G=G=70 T=T=30 Refer to the above information. The equilibrium level of GDP for this economy is:

answer

$530.

question

(Advanced analysis) Answer the question on the basis of the following information for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes respectively. Figures are in billions of dollars. Ca=25+0.75(Y-T) Ig=Ig=50 Xn=Xn=10 G=G=70 T=T=30 Refer to the above information. The multiplier for this economy is:

answer

4.

question

Refer to the above information. If government desired to raise the equilibrium GDP to $650, it could:

answer

raise G by $30 or reduce T by $40.

question

Refer to the above information. If the economy's tax schedule was T = 0.2Y rather than T = T0 = 30, the equilibrium GDP would be:

answer

$387.5.

question

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

answer

a $20 billion increase in government spending

question

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

answer

a $20 billion decrease in government spending

question

What do investment and government expenditures have in common?

answer

both represent injections to the circular flow

question

Taxes represent:

answer

a leakage of purchasing power, like saving.

question

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

answer

must be added to saving.

question

Suppose government finds it can increase the equilibrium real GDP $45 billion by increasing government purchases by $18 billion. On the basis of this information we can say that the:

answer

MPS in this economy is .4.

question

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

answer

Sa, T, and M

question

In the aggregate expenditures model, a reduction in taxes may:

answer

increase saving.

question

In the aggregate expenditures model, an increase in government spending may:

answer

increase output and employment.

question

If a $20 billion increase in government expenditures increases equilibrium GDP by $50 billion then:

answer

the MPC for this economy is .6.

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

A lump-sum tax means that:

answer

the same amount of tax revenue is collected at each level of GDP.

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

Suppose that unintended increases in inventories are occurring in a mixed closed economy. We can surmise that:

answer

T + Sa ; Ig + G.

question

If a lump-sum tax of $40 billion is imposed and the MPC is 0.6, the saving schedule will shift:

answer

downward by $16 billion.

question

If the MPC in an economy is .75, a $1 billion increase in taxes will ultimately reduce consumption by:

answer

$3 billion.

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

If the marginal propensity to save in a closed economy is 0.25 and a lump-sum tax is imposed, the slope of the economy's aggregate expenditures schedule will be:

answer

.75.

question

If the marginal propensity to consume in an economy is 0.8, net exports are zero, and government spending is $33 billion at each level of real GDP, the slope of the economy's aggregate expenditures schedule will be:

answer

.8.

question

If MPC = .5, a simultaneous increase in both taxes and government spending of $20 will:

answer

increase GDP by $20.

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 government increases its tax revenues by $15 billion and the MPC is 2/3, then we can expect the equilibrium GDP to:

answer

decrease by $30 billion.

question

It is true that:

answer

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

question

In an aggregate expenditures diagram equal increases in government spending and in lump-sum taxes will:

answer

shift the aggregate expenditures line upward.

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

Assume in a private closed economy that the equilibrium level of income is $380 and the MPS is 0.25. 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

An inflationary expenditure gap is the amount by which:

answer

aggregate expenditures exceed the full-employment level of GDP.

question

A recessionary expenditure gap is:

answer

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

question

A recessionary expenditure gap exists if:

answer

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

question

Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion. If the MPC is 0.625, what change in aggregate expenditures is needed to achieve full employment?

answer

an increase of $15 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

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

answer

full employment will necessarily be realized

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

If an increase in aggregate expenditures results in no increase in real GDP we can surmise that the:

answer

economy is already operating at full employment.

question

If the MPC is .50 and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap is:

answer

$20 billion.

question

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

answer

a rapid decline in investment spending.

question

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

answer

reduced taxes and increased government spending.

question

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

answer

a recessionary expenditure gap.

question

Viewed through the aggregate expenditures model, the U.S. recession of 2007-2009 resulted mainly from:

answer

insufficient aggregate expenditures

question

(Last Word) Say's law and classical macroeconomics were disputed by:

answer

John Maynard Keynes.

question

(Last Word) Classical macroeconomics was dealt severe blows by:

answer

the Great Depression and Keynes's macroeconomic theory.

question

(Last Word) 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

(Last Word) 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

(Last Word) 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.

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