Econ Ch 11

In the aggregate expenditures model, an increase in government spending may A. increase output and employment. B. shift the aggregate expenditures schedule downward. C. reduce the size of the inflationary gap. D. decrease real GDP.

A. increase output and employment.

In the aggregate expenditures model, an increase in government spending may A. increase output and employment. shift the aggregate expenditures schedule downward. reduce the size of the inflationary gap. decrease real GDP.

A. increase output and employment.

The equilibrium level of GDP is associated with A. no unintended changes in inventories. B. an excess of planned investment over saving. C. an unintended decrease in business inventories. D. an unintended increase in business inventories.

A. no unintended changes in inventories.

The $787 billion stimulus package enacted by the Federal government in 2009 to try to deal with the Great Recession was intended to A. push the aggregate expenditures schedule upward. B. close an inflationary expenditures gap. C. bring inflation down. D. shift the aggregate expenditures schedule down.

A. push the aggregate expenditures schedule upward.

If the MPC in an economy is 0.75, a $1 billion increase in taxes will ultimately reduce consumption by A. $1 billion. B. $3 billion. C. $0.75 billion. D. $4 billion.

B. $3 billion.

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 A. net exports must be $300 billion. B. Ig + Xn must equal $300 billion. C. S + C must equal $300 billion. D. saving must be $300 billion.

B. Ig + Xn must equal $300 billion.

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

B. S a + M + T = I g + X + G.

Say's law in classical economics suggests that, over a period of time, A. aggregate spending would tend to deviate from total output and income. B. aggregate spending would tend to equal total output and income. C. aggregate spending would tend to exceed total output and income. D. aggregate spending would tend to fall short of total output and income.

B. aggregate spending would tend to equal total output and income.

If at some level of GDP the economy is experiencing an unintended decrease in inventories, A. the price level will fall. B. domestic output will increase. C. the aggregate level of saving will decline. D. the business sector will lay off workers.

B. domestic output will increase.

Other things equal, the multiplier effect associated with a change in government spending is A. greater than that associated with a change in investment. B. equal to that associated with a change in investment or consumption. C. less than that associated with a change in investment. D. the same as that associated with a change in taxes.

B. equal to that associated with a change in investment or consumption.

If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to A. decrease by $35 billion. B. increase by $45 billion. C. increase by $30 billion. D. increase by $50 billion.

B. increase by $45 billion.

Leakages from the income-expenditure stream are A. consumption, saving, and transfer payments. B. saving, taxes, and imports. C. saving, taxes, and investment. D. imports, taxes, and transfer payments.

B. saving, taxes, and imports.

At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy. Planned investment must be A. $138 billion. B. $180 billion. C. $38 billion. D. $126 billion.

C. $38 billion.

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

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

If unintended increases in business inventories occur, we can expect A. inflation. B. an offsetting increase in planned investment. C. a decline in GDP and rising unemployment. D. an increase in consumption.

C. a decline in GDP and rising unemployment.

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. aggregate expenditures exceed the full-employment level of GDP. D. saving exceeds investment at the full-employment GDP.

C. aggregate expenditures exceed the full-employment level of GDP.

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

C. at all levels of GDP.

Suppose the economy's multiplier is 2. Other things equal, a $25 billion decrease in government expenditures on national defense will A. cause equilibrium GDP to remain unchanged since spending on military goods is unproductive and usually wasteful. B. decrease by $150 billion. C. decrease by $50 billion. D. decrease by $25 billion.

C. decrease by $50 billion.

If an unintended increase in business inventories occurs at some level of GDP, then GDP A. is too low for equilibrium. B. entails a rate of aggregate expenditures in excess of the rate of aggregate production. C. is too high for equilibrium. D. may be either above or below the equilibrium output.

C. is too high for equilibrium.

In a private closed economy, when aggregate expenditures equal GDP, A. consumption equals aggregate expenditures. B. consumption equals investment. C. planned investment equals saving. D. disposable income equals consumption minus saving.

C. planned investment equals saving.

Suppose that a mixed open economy is producing at its equilibrium income and that net exports are zero. If at the equilibrium income the public sector's budget shows a surplus, A. a recessionary expenditure gap must exist. B. saving must exceed planned investment. C. planned investment must exceed saving. D. Ca + Ig + Xn + G must exceed GDP.

C. planned investment must exceed saving.

In a mixed closed economy, A. taxes and government purchases are leakages, while investment and saving are injections. B. taxes and investment are injections, while saving and government purchases are leakages. C. taxes and savings are leakages, while investment and government purchases are injections. D. government purchases and saving are injections, while investment and taxes are leakages.

C. taxes and savings are leakages, while investment and government purchases are injections.

A recessionary expenditure gap is A. the amount by which equilibrium GDP falls short of the full-employment GDP. B. the amount by which aggregate expenditures exceed the full-employment level of GDP. C. the amount by which the full-employment GDP exceeds the level of aggregate expenditures. D. the amount by which investment exceeds saving at the full-employment GDP.

C. the amount by which the full-employment GDP exceeds the level of aggregate expenditures.

If an unintended increase in business inventories occurs, A. aggregate expenditures must exceed the domestic output. B. we can expect aggregate production to be unaffected. C. we can expect businesses to lower the level of production. D. we can expect businesses to increase the level of production.

C. we can expect businesses to lower the level of production.

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

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

Assume the MPC is 0.8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by A. $90 billion. B. $50 billion. C. $100 billion. D. $40 billion.

D. $40 billion. 0.8*50

If the economy has a recessionary expenditure gap of $15 billion and the MPS is 0.3, then the equilibrium level of GDP is A. $50 billion above the full-employment level. B. $16 billion below the full-employment level. C. $21 billion below the full-employment level. D. $50 billion below the full-employment level.

D. $50 billion below the full-employment level.

f the MPC in an economy is 0.9, a $1 billion increase in government spending will ultimately increase consumption by A. $1 billion. B. $0.9 billion. C. $10 billion. D. $9 billion.

D. $9 billion.

In 2008 during the Great Recession, the federal government provided tax rebate checks to taxpayers in the hope that A. G would shift up. B. C would shift down. C. G would shift down. D. C would shift up.

D. C would shift up.

The level of aggregate expenditures in a mixed open economy consists of A. Ca + G. B. Ca + Ig + G + T + Xn. C. Ca + Ig + Xn. D. Ca + Ig + Xn + G.

D. Ca + Ig + Xn + G.

In a mixed open economy, if aggregate expenditures exceed GDP, A. Ca + Ig + Xn + G < domestic output. B. Ig > S. C. Ig + X + G = Ca. D. Ig + X + G > Sa + M + T.

D. Ig + X + G > Sa + M + T.

An upward shift of the aggregate expenditures schedule might be caused by A. an increase in imports, with no change in exports. B. a decrease in exports, with no change in imports. C. an increase in exports, with an equal decrease in investment spending. D. a decrease in imports, with no change in exports.

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

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

D. a leakage of purchasing power, like saving.

The amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as A. the multiplier. B. the average propensity to save. C. a recessionary expenditure gap. D. an inflationary expenditure gap.

D. an inflationary expenditure gap.

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 $45 billion. B. decrease by $55 billion. C. decrease by $35 billion. D. decrease by $30 billion.

D. decrease by $30 billion.

To close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0.8, it would be necessary to A. increase the aggregate expenditures schedule by $20 billion. B. decrease the aggregate expenditures schedule by $4 billion. C. increase the aggregate expenditures schedule by $4 billion. D. decrease the aggregate expenditures schedule by $20 billion.

D. decrease the aggregate expenditures schedule by $20 billion.

Other things equal, a serious recession in the economies of U.S. trading partners will A. have no perceptible impact on the U.S. economy. B. cause inflation in the U.S. economy. C. stimulate real output and employment in the U.S. economy. D. depress real output and employment in the U.S. economy.

D. depress real output and employment in the U.S. economy.

Injections into the income-expenditure stream include A. taxes and imports. B. taxes and transfer payments. C. transfer payments and imports. D. government purchases and exports.

D. government purchases and exports.

Other things equal, if $100 billion of government purchases ( G) is added to private spending ( C + Ig + Xn), GDP will A. increase by less than $100 billion. B. increase by $100 billion. C. fall by $100 billion. D. increase by more than $100 billion.

D. increase by more than $100 billion.

Assume that in a private closed economy, consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. Thus, A. saving is $10 billion. B. unplanned increases in inventories of $10 billion will occur. C. the MPC is 0.80. D. unplanned decreases in inventories of $10 billion will occur.

D. unplanned decreases in inventories of $10 billion will occur.

Exports are added to, and imports are subtracted from, aggregate expenditures in moving from a closed to an open economy. True False

True

When C + Ig = GDP in a private closed economy, S = Ig and there are no unplanned changes in inventories. True False

True

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 $4 billion. C. increase GDP by $20 billion. D. decrease GDP by $100 billion.

A. increase GDP by $100 billion.

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

A. Both represent injections to the circular flow.

In a mixed open economy, the equilibrium GDP exists where A. Ca + Ig + Xn + G = GDP. B. Ca + Ig = Sa + T + X. C. Ca + Ig + Xn = Sa + T. D. Ca + Ig + Xn intersects the 45-degree line.

A. Ca + Ig + Xn + G = GDP.

In the private closed economy, equilibrium GDP occurs where C + Ig = GDP. A. True B. False

A. True

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 A. U.S. real GDP will fall. B. inflation will occur domestically. C. U.S. real GDP will rise. D. unemployment will decrease domestically.

A. U.S. real GDP will fall.

If net exports are positive, A. aggregate expenditures are greater at each level of GDP than when net exports are zero or negative. B. the equilibrium GDP must be greater than the full-employment GDP. C. some other component of aggregate expenditures must be negative. D. imports must exceed exports.

A. aggregate expenditures are greater at each level of GDP than when net exports are zero or negative.

In a private closed economy, when aggregate expenditures exceed GDP, A. business inventories will fall. B. saving will decline. C. GDP will decline. D. business inventories will rise.

A. business inventories will fall.

If the dollar appreciates relative to foreign currencies, we would expect the A. country's net exports to fall. B. country's exports and imports to both fall. C. country's net exports to rise. D. multiplier to decrease.

A. country's net exports to fall.

If the United States wants to increase its net exports, it might take steps to A. depreciate the dollar compared to foreign currencies. B. reduce existing tariffs and import quotas. C. increase its GDP. D. appreciate the dollar compared to foreign currencies.

A. depreciate the dollar compared to foreign currencies.