Chapter 28 Worksheet Essay

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Other things equal, an interest rate increase will:
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leave curve A in place but shift curve B downward.
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If (C + Ig) are the private expenditures in the closed economy and Xn2 are the net exports in the open economy:
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net exports are positive.
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Which of the following would increase GDP by the greatest amount?
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a $20 billion increase in government spending
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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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U.S. GDP will fall
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The multiplier for this economy is:
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Taxes represent:
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a leakage of purchasing power, like saving.
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If net exports are positive:
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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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In a mixed open economy the equilibrium GDP is determined at that point where:
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Sa + M + T = Ig + X + G.
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In the United States from 1929 to 1933, real GDP _____________, and the unemployment rate ________________.
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declined by 27 percent; rose to 25 percent
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In a private closed economy, when aggregate expenditures equal GDP:
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planned investment equals saving
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In the aggregate expenditures model, it is assumed that investment:
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does not change when real GDP changes
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Other things equal, an increase in an economy’s exports will:
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increase its domestic aggregate expenditures and therefore increase its equilibrium GDP
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Refer to the diagram for a private closed economy. The equilibrium level of GDP is:
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$300.
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Refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when:
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C. GDP is $60 billion
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Exports have the same effect on the current size of GDP as:
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investment
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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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must be added to saving
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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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some of the tax increase will be paid out of income that would otherwise have been saved
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Refer to the diagram for a private closed economy. The equilibrium GDP is:
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$180 billion
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If the real interest rate is 10 percent, the equilibrium GDP will be:
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$300
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Imports have the same effect on the current size of GDP as:
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saving
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If an unintended increase in business inventories occurs at some level of GDP, then GDP:
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is too high for equilibrium.
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Other things equal, the multiplier effect associated with a change in government spending is:
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equal to that associated with a change in investment or consumption
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The aggregate expenditures model is built upon which of the following assumptions?
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Prices are sticky downward
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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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$38 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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$40 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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decrease by $50 billion
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If at some level of GDP the economy is experiencing an unintended decrease in inventories:
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domestic output will increase
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For a private closed economy if gross investment is $12 billion, the equilibrium level of GDP will be:
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$360
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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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$50 billion
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In a private closed economy, when aggregate expenditures exceed GDP:
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business inventories will fall
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If aggregate expenditures exceed GDP in a private closed economy:
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planned investment will exceed saving
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A private closed economy includes:
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households and businesses, but not government or international trade
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The level of aggregate expenditures in the private closed economy is determined by the:
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expenditures of consumers and businesses
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If gross investment is $10 at all levels of GDP, the equilibrium GDP will be:
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$220
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Refer to the diagram for a private closed economy. Unplanned changes in inventories will be zero:
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only at the $300 level
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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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increase taxes by $28 billion
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Refer to the diagram for a private closed economy. At the equilibrium level of GDP, investment and saving are both:
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$50
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Curve A:
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is an investment demand curve and curve B is an investment schedule
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If the real interest rate is 20 percent, the equilibrium GDP will be:
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$200.
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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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a rise in the real GDP
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If the multiplier in an economy is 5, a $20 billion increase in net exports will:
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increase GDP by $100 billion
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An upward shift of the aggregate expenditures schedule might be caused by:
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a decrease in imports, with no change in exports.
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An exchange rate:
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is the price at that the currencies of any two nations exchange for one another
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John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?
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Great Depression
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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 domestic output and employment
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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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a portion of a tax cut will be saved
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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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Ig + Xn must equal $300 billion.
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If the dollar appreciates relative to foreign currencies, we would expect:
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a country’s net exports to fall.
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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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actual; planned
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At the $370 billion level of DI the APS is approximately:
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4 percent
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Planned investment plus unintended increases in inventories equals:
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actual investment.
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In a mixed open economy the equilibrium GDP exists where:
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Ca + Ig + Xn + G = GDP
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Refer to the diagram for a private closed economy. In this economy investment:
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is $40 billion at all levels of GDP.
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Refer to the diagram that applies to a private closed economy. The APC is equal to 1 at income level:
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G
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All else equal, a large decline in the real interest rate will shift the:
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investment schedule upward
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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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saving by $20.
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In building the aggregate expenditures model, Keynes believed that:
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In the aggregate expenditures model, technological progress will shift the investment schedule:
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upward and increase aggregate expenditures.
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Other things equal, serious recession in the economies of U.S. trading partners will:
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depress real output and employment in the U.S. economy
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Investment and saving are, respectively:
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injections and leakages

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