Chapter 11 Review Questions

If the multiplier in an economy is 5, a $20 billion increase in net exports will: a. increase GDP by $100 billion b. reduce GDP by $20 billion c. decrease GDP by $100 billion d. increase GDP by $20 billion

a. increase GDP by $100 billion

At a $400 level of GDP, a. GDP will increase as aggregate expenditure is greater than GDP b. GDP will increase as GDP is greater than aggregate expenditure c. savings are greater than investment d. GDP will decrease since savings are greater than investment

a. GDP will increase as aggregate expenditure is greater than GDP

In Figure 2, a change in aggregate expenditures from C + I + Net X (2) to C + I + Net X (1) might be caused by a. an appreciation of the nation's currency relative to the currencies of its trading partners b. a depreciation of the nation's currency relative to the currencies of its trading partners c. a decrease in this nation's price level relative to price levels of its trading partners d. a rightward shift of the nation's 45 degree line

a. an appreciation of the nation's currency relative to the currencies of its trading partners

Suppose the economy's multiplier is 2. Other things being equal, a $25 billion decrease in government expenditures on national defense will cause equilibrium GDP to: a. decrease by $50 billion b. decrease by $150 billion c. remain unchanged d. decrease by $25 billion

a. decrease by $50 billion

Suppose the government finds it can increase the equilibrium real GDP by $45 billion by increasing government purchases by $18 billion. On the basis of this information, we can conclude that: a. the MPS in this economy is 0.4 b. the MPC in this economy is 0.4 c. the multiplier is 3 d. the multiplier is 4

a. the MPS in this economy is 0.4

In Table 1, if the above economy was closed to international trade, the equilibrium GDP and the multiplier would be: a. $300 and 4 b. $350 and 4 c. $400 and 4 d. $350 and 5

b. $350 and 4

In Table 2, equilibrium real GDP is a. $40 b. $70 c. $100 d. $130

b. $70

An upward shift of the aggregate expenditures schedule might be caused by a. a decrease in exports, with no change in imports b. a decrease in imports, with no change in exports c. an increase in exports, with even a larger increase in imports d. an increase in imports, with no change in exports

b. a decrease in imports, with no change in exports

In Table 1, if the above economy was open to international trade, the equilibrium GDP and the multiplier would be: a. $300 and 2.5 b. $450 and 5 c. $400 and 4 d. $400 and 5

c. $400 and 4

In Figure 1, the equilibrium level of GDP is a. $200 b. $300 c. $400 d. $500

d. $500

In Figure 1, at the equilibrium level of GDP a. savings equals $100 b. investment equals $200 c. savings equals $0 d. consumption equals $300

a. savings equals $100

In Figure 2, if C + I are the private expenditures in the closed economy, and net exports are Net X (2) in the open economy, then a. exports are negative b. net exports are positive c. net exports are negative d. imports are greater than exports

b. net exports are positive

If an unintended increase in business inventories occurs at some level of GDP, a. then aggregate expenditures in excess of GDP b. then aggregate expenditures are less than GDP c. then GDP is too low for equilibrium d. then GDP is expected to rise

b. then aggregate expenditures are less than GDP

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than a $1 decline in taxes because a. government spending is more labor intensive and creates more jobs b. government spending encourages people to dis-save c. a portion of the tax cut will be saved d. None of the above

c. a portion of the tax cut will be saved

In Table 2, if the full employment real GDP is $100, the: a. inflationary expenditure gap is $30 b. inflationary expenditure gap is $10 c. recessionary expenditure gap is $20 d. recessionary expenditure gap is $10

c. recessionary expenditure gap is $20

In Figure 3, if the full employment level of GDP is B, and aggregate expenditures are at AE (3), the: a. inflationary expenditure gap is BC b. recessionary expenditure gap is BC c. recessionary expenditure gap is ed d. inflationary expenditure gap is ed

c. recessionary expenditure gap is ed

In Figure 2, if net exports are Net X (2), the GDP in the open economy will exceed GDP in the closed economy by: a. AB b. AD c. FG d. BD

d. BD

An inflationary expenditure gap is the amount by which: a. equilibrium GDP falls short of the full employment GDP b. aggregate expenditures exceed any given level of GDP c. savings exceeds investment at the full employment GDP d. aggregate expenditures exceed those necessary to achieve the full employment level of GDP

d. aggregate expenditures exceed those necessary to achieve the full employment level of GDP

In Table 2, a decrease in government purchases of $5 would a. increase real GDP by $5 b. increase real GDP by $10 c. decrease real GDP by $5 d. decrease real GDP by $15

d. decrease real GDP by $15

In Figure 3, if the full employment level of GDP is B, and aggregate expenditures are at AE (1), the: a. inflationary expenditure gap is BC b. recessionary expenditure gap is BC c. inflationary expenditure gap is zero d. inflationary expenditure gap is ei

d. inflationary expenditure gap is ei

When aggregate expenditures exceed GDP a. GDP will decline b. unintended business inventories will rise c. saving will decline d. unintended business inventories will fall

d. unintended business inventories will fall