Chapter 10 Test banks

question

Great Depression
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John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?
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Prices are fixed.
answer

The aggregate expenditures model is built upon which of the following assumptions?
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households and businesses, but not government or international trade.
answer

A private closed economy includes:
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declined by 27 percent; rose to 25 percent
answer

In the United States from 1929 to 1933, real GDP ____________, and the unemployment rate _______________.
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does not change when real GDP changes.
answer

In the aggregate expenditures model, it is assumed that investment:
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investment schedule upward.
answer

All else equal, a large decline in the real interest rate will shift the:
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expenditures of consumers and businesses.
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The level of aggregate expenditures in the private closed economy is determined by the:
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3/10.
answer

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:
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4 percent.
answer

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:
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$360.
answer

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:
question

an increase in the MPC.
answer

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

planned investment equals saving.
answer

In a private closed economy, when aggregate expenditures equal GDP:
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business inventories will fall.
answer

In a private closed economy, when aggregate expenditures exceed GDP:
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is too high for equilibrium.
answer

If an unintended increase in business inventories occurs at some level of GDP, then GDP:
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no unintended changes in inventories.
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The equilibrium level of GDP is associated with:
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domestic output will increase.
answer

If at some level of GDP the economy is experiencing an unintended decrease in inventories:
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we can expect businesses to lower the level of production.
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If an unintended increase in business inventories occurs:
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unplanned decreases in inventories of $10 billion will occur.
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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:
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unplanned decreases in inventories occur.
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A private closed economy will expand when:
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planned investment will exceed saving.
answer

If aggregate expenditures exceed GDP in a private closed economy:
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aggregate expenditures exceed production.
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For a private closed economy, an unintended decline in inventories suggests that:
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225.
answer

(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:
question

195.
answer

(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:
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30.
answer

(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:
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C = 60 + .6Y.
answer

(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:
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I = 30 + .1Y.
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(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:
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$300.
answer

(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:
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equals the MPC.
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When investment remains the same at each level of GDP in a private closed economy, the slope of the aggregate expenditures schedule:
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0.10.
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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:
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a decline in GDP and rising unemployment.
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If unintended increases in business inventories occur, we can expect:
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$400.
answer

(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:
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$320.
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(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:
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$80.
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(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:
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$10 and the equilibrium GDP will be $75.
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(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:
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$10.
answer

(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:
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$65.
answer

(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:
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actual; planned
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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.
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$480.
answer

(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:
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upward and increase aggregate expenditures.
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In the aggregate expenditures model, technological progress will shift the investment schedule:
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aggregate expenditures and real GDP are equal.
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At equilibrium real GDP in a private closed economy:
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$40.
answer

(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:
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$400.
answer

(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:
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a rise in the real GDP
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What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?
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Saving equals planned investment only at the equilibrium level of GDP.
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Which of the following statements is correct for a private closed economy?
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$38 billion.
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At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy. Planned investment must be:
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actual investment.
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Planned investment plus unintended increases in inventories equals:
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Saving is always equal to:
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actual investment
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at all levels of GDP.
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Actual investment equals saving:
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bring actual investment and saving into equality at all levels of GDP.
answer

Unintended changes in inventories:
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injections and leakages.
answer

Investment and saving are, respectively:
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$280 billion
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(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?
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saving by $20.
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If the marginal propensity to consume is 0.9 in a private closed economy, a $20 billion decline in investment spending will decrease:
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$50 billion.
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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:
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4.
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(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:
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5.
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(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:
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saving.
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Imports have the same effect on the current size of GDP as:
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investment
answer

Exports have the same effect on the current size of GDP as:
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net exports may be either positive or negative.
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At the equilibrium GDP for a private open economy:
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U.S. real GDP will fall.
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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:
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shift downward.
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If net exports decline from zero to some negative amount, the aggregate expenditures schedule would:
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aggregate expenditures are greater at each level of GDP than when net exports are zero or negative.
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If net exports are positive:
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a decrease in imports, with no change in exports.
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An upward shift of the aggregate expenditures schedule might be caused by:
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increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.
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Other things equal, an increase in an economy’s exports will:
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a country’s net exports to fall.
answer

If the dollar appreciates relative to foreign currencies, we would expect:
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increase domestic output and employment.
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If a nation imposes tariffs and quotas on foreign products, the immediate effect will be to:
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increase GDP by $100 billion.
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If the multiplier in an economy is 5, a $20 billion increase in net exports will:
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$350.
answer

(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:
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$30.
answer

(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:
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a trade deficit.
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(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:
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has a contractionary effect on GDP.
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(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:
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Ig + Xn must equal $300 billion.
answer

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:
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is the price that the currencies of any two nations exchange for one another.
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An exchange rate:
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increase the dollar price of foreign currencies.
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If the United States wants to increase its net exports in the short term, it might take steps to:
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depress real output and employment in the U.S. economy.
answer

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

$400
answer

(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:
question

4.0.
answer

(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:
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Ca + Ig + Xn + G = GDP.
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In a mixed open economy the equilibrium GDP exists where:
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Sa + M + T = Ig + X + G.
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In a mixed open economy the equilibrium GDP is determined at that point where:
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planned investment must exceed saving.
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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:
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increase by more than $100 billion.
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Other things equal, if $100 billion of government purchases (G) is added to private spending (C + Ig + Xn), GDP will:
question

decrease by $50 billion.
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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:
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$40 billion.
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Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by:
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equal to that associated with a change in investment or consumption.
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Other things equal, the multiplier effect associated with a change in government spending is:
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when Ig + X + G exceeds Sa + M + T
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In which of the following situations for a mixed open economy will the level of GDP expand?
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consumption schedule will shift downward by $20 billion.
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If a lump-sum income tax of $25 billion is levied and the MPS is 0.20, the:
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Other things unchanged, a tax reduction of $10 billion will increase the equilibrium GDP by $25 billion when the MPS is 0.4.
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Which of the following statements is incorrect?
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increase taxes by $28 billion.
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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:
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a portion of a tax cut will be saved.
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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:
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Ig + X + G > Sa + M + T.
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In a mixed open economy, if aggregate expenditures exceed GDP:
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some of the tax increase will be paid out of income that would otherwise have been saved.
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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:
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$220.
answer

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:
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GDP: C: $140 $130 180 160 220 190 260 220 300 250
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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:
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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.
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Which of the following is a correct statement of the impacts of a lump-sum tax?
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Ca + Ig + Xn + G.
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The level of aggregate expenditures in a mixed open economy is comprised of:
question

an $8 billion downshift in the consumption schedule.
answer

If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause:
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taxes and savings are leakages, while investment and government purchases are injections.
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In a mixed closed economy:
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the larger the MPC.
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An increase in taxes will have a greater effect on the equilibrium GDP:
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to be parallel to the before-tax consumption schedule.
answer

A lump-sum tax causes the after-tax consumption schedule:
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$530.
answer

(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:
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4.
answer

(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:
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raise G by $30 or reduce T by $40.
answer

Refer to the above information. If government desired to raise the equilibrium GDP to $650, it could:
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$387.5.
answer

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:
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a $20 billion increase in government spending
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Which of the following would increase GDP by the greatest amount?
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a $20 billion decrease in government spending
answer

Which of the following would reduce GDP by the greatest amount?
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both represent injections to the circular flow
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What do investment and government expenditures have in common?
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a leakage of purchasing power, like saving.
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Taxes represent:
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must be added to saving.
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In moving from a private closed to a mixed closed economy in the aggregate expenditures model, taxes:
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MPS in this economy is .4.
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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:
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Sa, T, and M
answer

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

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

increase output and employment.
answer

In the aggregate expenditures model, an increase in government spending may:
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the MPC for this economy is .6.
answer

If a $20 billion increase in government expenditures increases equilibrium GDP by $50 billion then:
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the MPC for this economy is .8.
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If a $10 billion decrease in lump-sum taxes increases equilibrium GDP by $40 billion then:
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the same amount of tax revenue is collected at each level of GDP.
answer

A lump-sum tax means that:
question

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

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

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

The effect of imposing a lump-sum tax is to:
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T + Sa ; Ig + G.
answer

Suppose that unintended increases in inventories are occurring in a mixed closed economy. We can surmise that:
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downward by $16 billion.
answer

If a lump-sum tax of $40 billion is imposed and the MPC is 0.6, the saving schedule will shift:
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$3 billion.
answer

If the MPC in an economy is .75, a $1 billion increase in taxes will ultimately reduce consumption by:
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$9 billion.
answer

If the MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by:
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.75.
answer

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:
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.8.
answer

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

increase by $45 billion.
answer

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

decrease by $30 billion.
answer

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

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

It is true that:
question

shift the aggregate expenditures line upward.
answer

In an aggregate expenditures diagram equal increases in government spending and in lump-sum taxes will:
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increase the equilibrium GDP and the size of that increase is independent of the size of the MPC.
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Equal increases in government purchases and taxes will:
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the equilibrium level of income will rise to $430.
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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:
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aggregate expenditures exceed the full-employment level of GDP.
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An inflationary expenditure gap is the amount by which:
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the amount by which the full-employment GDP exceeds the level of aggregate expenditures.
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A recessionary expenditure gap is:
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the aggregate expenditures schedule lies below the 45-degree line at the full-employment GDP.
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A recessionary expenditure gap exists if:
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an increase of $15 billion
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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?
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$20 billion below the full-employment GDP.
answer

If the MPS is .25 and the economy has a recessionary expenditure gap of $5 billion, then equilibrium GDP is:
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full employment will necessarily be realized
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Which of the following statements concerning the equilibrium level of GDP is incorrect?
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GDP will remain at $400 billion unless aggregate expenditures change.
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If the economy is in equilibrium at $400 billion of GDP and the full-employment GDP is $500 billion:
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economy is already operating at full employment.
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If an increase in aggregate expenditures results in no increase in real GDP we can surmise that the:
question

$20 billion.
answer

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:
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a rapid decline in investment spending.
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The recessionary expenditure gap associated with the recession of 2007-2009 resulted from:
question

reduced taxes and increased government spending.
answer

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

a recessionary expenditure gap.
answer

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

insufficient aggregate expenditures
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Viewed through the aggregate expenditures model, the U.S. recession of 2007-2009 resulted mainly from:
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John Maynard Keynes.
answer

(Last Word) Say’s law and classical macroeconomics were disputed by:
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the Great Depression and Keynes’s macroeconomic theory.
answer

(Last Word) Classical macroeconomics was dealt severe blows by:
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John Maynard Keynes attacked the classical economist’s contention that recession or depression will automatically cure itself.
answer

(Last Word) In The General Theory of Employment, Interest, and Money:
question

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

(Last Word) In The General Theory of Employment, Interest, and Money:
question

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

(Last Word) In The General Theory of Employment, Interest, and Money:

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