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ECON Ch. 11

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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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The aggregate expenditures model is built upon which of the following assumptions?
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Prices are fixed.
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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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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 the aggregate expenditures model, it is assumed that investment:
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does not change when real GDP changes.
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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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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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In a private closed economy, when aggregate expenditures equal GDP:
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planned investment equals saving.
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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 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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A private closed economy will expand when:
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unplanned decreases in inventories occur.
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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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http://ezto.mheducation.com/13252703216803196681.tp4?REQUEST=SHOWmedia&media=image021.png Refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when:
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GDP is $60 billion.
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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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0.10.
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http://ezto.mheducation.com/13252703216803196681.tp4?REQUEST=SHOWmedia&media=image028.png Refer to the diagram for a private closed economy. At the $300 level of GDP:
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aggregate expenditures and GDP are equal.
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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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At equilibrium real GDP in a private closed economy:
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aggregate expenditures and real GDP are equal.
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Which of the following statements is correct for a private closed economy?
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Saving equals planned investment only at the equilibrium level of GDP.
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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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Planned investment plus unintended increases in inventories equals:
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actual investment.
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Saving is always equal to:
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actual investment.
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Actual investment equals saving:
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at all levels of GDP.
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Unintended changes in inventories:
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bring actual investment and saving into equality at all levels of GDP.
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At the equilibrium GDP for a private open economy:
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net exports may be either positive or negative.
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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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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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If the equilibrium level of GDP in a private open economy is $1,000 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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An exchange rate:
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is the price that the currencies of any two nations exchange for one another.
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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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depreciate the dollar compared to foreign currencies.
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Other things equal, a 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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In a mixed open economy, the equilibrium GDP exists where:
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Ca + Ig + Xn + G = GDP.
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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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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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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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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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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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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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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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an $8 billion downshift in the consumption schedule.
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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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Which of the following would reduce GDP by the greatest amount?
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A $20 billion decrease in government spending.
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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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MPS in this economy is .4.
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In the aggregate expenditures model, a reduction in taxes may:
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increase saving.
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In the aggregate expenditures model, an increase in government spending may:
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increase output and employment.
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A lump-sum tax means that:
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the same amount of tax revenue is collected at each level of GDP.
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It is true that:
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equal increases in government spending and taxes increase the equilibrium GDP.
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The recessionary expenditure gap associated with the recession of 2007-2009 resulted from:
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a rapid decline in investment spending.
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In an effort to stop the U.S. recession of 2007-2009, the federal government:
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reduced taxes and increased government spending.
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(Last Word) Say’s law and classical macroeconomics were disputed by:
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John Maynard Keynes.
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(Last Word) Classical macroeconomics was dealt severe blows by:
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the Great Depression and Keynes’s macroeconomic theory.
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(Last Word) In The General Theory of Employment, Interest, and Money:
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John Maynard Keynes attacked the classical economist’s contention that recession or depression will automatically cure itself.