Question 1

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

Accepted Answer

A)  $100 billion.
B)  $90 billion.
C)  $40 billion.
D)  $50 billion.E) B) and C)
F) B) and D)

Question 2

In a mixed closed economy,

Accepted Answer

A)  government purchases and saving are injections, while investment and taxes are leakages.
B)  taxes and government purchases are leakages, while investment and saving are injections.
C)  taxes and savings are leakages, while investment and government purchases are injections.
D)  taxes and investment are injections, while saving and government purchases are leakages.E) B) and C)
F) A) and B)

Question 3

The U.S.recession of 2007-2009 provides a good example of

Accepted Answer

A)  demand-pull inflation.
B)  cost-push inflation.
C)  a recessionary expenditure gap.
D)  the repercussions of hyperinflation.E) C) and D)
F) None of the above

Question 4

In the aggregate expenditures model, which of the following variables is assumed to be independent of real GDP?

Accepted Answer

A)  profit
B)  saving
C)  investment
D)  consumptionE) C) and D)
F) A) and C) C

Question 5

If a $10 billion decrease in lump-sum taxes increases equilibrium GDP by $40 billion, then

Accepted Answer

A)  the multiplier is 4.
B)  the MPC for this economy is 0.8.
C)  the MPC for this economy is 0.6.
D)  the multiplier is 3.E) B) and C)
F) A) and D)

Question 6

The aggregate expenditures model is built upon which of the following assumptions?

Accepted Answer

A)  Prices are fixed.
B)  The economy is at full employment.
C)  Prices are fully flexible.D) A) and C)
E) A) and B)

Question 7

When a private closed economy is at equilibrium, then (GDP − C) is equal to planned investment.

Accepted Answer

A) True 
 B)False

Question 8

In a private closed economy, there will be an unplanned increase in inventories when

Accepted Answer

A)  aggregate expenditures exceed GDP.
B)  aggregate expenditures exceed (C + Ig) .
C)  (C + Ig)  exceeds aggregate expenditures.
D)  GDP exceeds aggregate expenditures.E) B) and C)
F) A) and B)

Question 9

For a private closed economy, an unintended decline in inventories suggests that

Accepted Answer

A)  aggregate expenditures are less than the business sector expected them to be.
B)  aggregate expenditures exceed production.
C)  actual investment exceeds saving.
D)  planned investment is greater than consumption.E) All of the above
F) None of the above

Question 10

The amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as

Accepted Answer

A)  a recessionary expenditure gap.
B)  an inflationary expenditure gap.
C)  the multiplier.
D)  the average propensity to save.E) None of the above
F) B) and C)

Question 11

If the MPC is 0.9, a $20 billion increase in a lump-sum tax will reduce GDP by $200 billion.

Accepted Answer

A) True 
 B)False  False

Question 12

One of the most important views expressed by classical macroeconomists was that

Accepted Answer

A)  wages and prices are inflexible.
B)  wages and prices are always rising.
C)  demand creates its own supply.
D)  supply creates its own demanD.E) A) and B)
F) A) and C)

Question 13

In the Great Recession of 2007-2009, the aggregate expenditures schedule in the U.S.economy dropped, mostly due to a fall in

Accepted Answer

A)  consumption spending.
B)  investment expenditures.
C)  government spending.
D)  net exports.E) All of the above
F) B) and D)

Question 14

Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model?

Accepted Answer

A)  the saving schedule
B)  the investment schedule
C)  the consumption schedule
D)  the investment demand curveE) B) and D)
F) C) and D)

Question 15

If the MPC is 0.50 and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap is

Accepted Answer

A)  $40 billion.
B)  $20 billion.
C)  $60 billion.
D)  $80 billion.E) B) and C)
F) None of the above

Question 16

C = 26 + 0.75Y I g = 60 X = 24
M = 10
(Advanced analysis)  The equations give information for a private open economy.The letters Y, C, I g, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively.Figures are in billions of dollars.The multiplier for the economy is

Accepted Answer

A)  4.6.
B)  3.33.
C)  5.0.
D)  4.0.E) C) and D)
F) None of the above

Question 17

Ca = 25 + 0.75 (Y - T)  Ig = 50 Xn = 10
G = 70
T = 30
(Advanced analysis)  The accompanying equations are for a mixed open economy.The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes, respectively.Figures are in billions of dollars.The multiplier for this economy is

Accepted Answer

A)  4.
B)  3.
C)  2.
D)  2.33.E) A) and D)
F) All of the above

Question 18

An increase in taxes will have a greater effect on the equilibrium GDP

Accepted Answer

A)  if the tax revenues are redistributed through transfer payments.
B)  the larger the MPS.
C)  the smaller the MPC.
D)  the larger the MPC.E) C) and D)
F) B) and D) D

Question 19

When planned investment exceeds saving in a private closed economy,

Accepted Answer

A)  aggregate expenditures will equal GDP.
B)  aggregate expenditures will exceed GDP.
C)  aggregate expenditures will be less than GDP.
D)  consumption plus investment will equal GDP.E) A) and B)
F) None of the above

Question 20

A lump-sum tax causes the after-tax consumption schedule

Accepted Answer

A)  and the before-tax consumption schedule to coincide.
B)  to be steeper than the before-tax consumption schedule.
C)  to be flatter than the before-tax consumption schedule.
D)  to be parallel to the before-tax consumption schedule.E) A) and C)
F) C) and D)

Exam 31: The Aggregate Expenditures Model

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

Correct Answer
verified

In a mixed closed economy,

Correct Answer
verified

The U.S.recession of 2007-2009 provides a good example of

Correct Answer
verified

In the aggregate expenditures model, which of the following variables is assumed to be independent of real GDP?

Correct Answer
verified
C

If a $10 billion decrease in lump-sum taxes increases equilibrium GDP by $40 billion, then

Correct Answer
verified

The aggregate expenditures model is built upon which of the following assumptions?

Correct Answer
verified

When a private closed economy is at equilibrium, then (GDP − C) is equal to planned investment.

Correct Answer
verified

In a private closed economy, there will be an unplanned increase in inventories when

Correct Answer
verified

For a private closed economy, an unintended decline in inventories suggests that

Correct Answer
verified

The amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as

Correct Answer
verified

If the MPC is 0.9, a $20 billion increase in a lump-sum tax will reduce GDP by $200 billion.

Correct Answer
verified
False

One of the most important views expressed by classical macroeconomists was that

Correct Answer
verified

In the Great Recession of 2007-2009, the aggregate expenditures schedule in the U.S.economy dropped, mostly due to a fall in

Correct Answer
verified

Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model?

Correct Answer
verified

If the MPC is 0.50 and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap is

Correct Answer
verified

C = 26 + 0.75Y I g = 60 X = 24 M = 10 (Advanced analysis) The equations give information for a private open economy.The letters Y, C, I g, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively.Figures are in billions of dollars.The multiplier for the economy is

Correct Answer
verified

Correct Answer
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An increase in taxes will have a greater effect on the equilibrium GDP

Correct Answer
verified
D

When planned investment exceeds saving in a private closed economy,

Correct Answer
verified

A lump-sum tax causes the after-tax consumption schedule

Correct Answer
verified

Exam 31: The Aggregate Expenditures Model

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

Correct AnswerverifiedShow Answer

In a mixed closed economy,

Correct AnswerverifiedShow Answer

The U.S.recession of 2007-2009 provides a good example of

Correct AnswerverifiedShow Answer

In the aggregate expenditures model, which of the following variables is assumed to be independent of real GDP?

Correct AnswerverifiedC

If a $10 billion decrease in lump-sum taxes increases equilibrium GDP by $40 billion, then

Correct AnswerverifiedShow Answer

The aggregate expenditures model is built upon which of the following assumptions?

Correct AnswerverifiedShow Answer

When a private closed economy is at equilibrium, then (GDP − C) is equal to planned investment.

Correct AnswerverifiedShow Answer

In a private closed economy, there will be an unplanned increase in inventories when

Correct AnswerverifiedShow Answer

For a private closed economy, an unintended decline in inventories suggests that

Correct AnswerverifiedShow Answer

The amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as

Correct AnswerverifiedShow Answer

If the MPC is 0.9, a $20 billion increase in a lump-sum tax will reduce GDP by $200 billion.

Correct AnswerverifiedFalse

One of the most important views expressed by classical macroeconomists was that

Correct AnswerverifiedShow Answer

In the Great Recession of 2007-2009, the aggregate expenditures schedule in the U.S.economy dropped, mostly due to a fall in

Correct AnswerverifiedShow Answer

Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model?

Correct AnswerverifiedShow Answer

If the MPC is 0.50 and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap is

Correct AnswerverifiedShow Answer

C = 26 + 0.75Y I g = 60 X = 24 M = 10 (Advanced analysis) The equations give information for a private open economy.The letters Y, C, I g, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively.Figures are in billions of dollars.The multiplier for the economy is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in taxes will have a greater effect on the equilibrium GDP

Correct AnswerverifiedD

When planned investment exceeds saving in a private closed economy,

Correct AnswerverifiedShow Answer

A lump-sum tax causes the after-tax consumption schedule

Correct AnswerverifiedShow Answer

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C

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False

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D

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