Question 1

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.

Question 2

In a private closed economy (a)  the marginal propensity to save is 0.25, (b)  consumption equals income when consumption is $120 billion, and (c)  the level of investment is $40 billion.What is the equilibrium level of income?

Accepted Answer

A)  $280 billion
B)  $320 billion
C)  $262 billion
D)  $198 billion

Question 3

The open economy multiplier is:

Accepted Answer

A)  larger than the simple multiplier because the latter embodies fewer leakages.
B)  larger than the simple multiplier because the latter embodies more leakages.
C)  smaller than the simple multiplier because the latter embodies fewer leakages.
D)  smaller than the simple multiplier because the latter embodies more leakages.

Question 4

The table shows a private, open economy.All figures are in billions of dollars.  Refer to the above table.If net exports increased by $10 billion at each level of GDP, the equilibrium real GDP would be:

Accepted Answer

A)  $550
B)  $600
C)  $650
D)  $700

Question 5

Which of the following is a correct statement of the impacts of a lump-sum tax?

Accepted Answer

A)  Disposable income will increase by the amount of the tax and consumption at each level of GDP will decline by the amount of the tax multiplied by the MPC.
B)  Disposable income will decline by the amount of the tax and consumption at each level of GDP will decline by the amount of the tax multiplied by the multiplier.
C)  Disposable income will decline by the amount of the tax and consumption at each level of GDP will also decline by the amount of the tax.
D)  Disposable income will decline by the amount of the tax and consumption at each level of GDP will decline by the amount of the tax multiplied by the MPC.

Question 6

Refer to the diagram below.The equilibrium condition for a private closed economy is Ig = S.

Accepted Answer

A) True 
 B)False

Question 7

Refer to the above diagram.The equilibrium condition for a private open economy is S + M = Ig + X.

Accepted Answer

A) True 
 B)False

Question 8

Equal increases in government expenditures and tax collections will leave the equilibrium GDP unchanged.

Accepted Answer

A) True 
 B)False

Question 9

Refer to the above information.In this economy a 3 percentage point decrease in the interest rate will:

Accepted Answer

A)  increase equilibrium GDP by $200.
B)  increase equilibrium GDP by $100.
C)  increase equilibrium GDP by $50.
D)  decrease equilibrium GDP by $50.

Question 10

Refer to the above diagram for a private closed economy.At the $200 level of GDP:

Accepted Answer

A)  consumption is $200 and planned investment is $50 so that aggregate expenditures are $250.
B)  consumption is $200 and planned investment is $100 so that aggregate expenditures are $300.
C)  consumption is $250 and actual investment is $50 so that aggregate expenditures are $300.
D)  aggregate expenditures is equal to the GDP.

Question 11

If the MPC is.50, all taxes are lump-sum taxes, and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap:

Accepted Answer

A)  is $40 billion.
B)  is $20 billion.
C)  is $60 billion.
D)  cannot be determined from the information given.

Question 12

The equilibrium level of GDP is associated with:

Accepted Answer

A)  an excess of planned investment over saving.
B)  no unintended investment in inventories.
C)  an unintended decrease in business inventories.
D)  an unintended increase in business inventories.

Question 13

If net exports decrease from zero to some negative amount, the aggregate expenditures schedule would:

Accepted Answer

A)  shift upward.
B)  shift downward.
C)  not move (net exports do not affect aggregate expenditures) .
D)  shift upward or downward, depending on whether the negative net exports resulted from a decline in exports or an increase in imports.

Question 14

If government increases lump-sum taxes by $20 billion and the economy's MPC is .6, then the:

Accepted Answer

A)  consumption schedule will shift upward by $12 billion.
B)  consumption schedule will shift downward by $12 billion.
C)  equilibrium GDP will increase by $40 billion.
D)  equilibrium GDP will decrease by $12 billion.

Question 15

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.

Question 16

In a private closed economy, where aggregate expenditures exceed domestic output:

Accepted Answer

A)  domestic output will decline to the break-even level.
B)  business inventories will rise.
C)  saving exceeds planned investment.
D)  planned investment exceeds saving.

Question 17

The relationship between investment and GDP is shown by the:

Accepted Answer

A)  consumption of fixed capital schedule.
B)  saving schedule.
C)  investment schedule.
D)  consumption schedule.

Question 18

The equilibrium level of GDP always coincides with the full-employment GDP.

Accepted Answer

A) True 
 B)False

Question 19

In the aggregate expenditures model, equilibrium GDP in a private closed economy is indicated by:

Accepted Answer

A)  the equality of saving and planned investment.
B)  the intersection of aggregate expenditures and the 45-degree line.
C)  the absence of unplanned changes in inventories.
D)  all of the above.

Question 20

If APC = .6 and MPC = .7, the immediate impact of an increase in personal taxes of $20 will be to:

Accepted Answer

A)  have no effect on consumption.
B)  decrease consumption by $14.
C)  decrease consumption by $12.
D)  increase consumption by $14.

Exam 11: Part B: The Aggregate Expenditures Model

Refer to the diagram below.The equilibrium condition for a private closed economy is Ig = S.

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In the aggregate expenditures model, equilibrium GDP in a private closed economy is indicated by:

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Refer to the above information.In this economy a 3 percentage point decrease in the interest rate will:

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

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The open economy multiplier is:

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

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In a private closed economy (a) the marginal propensity to save is 0.25, (b) consumption equals income when consumption is $120 billion, and (c) the level of investment is $40 billion.What is the equilibrium level of income?

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Refer to the above diagram for a private closed economy.At the $200 level of GDP:

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If the MPC is.50, all taxes are lump-sum taxes, and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap:

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In a private closed economy, where aggregate expenditures exceed domestic output:

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If government increases lump-sum taxes by $20 billion and the economy's MPC is .6, then the:

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The equilibrium level of GDP is associated with:

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If net exports decrease from zero to some negative amount, the aggregate expenditures schedule would:

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The table shows a private, open economy.All figures are in billions of dollars. Refer to the above table.If net exports increased by $10 billion at each level of GDP, the equilibrium real GDP would be:

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The relationship between investment and GDP is shown by the:

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Which of the following is a correct statement of the impacts of a lump-sum tax?

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If APC = .6 and MPC = .7, the immediate impact of an increase in personal taxes of $20 will be to:

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The equilibrium level of GDP always coincides with the full-employment GDP.

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Equal increases in government expenditures and tax collections will leave the equilibrium GDP unchanged.

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Refer to the above diagram.The equilibrium condition for a private open economy is S + M = Ig + X.

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Refer to the diagram below.The equilibrium condition for a private closed economy is I_g = S.

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Refer to the above diagram.The equilibrium condition for a private open economy is S + M = I_g + X.

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