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Exam 10: Self-Adjustment or Instability

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Question 51

Multiple Choice

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According to the Keynesian view of the macro economy,which of the following is always true at equilibrium?

A) Aggregate supply equals aggregate demand.
B) The economy is at full employment.
C) The price level is stable.
D) The price level is too low.

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Question 52

Multiple Choice

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In Figure 10.1,which of the following could cause a shift from AD₀ to AD₁,ceteris paribus?

A) An increase in consumer confidence.
B) A decrease in interest rates.
C) A decrease in government spending on the education.
D) An increase in exports.

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Question 53

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Undesired inventory depletion results in demand-pull inflation.

A basic conclusion of Keynesian analysis is that

Injections include

To illustrate the ultimate impact of the multiplier process when investment spending falls,we should

When unwanted inventories pile up in retail stores,retail managers will take actions that lead to greater

Given C = 200 + 0.75Y_D,the multiplier is

Suppose lower interest rates suddenly lead to an injection of $325 additional investment spending into the economy and the marginal propensity to consume is 0.80. Table 10.1 $\begin{array}{c}\begin{array}{|l|}\hline\\ \text {Spending Cycles}\\\hline \text {First-cycle}\\\text {spending}\\\hline \text {Second-cycle}\\\text {spending}\\\hline \text {Third-cycle}\\\text {spending}\\\hline \end{array}\begin{array}{c|}\hline \text {Change in this Cycle's Spending}\\\text { and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad \$ 325 \\\hline\\\\\hline\\\\\hline\end{array}\begin{array}{c|}\hline \text {Cumulative Increase in Spending}\\ \text {and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad \$325\\\hline\\\\\hline\\\\\hline\end{array}\end{array}$ In Table 10.1,what is the change in the third cycle of spending resulting from the higher initial investment?

In the short run,if AD increases,the unemployment rate will

If an increase in investment causes an increase in real output beyond the full-employment level,the result will be

Assuming an upward-sloping AS curve,if an economy is at full employment and consumption spending decreases while all other levels of spending remaining constant,then

If investment spending decreases and all other levels of spending remain constant,then aggregate

If the MPC = 0.90,the total change in spending resulting from an initial $200 increase in aggregate spending will be

Suppose the MPC in the economy in Figure 10.2 equals 0.5 and the shift from AD₀ to AD₁ was caused by a decrease in consumption of $12 billion.What will the total decrease in aggregate demand be (for example,AD₀ to AD₂) as a result of the initial $12 billion decrease?

Suppose lower expectations lead to a decrease of $240 in desired investment in the economy and the marginal propensity to consume is 0.75. Table 10.2 $\begin{array}{c}\begin{array}{|l|}\hline\\ \text {Spending Cycles}\\\hline \text {First-cycle}\\\text {spending}\\\hline \text {Second-cycle}\\\text {spending}\\\hline \text {Third-cycle}\\\text {spending}\\\hline \end{array}\begin{array}{c|}\hline \text {Change in this Cycle's Spending}\\\text { and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad -\$ 240 \\\hline\\\\\hline\\\\\hline\end{array}\begin{array}{c|}\hline \text {Cumulative Decrease in }\\ \text {Spending and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad -\$240\\\hline\\\\\hline\\\\\hline\end{array}\end{array}$ In Table 10.2,what is the cumulative decrease in expenditure by the end of the second cycle?

If leakages are less than injections,equilibrium output will be

Suppose lower expectations lead to a decrease of $240 in desired investment in the economy and the marginal propensity to consume is 0.75. Table 10.2 $\begin{array}{c}\begin{array}{|l|}\hline\\ \text {Spending Cycles}\\\hline \text {First-cycle}\\\text {spending}\\\hline \text {Second-cycle}\\\text {spending}\\\hline \text {Third-cycle}\\\text {spending}\\\hline \end{array}\begin{array}{c|}\hline \text {Change in this Cycle's Spending}\\\text { and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad -\$ 240 \\\hline\\\\\hline\\\\\hline\end{array}\begin{array}{c|}\hline \text {Cumulative Decrease in }\\ \text {Spending and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad -\$240\\\hline\\\\\hline\\\\\hline\end{array}\end{array}$ In Table 10.2,what will be the total decrease in aggregate demand resulting from the initial $240 decrease in investment expenditure after an infinite number of cycles?

If actual investment exceeds desired investment,then

When the economy is at equilibrium,