question

Other things equal, an interest rate increase will:

answer

leave curve A in place but shift curve B downward.

question

If (C + Ig) are the private expenditures in the closed economy and Xn2 are the net exports in the open economy:

answer

net exports are positive.

question

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

answer

a $20 billion increase in government spending

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. GDP will fall

question

Taxes represent:

answer

a leakage of purchasing power, like saving.

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

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

answer

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

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 a private closed economy, when aggregate expenditures equal GDP:

answer

planned investment equals saving

question

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

answer

does not change when real GDP changes

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

Refer to the diagram for a private closed economy. The equilibrium level of GDP is:

answer

$300.

question

Refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when:

answer

C. GDP is $60 billion

question

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

answer

investment

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

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

Refer to the diagram for a private closed economy. The equilibrium GDP is:

answer

$180 billion

question

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

answer

$300

question

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

answer

saving

question

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

answer

is too high for equilibrium.

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

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

answer

Prices are sticky downward

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

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

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

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

answer

domestic output will increase

question

For a private closed economy if gross investment is $12 billion, the equilibrium level of GDP will be:

answer

$360

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

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

answer

business inventories will fall

question

If aggregate expenditures exceed GDP in a private closed economy:

answer

planned investment will exceed saving

question

A private closed economy includes:

answer

households and businesses, but not government or international trade

question

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

answer

expenditures of consumers and businesses

question

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

answer

$220

question

Refer to the diagram for a private closed economy. Unplanned changes in inventories will be zero:

answer

only at the $300 level

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

Refer to the diagram for a private closed economy. At the equilibrium level of GDP, investment and saving are both:

answer

$50

question

Curve A:

answer

is an investment demand curve and curve B is an investment schedule

question

If the real interest rate is 20 percent, the equilibrium GDP will be:

answer

$200.

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

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

answer

increase GDP by $100 billion

question

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

answer

a decrease in imports, with no change in exports.

question

An exchange rate:

answer

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

question

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

answer

Great Depression

question

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

answer

increase domestic output and employment

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

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

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

answer

a country's net exports to fall.

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

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

answer

4 percent

question

Planned investment plus unintended increases in inventories equals:

answer

actual investment.

question

In a mixed open economy the equilibrium GDP exists where:

answer

Ca + Ig + Xn + G = GDP

question

Refer to the diagram for a private closed economy. In this economy investment:

answer

is $40 billion at all levels of GDP.

question

Refer to the diagram that applies to a private closed economy. The APC is equal to 1 at income level:

answer

G

question

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

answer

investment schedule upward

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

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

answer

upward and increase aggregate expenditures.

question

Other 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

Investment and saving are, respectively:

answer

injections and leakages

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