Question 1

A given income-expenditure diagram always assumes a variable price level.

Accepted Answer

A) True 
 B)False

Question 2

The expenditure schedule includes the consumption function.

Accepted Answer

A) True 
 B)False

Question 3

A higher price level leads to

Accepted Answer

A)   lower real wealth.
B)   higher level of debt.
C)   a higher consumption function.
D)   higher aggregate demand.E) B) and C)
F) A) and D)

Question 4

Figure 9-1

In Figure 9-1, at $7,000 billion real GDP,

Accepted Answer

A)   inventories are increasing.
B)   spending falls short of output.
C)   spending exceeds output.
D)   inventories are falling.E) A) and C)
F) A) and D)

Question 5

An expenditure schedule shows the relationship between GDP and total output.

Accepted Answer

A) True 
 B)False

Question 6

In a simplified circular flow model with no government, in equilibrium, S = I + (X − IM).

Accepted Answer

A) True 
 B)False

Question 7

A recessionary gap exists when the equilibrium level of GDP exceeds potential GDP.

Accepted Answer

A) True 
 B)False

Question 8

If total spending is less than the value of total output, firms

Accepted Answer

A)   may decide to cut prices.
B)   may increase production levels.
C)   will tend to raise prices.
D)   will notice inventories falling.E) A) and B)
F) A) and D)

Question 9

The amount by which equilibrium real GDP exceeds full-employment GDP is known as

Accepted Answer

A)   stagflation.
B)   employment.
C)   a recessionary gap.
D)   an inflationary gap.E) B) and C)
F) C) and D)

Question 10

The inflationary gap is the

Accepted Answer

A)   inflation rate that will occur from excess aggregate demand.
B)   budget deficit that caused the inflation to occur.
C)   distance between the equilibrium level of output and the full employment level of output.
D)   gap between expected and actual inflation.E) A) and B)
F) B) and C)

Question 11

Injections to the circular flow model include saving, taxes, exports, and investment.

Accepted Answer

A) True 
 B)False

Question 12

Because of a recession in Japan, net exports from the United States decrease by $10 billion. If the MPC is 0.75, how much less spending will occur in the U.S. economy in the second "round" of spending?

Accepted Answer

A)   $17.5 billion
B)   $10 billion
C)   $7.5 billion
D)   $5.0 billionE) None of the above
F) A) and D)

Question 13

The slope of the aggregate demand curve illustrates that as the price level rises,

Accepted Answer

A)   real GDP demanded decreases.
B)   real GDP demanded increases.
C)   the aggregate demand curve shifts rightward.
D)   the aggregate demand curve shifts leftward.E) None of the above
F) B) and C)

Question 14

When the price level falls,

Accepted Answer

A)   real income rises.
B)   real income falls.
C)   real GDP demanded increases.
D)   real GDP demanded decreases.E) B) and C)
F) C) and D)

Question 15

If the expenditure schedule must be shifted downward to reach potential GDP, then the economy is experiencing a(n)

Accepted Answer

A)   inflationary gap.
B)   precautionary gap.
C)   restrictive gap.
D)   expansionary gap.E) A) and D)
F) None of the above

Question 16

Figure 9-5

In Figure 9-5, if the second round effect of an increase in autonomous spending of $100,000 is $75,000, then the multiplier is

Accepted Answer

A)   400,000.
B)   6.
C)   4.
D)   4/5.E) C) and D)
F) B) and D)

Question 17

When GDP decreases, consumption spending increases.

Accepted Answer

A) True 
 B)False

Question 18

Suppose the economy operates at potential output, if the amount that businesses plan to invest is greater than the amount that consumers plan to save, then

Accepted Answer

A)   there will be an inflationary gap.
B)   there will be a recessionary gap.
C)   equilibrium GDP will be less than aggregate investment.
D)   the economy will experience inventory accumulation.E) B) and C)
F) C) and D)

Question 19

Suppose the economy is suffering in a recessionary period. Firms are facing increasing inventories and individual consumers are increasing their saving to prepare for hard times ahead. What is likely to happen to the economy and can it correct itself and grow toward full employment in the short run?

Accepted Answer

The Keynesian view of the economy would ...

Question 20

If the multiplier is 4 and real GDP increases by $520 billion, the increase in investment spending must have been

Accepted Answer

A)   $110 billion.
B)   $120 billion.
C)   $130 billion.
D)   $140 billion.E) A) and B)
F) A) and C)

Exam 25: Demand-Side Equilibrium: Unemployment or Inflation

When the price level falls,

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The inflationary gap is the

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A higher price level leads to

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Figure 9-1 In Figure 9-1, at $7,000 billion real GDP,

Correct AnswerverifiedShow Answer

Figure 9-5 In Figure 9-5, if the second round effect of an increase in autonomous spending of $100,000 is $75,000, then the multiplier is

Correct AnswerverifiedShow Answer

If the expenditure schedule must be shifted downward to reach potential GDP, then the economy is experiencing a(n)

Correct AnswerverifiedShow Answer

The expenditure schedule includes the consumption function.

Correct AnswerverifiedShow Answer

A given income-expenditure diagram always assumes a variable price level.

Correct AnswerverifiedShow Answer

When GDP decreases, consumption spending increases.

Correct AnswerverifiedShow Answer

If the multiplier is 4 and real GDP increases by $520 billion, the increase in investment spending must have been

Correct AnswerverifiedShow Answer

Because of a recession in Japan, net exports from the United States decrease by $10 billion. If the MPC is 0.75, how much less spending will occur in the U.S. economy in the second "round" of spending?

Correct AnswerverifiedShow Answer

The slope of the aggregate demand curve illustrates that as the price level rises,

Correct AnswerverifiedShow Answer

Injections to the circular flow model include saving, taxes, exports, and investment.

Correct AnswerverifiedShow Answer

The amount by which equilibrium real GDP exceeds full-employment GDP is known as

Correct AnswerverifiedShow Answer

In a simplified circular flow model with no government, in equilibrium, S = I + (X − IM).

Correct AnswerverifiedShow Answer

An expenditure schedule shows the relationship between GDP and total output.

Correct AnswerverifiedShow Answer

A recessionary gap exists when the equilibrium level of GDP exceeds potential GDP.

Correct AnswerverifiedShow Answer

Suppose the economy operates at potential output, if the amount that businesses plan to invest is greater than the amount that consumers plan to save, then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe Keynesian view of the economy would ...View AnswerShow Answer

If total spending is less than the value of total output, firms

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The Keynesian view of the economy would ...
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