Question 1

If an unintended increase in business inventories occurs at some level of GDP,then GDP:

Accepted Answer

A)   entails a rate of aggregate expenditures in excess of the rate of aggregate production.
B)   may be either above or below the equilibrium output.
C)   is too low for equilibrium.
D)   is too high for equilibrium.E) B) and D)
F) B) and C)

Question 2

In a mixed open economy,the equilibrium GDP exists where:

Accepted Answer

A)   Ca + Ig + Xn intersects the 45-degree line.
B)   Ca + Ig = Sa + T + X.
C)   Ca + Ig + Xn + G = GDP.
D)   Ca + Ig + Xn = Sa + T.E) A) and B)
F) B) and C)

Question 3

The following schedule contains data for a private closed economy.All figures are in billions.Use these data in answering the question.   GDP ‾C‾$140$150180180220210260240300270\begin{array}{l}\underline{	ext { GDP }}& \underline{C} \\$140&\$150\180 & 180 \220 & 210 \260 & 240\300 &270 \\end{array} GDP ​$140180220260300​C​$150180210240270​  Refer to the data.If a lump-sum tax of $20 is imposed,the consumption schedule will become:

Accepted Answer

A)    GDP ‾C‾$140$150180180220210260240300270\begin{array}{l}\underline{	ext { GDP }}& \underline{C} \\$140&\$150\180 & 180 \220 & 210 \260 & 240\300 &270 \\end{array} GDP ​$140180220260300​C​$150180210240270​ 
B)    GDP ‾C‾$140$155180185220215260245300275\begin{array}{l}\underline{	ext { GDP }}& \underline{C} \\$140&\$155\180 & 185 \220 & 215 \260 & 245\300 &275 \\end{array} GDP ​$140180220260300​C​$155185215245275​ 
C)    GDP ‾C‾$140$135180165220195260255300255\begin{array}{l}\underline{	ext { GDP }}& \underline{C} \\$140&\$135\180 & 165 \220 &195 \260 & 255\300 &255 \\end{array} GDP ​$140180220260300​C​$135165195255255​ 
D)    GDP ‾C‾$140$130180160220190260220300250\begin{array}{l}\underline{	ext { GDP }}& \underline{C} \\$140&\$130\180 & 160 \220 & 190 \260 & 220\300 &250 \\end{array} GDP ​$140180220260300​C​$130160190220250​E) A) and D)
F) All of the above

Question 4

Which of the following statements concerning the equilibrium level of GDP is incorrect?

Accepted Answer

A)   There will be no tendency for businesses to alter the aggregate rate of production.
B)   Full employment will necessarily be realized.
C)   No unintended changes in inventories will occur.
D)   Leakages equal injections.E) A) and B)
F) None of the above

Question 5

If a lump-sum income tax of $25 billion is levied and the MPS is .20,the:

Accepted Answer

A)   saving schedule will shift upward by $5 billion.
B)   consumption schedule will shift downward by $25 billion.
C)   consumption schedule will shift downward by $20 billion.
D)   consumption schedule will shift upward by $25 billion.E) A) and B)
F) None of the above

Question 6

What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?

Accepted Answer

A)   A decline in the rate of interest.
B)   An unintended accumulation of inventories by businesses.
C)   A rise in the real GDP.
D)   The federal budget will automatically move toward a deficit.E) B) and D)
F) All of the above

Question 7

All else equal,a large decline in the real interest rate will shift the:

Accepted Answer

A)   investment demand curve leftward.
B)   investment demand curve rightward.
C)   investment schedule upward.
D)   investment schedule downward.E) B) and C)
F) A) and B)

Question 8

A private closed economy will expand when:

Accepted Answer

A)   actual GDP is less than potential GDP.
B)   unplanned decreases in inventories occur.
C)   aggregate expenditures are less than GDP.
D)   unplanned increases in inventories occur.E) A) and B)
F) B) and D)

Question 9

In the aggregate expenditures model,it is assumed that investment:

Accepted Answer

A)   automatically changes in response to changes in real GDP.
B)   changes by less in percentage terms than changes in real GDP.
C)   does not respond to changes in interest rates.
D)   does not change when real GDP changes.E) None of the above
F) A) and B)

Question 10

In the aggregate expenditures model,a reduction in taxes may:

Accepted Answer

A)   increase saving.
B)   decrease real GDP.
C)   increase unemployment.
D)   reduce consumption.E) None of the above
F) A) and B)

Question 11

Taxes represent:

Accepted Answer

A)   a leakage of purchasing power,like saving.
B)   an injection of purchasing power,like investment.
C)   an injection of purchasing power,like government spending.
D)   a leakage of purchasing power,like government spending.E) A) and D)
F) A) and B)

Question 12

A recessionary expenditure gap is:

Accepted Answer

A)   the amount by which the full-employment GDP exceeds the level of aggregate expenditures.
B)   the amount by which equilibrium GDP falls short of the full-employment GDP.
C)   the amount by which investment exceeds saving at the full-employment GDP.
D)   the amount by which aggregate expenditures exceed the full-employment level of GDP.E) All of the above
F) B) and C)

Question 13

Classical macroeconomics was dealt severe blows by:

Accepted Answer

A)   the Great Depression and Keynes's macroeconomic theory.
B)   the Second World War and the writings of Milton Friedman.
C)   Adam Smith and his idea of the invisible hand.
D)   the strong recovery after the Second World War and Alvin Hansen's stagnation thesis.E) A) and D)
F) All of the above

Question 14

An exchange rate:

Accepted Answer

A)   is the ratio of the dollar volume of a nation's exports to the dollar volume of its imports.
B)   measures the interest rate ratios of any two nations.
C)   is the amount that one nation must export to obtain $1 worth of imports.
D)   is the price that the currencies of any two nations exchange for one another.E) B) and C)
F) C) and D)

Question 15

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:

Accepted Answer

A)   MPS in this economy is .4.
B)   MPC in this economy is .4.
C)   multiplier does not apply in this economy.
D)   multiplier is 3.E) All of the above
F) B) and C)

Question 16

Complete the following table and answer the question on the basis of the resulting data.All figures are in billions of dollars.   Domestic  Output  (GDP = DI)  ‾ Aggregate  Expenditures,  Closed Economy ‾ Exports ‾ Imports ‾ Net  Exports ‾ Aggregate  Expenditures,  Open Economy ‾$200$230$30$20$−$−2502703020−−3003103020−−3503503020−−4003903020−−4504303020−−5004703020−−\begin{array}{cccccc}\begin{array}{c}	ext { Domestic } \	ext { Output } \\underline{	ext { (GDP = DI)  }}\end{array} & \begin{array}{c}	ext { Aggregate } \	ext { Expenditures, } \\underline{	ext { Closed Economy }}\end{array} & \begin{array}{c}\\\underline{	ext { Exports }}\end{array} & \begin{array}{c}\\\underline{	ext { Imports }}\end{array} & \begin{array}{c}\	ext { Net } \\underline{	ext { Exports }}\end{array} & \begin{array}{c}	ext { Aggregate } \	ext { Expenditures, } \\underline{	ext { Open Economy }}\end{array} \ \$ 200 & \$ 230 & \$ 30 & \$ 20 & \$- & \$- \250 & 270 & 30 & 20 & -&- \300 & 310 & 30 & 20 & - & - \350 & 350 & 30 & 20 & - & - \400 & 390 & 30 & 20 & - & - \450 & 430 & 30 & 20 & - & - \500 & 470 & 30 & 20 & - & -\end{array} Domestic  Output  (GDP = DI)  ​​$200250300350400450500​ Aggregate  Expenditures,  Closed Economy ​​$230270310350390430470​ Exports ​​$30303030303030​ Imports ​​$20202020202020​ Net  Exports ​​$−−−−−−−​ Aggregate  Expenditures,  Open Economy ​​$−−−−−−−​  If the economy was closed to international trade,the equilibrium GDP and the multiplier would be:

Accepted Answer

A)   $300 and 5.
B)   $350 and 4.
C)   $400 and 4.
D)   $350 and 5. E) A) and B)
F) A) and C)

Question 17

Imports have the same effect on the current size of GDP as:

Accepted Answer

A)   exports.
B)   investment.
C)   consumption.
D)   saving.E) B) and D)
F) B) and C)

Question 18

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:

Accepted Answer

A)   saving must be $300 billion.
B)   net exports must be $300 billion.
C)   S + C must equal $300 billion.
D)   Ig + Xn must equal $300 billion.E) A) and B)
F) All of the above

Question 19

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is .5.Aggregate expenditures must have increased by:

Accepted Answer

A)   $100 billion.
B)   $50 billion.
C)   $500 billion.
D)   $5 billion.E) B) and D)
F) B) and C)

Question 20

(Advanced analysis) Answer the question on the basis of the following information for a private closed economy.  S=−20+0.4YIg=25−3i\begin{array} { l } S = - 20 + 0.4 Y \I _ { g } = 25 - 3 i\end{array}S=−20+0.4YIg​=25−3i​  where S is saving,Ig is gross investment,i is the real interest rate,and Y is GDP. Refer to the information.In equilibrium,the level of saving will be:

Accepted Answer

A)   $10.
B)   $15.
C)   $20.
D)   $30. E) A) and B)
F) None of the above

Exam 30: The Aggregate Expenditures Model

Correct Answer
verified

All else equal,a large decline in the real interest rate will shift the:

Correct Answer
verified

In the aggregate expenditures model,it is assumed that investment:

Correct Answer
verified

If a lump-sum income tax of $25 billion is levied and the MPS is .20,the:

Correct Answer
verified

What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?

Correct Answer
verified

If an unintended increase in business inventories occurs at some level of GDP,then GDP:

Correct Answer
verified

A private closed economy will expand when:

Correct Answer
verified

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:

Correct Answer
verified

Classical macroeconomics was dealt severe blows by:

Correct Answer
verified

In the aggregate expenditures model,a reduction in taxes may:

Correct Answer
verified

Correct Answer
verified

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is .5.Aggregate expenditures must have increased by:

Correct Answer
verified

Imports have the same effect on the current size of GDP as:

Correct Answer
verified

In a mixed open economy,the equilibrium GDP exists where:

Correct Answer
verified

A recessionary expenditure gap is:

Correct Answer
verified

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:

Correct Answer
verified

Correct Answer
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An exchange rate:

Correct Answer
verified

Which of the following statements concerning the equilibrium level of GDP is incorrect?

Correct Answer
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Taxes represent:

Correct Answer
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Exam 30: The Aggregate Expenditures Model

Correct AnswerverifiedShow Answer

All else equal,a large decline in the real interest rate will shift the:

Correct AnswerverifiedShow Answer

In the aggregate expenditures model,it is assumed that investment:

Correct AnswerverifiedShow Answer

If a lump-sum income tax of $25 billion is levied and the MPS is .20,the:

Correct AnswerverifiedShow Answer

What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?

Correct AnswerverifiedShow Answer

If an unintended increase in business inventories occurs at some level of GDP,then GDP:

Correct AnswerverifiedShow Answer

A private closed economy will expand when:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Classical macroeconomics was dealt severe blows by:

Correct AnswerverifiedShow Answer

In the aggregate expenditures model,a reduction in taxes may:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is .5.Aggregate expenditures must have increased by:

Correct AnswerverifiedShow Answer

Imports have the same effect on the current size of GDP as:

Correct AnswerverifiedShow Answer

In a mixed open economy,the equilibrium GDP exists where:

Correct AnswerverifiedShow Answer

A recessionary expenditure gap is:

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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:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An exchange rate:

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Which of the following statements concerning the equilibrium level of GDP is incorrect?

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Taxes represent:

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