Chapter 11

¡Supera tus tareas y exámenes ahora con Quizwiz!

if the economy is operating below its full-employment level, the depreciation of the dollar will likely lead to:

-an increase in net exports and aggregate expenditures and an expansion of real GDP

investment is _____ of spending into the income-expenditure stream

-an injection

What outlets do firms have to sell their output?

-business markets -consumer markets

what are the two ways that equilibrium GDP will change in a private closed economy?

-changes in investment schedule -changes in consumption schedule

if an economy is operating at its full-employment level, a depreciation in the value of its currency will likely lead to _____

-demand-pull inflation

net exports are calculated as total ______ minus total ____ (do not use acronyms)

-exports -imports

equilibrium real GDP will decline when:

-imports are greater than exports

The Great Depression was worsened because of the imposition of a trade policy by the United States government that

increased tariffs on imports

when net exports increase or net imports decrease, this _____ aggregate expenditures and _____ the nation's GDP

increases; raises

when the level of GDP is below the equilibrium level, businesses will respond to the unplanned decline in business inventories by:

increasing output and employment

when the dollar depreciates relative to other currencies it enables people abroad to obtain _____ dollars with each unit of their own currency

more

when the level of GDP is above the equilibrium level, businesses will respond to the unintended accumulation of unsold goods by

decreasing the rate of production

when the dollar ____ relative to other currencies it enables people abroad to obtain more dollars with each unit of their own currency

depreciates

a tax that yields the same amount of tax revenue at each level of GDP regardless of the level of government purchases is called

lump-sum tax

a _____ open economy includes both private and public (government) sectors

mixed

currently the country's GDP = $500B and the MPC = .90. if consumption spending increases by $15B, what is the country's new level of real GDP?

$650B

when potential output is $510B and the aggregate expenditures curve intersects the 45 degree line above $510B implying that equilibrium real GDP is greater than potential output, then there is a(n):

-inflationary gap and current employment is above full employment

when GDP is below equilibrium, higher levels of spending causes:

-inventory levels to fall and informs businesses to increase production levels toward equilibrium output

a $10billion change in investment will lead to a $50 billion change in output and income, therefore the:

-multiplier is 5

The MPC=.7 and government imposes a tax of $10B. Calculate the impact on aggregate expenditures

Aggregate expenditures fall by $7B

in a private closed economy, the formula for aggregate expenditures is:

C + Ig

the formula for equilibrium GDP in a mixed, open economy is

C9+I8+G+Xa

in a mixed open economy, equilibrium GDP is identified where:

S + T + M = I + G + X

using the graph provided, if real domestic output (GDP) was $430B what would have to happen to the C+Ig curve in order to reach equilibrium GDP?

The C + Ig curve would have to shift downward

the ______ helps to explain the situation of massive unemployment, as well as to better understand how an economy will react to such economic shocks as changes in tax rates as well as government and household spending

aggregate expenditure model

how is the aggregate expenditures schedule impacted graphically when government introduces a tax?

aggregate expenditures schedule shifts down by T*MPC

______ are included as part of U.S. GDP because they create jobs and income when purchased by foreigners

exports

a(n) ____ is the amount by which aggregate expenditures at the full-employment GDP exceed those required to achieve full-employment

inflationary gap

_____ is an injection into the income-expenditure circular flow

investment

the two compounds of aggregate expenditures in a private closed economy are consumption and gross private

investment

in an expanded economy, all of the following are leakages in an economy except:

investments

Saving is a(n) ______ or withdrawal of spending from the economy's circular flow of income and expenditures

leakage

if the rate of return on a firm's potential project or the real interest rate increases or decreases, the size of the effect this will have on the aggregate expenditures curve is based on the effect of the investment spending

multiplier

total tax revenues minus transfer payments is called ______ tax revenues

net

C + I9 + Xn = GDP is the formula for aggregate expenditures in a private ___ economy

open

the amount spent on imported goods in the U.S. must be subtracted from exports or total spending because:

such spending generates production and income abroad

it is undesirable for actual GDP to be less than the equilibrium level because there will be a(n):

unplanned decline in business inventories

when exports are greater than imports, net exports will be:

positive

in a private closed economy the equilibrium GDP will change in response to changes in either:

the investment and consumption schedules

if the leakage of saving is greater than the injection of investment then:

there will be an above-equilibrium level of GDP

the level of investment spending by firms is based upon the current ______ interest rate together with the investment ______ curve

-real -demand

when net exports decrease or net imports increase, this ____ aggregate expenditures and _____ the nation's GDP

-reduces; lowers

in a private closed economy equilibrium GDP is $600B with a MPS=.20. when the country begins to trade, exports are $50B are imports are $40B. What is equilibrium GDP for this new private open economy and why?

$650B because net exports are positive

when government spending inceases by $20 billion and the multiplier is 4, there will be an increase in equilibrium real GDP of:

$80 billion

when the current production level of goods and services leads to output levels below GDP at equilibrium, this results in:

- a reduction of goods in inventory and too low a production rate

which of the following will result from the depreciation of the US dollar relative to other currencies?

-an increase in US net exports -a decrease in the price, in terms of the other currencies, of US goods

using the figure provided, it is evident that no levels of GDP above equilibrium are sustainable because _________ and _____________ (no abbreviations) spending fall short of GDP

-consumption -investment

the aggregate expenditure schedule in a private closed economy is the sum of ____ plus planned ______.

-consumption; investment

the investment demand _____ and the real interest rate together determine the amount of investment spending while the investment _____ shows the amount of investment forthcoming at each level of GDP

-curve -schedule

a decrease in government spending by $10 billion with a multiplier of 5 will cause aggregate expenditures to:

-decline by $50B

in a closed economy, if households save $40 billion and firms investment $30 billion, then the level of real GDP will _____

-decrease

Keynes proposed what two different policies that a government might pursue to close a recessionary expenditure gap and achieve full employment?

-decrease taxes -increase government spending

when the government imposes a lump-sum tax on its citizens, this has the effect of _____ equilibrium real GDP by reducing both consumption and _____.

-decreasing -savings

When the United States' foreign trading partners experience higher incomes it benefits the U.S. by:

-increasing U.S. exports -increasing U.S. GDP -increasing U.S. income

suppose the real interest rate falls, causing businesses to increase investment spending. using the figure provided, what happens to the aggregate expenditures curve?

-it shifts upward to (C +Ig)1

aggregate expenditures and GDP will be decreased beyond what they would be in a closed economy with the addition of:

-negative net exports

which of the following is likely to occur when aggregate expenditures are so high that the equilibrium level of GDP is beyond the potential output?

-nominal GDP is likely to increase, but real GDP is not likely to increase -the economy is likely to experience demand-pull inflation -the economy is likely to produce either at potential or just above potential output

using the table provided, if planned investment by firms was $30B rather than $20B, the equilibrium level of output and employment

-output is $510B and employment is 75M

when government spending and taxes are equal, government spending will have a greater impact on aggregate expenditures and GDP because

-part of the tax is paid out of income that would otherwise have been saved -aggregate expenditures are impacted by only a fraction of the tax, T=MPC

during the 2007-2009 recession, which components of aggregate expenditures were significant contributors to the downturn?

-planned investment spending -consumption spending

although an economy may be at equilibrium GDP on the aggregate expenditures model, this does not mean that the economy is also at _____ real GDP

-potential -full-employment -long-run

Although an economy may be at equilibrium GDP on the aggregate expenditures model, this does not mean that the economy is also at ____ real GDP.

-potential -long-run -full-employment

to completely construct the aggregate expenditures model we must move from a ___ (no government) open economy to a ____ economy that also includes the public sector (government)

-private;mixed

in a closed economy, two characteristics of equilibrium GDP are:

-saving and planned investment are equal -there are no unplanned changes in inventories

select the statements that best summarize the conditions present during the Great Depression

-surplus of productive resources -the unemployment rate was at double digits -real GDP was significantly below potential output

-firms are willing and able to produce any level of output as long as::

-the costs of producing the output are lower than the revenues from selling the output

the difference between an investment schedule and an investment demand curve is:

-the investment schedule is the amount of investment forthcoming at each level of GDP -the investment demand curve is based upon and determined by the real rate of interest

equilibrium GDP is the desirable level of output for which of the following reasons?

-there is no excess of total spending -there is no increase in inventories of goods -the total quantity of goods produced equals the total quantity of goods purchased

at levels above GDP at equilibrium, consumption underspending causes firms

-to reduce production output to move the level of GDP back to equilibrium

when sales fall short of planned production output, the unsold output is known as ___________ changes in inventory and is included in ______ investment.

-unplanned -actual

at equilibrium GDP in a mixed open economy

-unplanned inventories don't change

when there is overproduction of goods leading to output levels above GDP at equilibrium, this results in:

a piling up of unsold goods and a cutback in production rates

according to table 28.2, when real domestic output is at $470 billion, the tendency of employment, output and income is to be:

at equilibrium

an increase in lump-sum taxes will:

decrease equilibrium real GDP

the level of GDP at which the total quantity of goods produced equals the total quantity of goods purchased is the _____ level of output

equilibrium

a fundamental assumption behind the Keynesian aggregate expenditure model is that prices in the economy are:

fixed

when the U.S. _______, part of U.S. income must be subtracted from aggregate expenditures in order to avoid overstating the value of domestic production (investment) and domestic spending.

imports

an increase in government spending will shift the aggregate expenditure schedule upward, as well as _______ the equilibrium level of real GDP

increase

when GDP is ______ than its equilibrium level, businesses will raise the rate of production, leading to more employment and consequently raising the levels of consumption and income

less

a mixed economy is a(n) ______ economy that includes government spending and taxation

open

a private ___ economy is a private economy that includes international trade in its GDP

open

the amounts that business firms collectively intend to invest at each level of GDP is called their ______ investment

planned

aggregate expenditures and GDP will be increased beyond what they would be in a closed economy with the addition of:

positive net exports

which of the following is the most fundamental assumption behind the keynesian aggregate expenditure model?

prices in the economy are fixed

an economy that does not include government spending or international trade in their GDP is called a:

private closed economy

A(n) ______ is the amount by which aggregate expenditures at the full-employment GDP fall short of those required to achieve full-employment

recessionary gap

when potential output is $520B and the aggregate expenditures curve intersects the 45 degree line below $520B implying that equilibrium real GDP is less than potential output, then there is a(n):

recessionary gap and current employment is below full employment

when GDP is above equilibrium, firms will _______ the rate of production.

reduce

suppose country A and country B are trading partners. The imposition of tariffs by country A on goods from country B may not be a sound economic idea because it would likely lead to:

retaliation by country B

a withdrawal of spending from the economy's circular flow of income and expenditures is also called:

saving

in the income-expenditures circular flow, investment is a replacement for the leakage of

savings

if the economy is at equilibrium real GDP, then:

savings equals planned investment by businesses

when the leakages of savings are less than the injections of investment in the income-expenditure circular flow then:

there will be a below-equilibrium level of GDP


Conjuntos de estudio relacionados

Med surg study guide for quiz - wk 10

View Set

Algebra (SOLVING COMPOUND INEQUALITIES)

View Set

Plessy vs. Ferguson (US History)

View Set

Ch 6 Enzymes: The Catalysts of Life

View Set

13.3.8- Physical Security - Practice Questions

View Set