chapter 11- QUESTIONS TO FOCUS ON

Which of the following statements is correct for a private closed economy? A. Saving equals planned investment only at the equilibrium level of GDP. B. All levels of GDP where planned investment exceeds saving will be too high for equilibrium. C. Planned and actual investment are identical at all possible levels of GDP. D. Saving equals actual investment only at the equilibrium level of GDP.

A. Saving equals planned investment only at the equilibrium level of GDP.

69. Actual investment equals saving A. at all levels of GDP. B. at all below-equilibrium levels of GDP. C. at all above-equilibrium levels of GDP. D. only at the equilibrium GDP.

A. at all levels of GDP.

If government increases its tax revenues by $15 billion and the MPC is 2/3, then we can expect the equilibrium GDP to A. decrease by $30 billion. B. decrease by $45 billion. C. decrease by $35 billion. D. decrease by $55 billion.

A. decrease by $30 billion

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 A. decrease by $50 billion. B. decrease by $150 billion. C. remain unchanged since spending on military goods is unproductive and usually wasteful. D. decrease by $25 billion.

A. decrease by $50 billion.

In an effort to stop the U.S. recession of 2007-2009, the federal government A. reduced taxes and increased government spending. B. imposed large tariffs on many imported goods to protect domestic jobs. C. raised interest rates to encourage greater business investment. D. avoided Keynesian policies because of the threat of inflation.

A. reduced taxes and increased government spending.

In which of the following situations for a mixed open economy will the level of GDP expand? A. when Ig + X + G exceeds Sa + M + T B. when Sa + T + M exceeds Ig + G + X C. when GDP exceeds Ca + Ig + G + Xn D. when Ig + M + T exceeds Ca + X + S

A. when Ig + X + G exceeds Sa + M + T

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 A. MPC in this economy is 0.4. B. MPS in this economy is 0.4. C. multiplier does not apply in this economy. D. multiplier is 3.

B. MPS in this economy is 0.4

In a mixed open economy, the equilibrium GDP is determined at that point where A. the 45-degree line and the saving schedule intersect. B. Sa + M + T = Ig + X + G. C. Sa + X + G = Ig + T. D. Sa + Ig + X = G + T.

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

At the equilibrium GDP for a private open economy, A. exports and imports will be equal B. net exports may be either positive or negative. C. imports will always exceed exports. D. exports will always exceed imports.

B. net exports may be either positive or negative.

(Advanced analysis) In a private closed economy, (a) the marginal propensity to save is 0.25, (b) consumption equals income at $120 billion, and (c) the level of investment is $40 billion. What is the equilibrium level of income? A. $262 billion B. $320 billion C. $280 billion D. $198 billion

C. $280 billion

Taxes represent A. an injection of purchasing power, like government spending. B. an injection of purchasing power, like investment. C. a leakage of purchasing power, like saving. D. a leakage of purchasing power, like government spending.

C. a leakage of purchasing power, like saving.

If the multiplier in an economy is 5, a $20 billion increase in net exports will A. decrease GDP by $100 billion B. reduce GDP by $4 billion. C. increase GDP by $100 billion. D. increase GDP by $20 billion.

C. increase GDP by $100 billion.

What do investment and government expenditures have in common? A. Both represent a decline in indebtedness. B. Both represent leakages from the circular flow. C. Neither is subject to the multiplier effect. D. Both represent injections to the circular flow.

D. Both represent injections to the circular flow.

Planned investment plus unintended increases in inventories equals A. unintended saving B. consumption. C. consumption minus saving. D. actual investment

D. actual investment

In the aggregate expenditures model, a reduction in taxes may A. reduce consumption. B. decrease real GDP. C. increase unemployment. D. increase saving.

D. increase saving.

(Last Word) Classical macroeconomics was dealt severe blows by A. the strong recovery after the Second World War and Alvin Hansen's stagnation thesis. B. the Second World War and the writings of Milton Friedman. C. Adam Smith and his idea of the invisible hand. D. the Great Depression and Keynes's macroeconomic theory.

D. the Great Depression and Keynes's macroeconomic theory.