Question 1

According to Keynesians, would the expense that is needed to repair a broken window stimulate an economy?

Accepted Answer

A)   yes, in all cases
B)   only if the economy has unemployment
C)   no, never
D)   not if there is any unemployment

Question 2

If the consumption function is C = 40 + .90 (disposable income) , what is the expenditure multiplier for the full potential expenditure multiplier effect?

Accepted Answer

A)   44.44
B)   10
C)   40
D)   1.11 B

Question 3

A country's real GDP level is $800 billion, and its full-employment real GDP level is $920 billion. If the MPC = 2/3 and the full potential expenditure multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Accepted Answer

A)   Government purchases are decreased by $20 billion.
B)   Government purchases are increased by $60 billion.
C)   Government purchases are increased by $120 billion.
D)   Government purchases are increased by $40 billion.

Question 4

Macroland's real GDP level is at an equilibrium of $700 billion, and its natural rate of real GDP is $880 billion. The marginal propensity to consume is 2/3. Government leaders decide to use fiscal policy to move the economy to full employment. How much would they choose to change government purchases? Explain how that amount is determined.

Accepted Answer

Real GDP needs to rise by $180 billion t...

Question 5

Classical economists believe that savings are:

Accepted Answer

A)   bad for an economy because the drop in consumer spending reduces total spending.
B)   bad for an economy because the drop in investments will be a drag on growth.
C)   good for an economy as a way to provide funds for investments.
D)   good for an economy as a way to increase consumer purchases.

Question 6

The MPC is .8. Real GDP is $600 billion. The natural rate of real GDP is $800 billion. Policymakers choose to follow the aggregate expenditures model to design a tax policy to move the economy to full employment. Taxes should be:

Accepted Answer

A)   decreased by $40 billion.
B)   decreased by $50 billion.
C)   increased by $40 billion.
D)   increased by $50 billion.

Question 7

According to the aggregate expenditures model, what is the main determinant of current consumption spending in an economy?

Accepted Answer

A)   current disposable income
B)   tax rates
C)   interest rates
D)   the money supply

Question 8

When expenditures exceed income, businesses experience:

Accepted Answer

A)   an increase in inventories.
B)   a drop in inventories.
C)   an increase in supply.
D)   a decrease in supply. B

Question 9

The paradox of thrift is the idea that an increase in savings can cause:

Accepted Answer

A)   an increase in GDP and income, which reduces the need for savings.
B)   a drop in GDP and income, which leads to a drop in savings.
C)   an increase in spending due to the interest earned on the savings.
D)   a decrease in spending, which causes interest rates to rise.

Question 10

(Figure: Aggregate Expenditure Model)  The figure shows the aggregate expenditure model. Equilibrium occurs where aggregate expenditure equals:

Accepted Answer

A)   consumption + investment + government spending
B)   government spending + investment
C)   real GDP (income) 
D)   real GDP (income)  - investment

Question 11

When an economy is in a recession, where is it producing in relation to its production possibilities frontier?

Accepted Answer

A)   on the curve near either axis
B)   on the curve near its midpoint
C)   outside the curve
D)   inside the curve

Question 12

According to Keynes, if there is unemployment, then an increase in aggregate demand will:

Accepted Answer

A)   decrease output and increase the price level.
B)   decrease the price level and increase output.
C)   increase output but not the price level.
D)   increase the price level but not output.

Question 13

An unemployment problem can be identified in the aggregate expenditures model when:

Accepted Answer

A)   equilibrium is to the left of the natural rate of output.
B)   output is at a point above the aggregate expenditures curve.
C)   output is at a point below the aggregate expenditures curve.
D)   equilibrium is to the right of the natural rate of output.

Question 14

The Keynesian perspective includes the view that:

Accepted Answer

A)   in the short run, we are all dead.
B)   supply determines output in an economy.
C)   wages and prices are flexible.
D)   changes in government purchases change total spending in an economy.

Question 15

An economy is at a real GDP level of $800 billion. Autonomous planned spending falls by $40 billion. If the MPC = .8, what will be the new real GDP level after the full potential multiplier effect occurs?

Accepted Answer

A)   $750 billion
B)   $600 billion
C)   $1,000 billion or $1 trillion
D)   $1,130 billion or $1.230 trillion

Question 16

_____ spending includes some autonomous spending and some spending that is dependent on income. _____ spending are solely autonomous.

Accepted Answer

A)   Government; All other types of
B)   Investment and consumer; Government spending and net export
C)   Consumer; All other types of
D)   Net export and investment; Consumer spending and government

Question 17

If the MPC = .8, what is the tax multiplier according to the aggregate expenditures model?

Accepted Answer

A)   -2
B)   -3
C)   -4
D)   -5

Question 18

Keynes believed that the main cause of swings in the business cycle is change in:

Accepted Answer

A)   aggregate expenditures.
B)   the money supply.
C)   short-run aggregate supply.
D)   interest rates.

Question 19

Econia's real GDP is $500 billion. Full-employment real GDP is $800 billion. The MPC = 2/3. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Accepted Answer

A)   Increase government purchases by $60 billion.
B)   Increase government purchases by $225 billion.
C)   Increase government purchases by $150 billion.
D)   Increase government purchases by $100 billion. D

Question 20

Aggregate expenditures is the:

Accepted Answer

A)   total market value of the final goods and services that are purchased in an economy at different possible interest rates.
B)   sum of all types of spending in an economy at different possible price levels.
C)   sum of value of all the goods and services that are produced in an economy at different possible money supply levels.
D)   total level of spending in an economy at different possible levels of GDP or income.

Exam 29: The Aggregate Expenditure Model

According to Keynesians, would the expense that is needed to repair a broken window stimulate an economy?

Correct Answer
verified

If the consumption function is C = 40 + .90 (disposable income) , what is the expenditure multiplier for the full potential expenditure multiplier effect?

Correct Answer
verified
B

A country's real GDP level is $800 billion, and its full-employment real GDP level is $920 billion. If the MPC = 2/3 and the full potential expenditure multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Correct Answer
verified

Correct Answer
verified
Real GDP needs to rise by $180 billion t...
View Answer

Classical economists believe that savings are:

Correct Answer
verified

The MPC is .8. Real GDP is $600 billion. The natural rate of real GDP is $800 billion. Policymakers choose to follow the aggregate expenditures model to design a tax policy to move the economy to full employment. Taxes should be:

Correct Answer
verified

According to the aggregate expenditures model, what is the main determinant of current consumption spending in an economy?

Correct Answer
verified

When expenditures exceed income, businesses experience:

Correct Answer
verified
B

The paradox of thrift is the idea that an increase in savings can cause:

Correct Answer
verified

(Figure: Aggregate Expenditure Model) The figure shows the aggregate expenditure model. Equilibrium occurs where aggregate expenditure equals:

Correct Answer
verified

When an economy is in a recession, where is it producing in relation to its production possibilities frontier?

Correct Answer
verified

According to Keynes, if there is unemployment, then an increase in aggregate demand will:

Correct Answer
verified

An unemployment problem can be identified in the aggregate expenditures model when:

Correct Answer
verified

The Keynesian perspective includes the view that:

Correct Answer
verified

An economy is at a real GDP level of $800 billion. Autonomous planned spending falls by $40 billion. If the MPC = .8, what will be the new real GDP level after the full potential multiplier effect occurs?

Correct Answer
verified

_ spending includes some autonomous spending and some spending that is dependent on income. _ spending are solely autonomous.

Correct Answer
verified

If the MPC = .8, what is the tax multiplier according to the aggregate expenditures model?

Correct Answer
verified

Keynes believed that the main cause of swings in the business cycle is change in:

Correct Answer
verified

Econia's real GDP is $500 billion. Full-employment real GDP is $800 billion. The MPC = 2/3. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Correct Answer
verified
D

Aggregate expenditures is the:

Correct Answer
verified

Exam 29: The Aggregate Expenditure Model

According to Keynesians, would the expense that is needed to repair a broken window stimulate an economy?

Correct AnswerverifiedShow Answer

If the consumption function is C = 40 + .90 (disposable income) , what is the expenditure multiplier for the full potential expenditure multiplier effect?

Correct AnswerverifiedB

A country's real GDP level is $800 billion, and its full-employment real GDP level is $920 billion. If the MPC = 2/3 and the full potential expenditure multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedReal GDP needs to rise by $180 billion t...View AnswerShow Answer

Classical economists believe that savings are:

Correct AnswerverifiedShow Answer

The MPC is .8. Real GDP is $600 billion. The natural rate of real GDP is $800 billion. Policymakers choose to follow the aggregate expenditures model to design a tax policy to move the economy to full employment. Taxes should be:

Correct AnswerverifiedShow Answer

According to the aggregate expenditures model, what is the main determinant of current consumption spending in an economy?

Correct AnswerverifiedShow Answer

When expenditures exceed income, businesses experience:

Correct AnswerverifiedB

The paradox of thrift is the idea that an increase in savings can cause:

Correct AnswerverifiedShow Answer

(Figure: Aggregate Expenditure Model) The figure shows the aggregate expenditure model. Equilibrium occurs where aggregate expenditure equals:

Correct AnswerverifiedShow Answer

When an economy is in a recession, where is it producing in relation to its production possibilities frontier?

Correct AnswerverifiedShow Answer

According to Keynes, if there is unemployment, then an increase in aggregate demand will:

Correct AnswerverifiedShow Answer

An unemployment problem can be identified in the aggregate expenditures model when:

Correct AnswerverifiedShow Answer

The Keynesian perspective includes the view that:

Correct AnswerverifiedShow Answer

An economy is at a real GDP level of $800 billion. Autonomous planned spending falls by $40 billion. If the MPC = .8, what will be the new real GDP level after the full potential multiplier effect occurs?

Correct AnswerverifiedShow Answer

_____ spending includes some autonomous spending and some spending that is dependent on income. _____ spending are solely autonomous.

Correct AnswerverifiedShow Answer

If the MPC = .8, what is the tax multiplier according to the aggregate expenditures model?

Correct AnswerverifiedShow Answer

Keynes believed that the main cause of swings in the business cycle is change in:

Correct AnswerverifiedShow Answer

Econia's real GDP is $500 billion. Full-employment real GDP is $800 billion. The MPC = 2/3. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Correct AnswerverifiedD

Aggregate expenditures is the:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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B

Correct Answer
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Correct Answer
verified
Real GDP needs to rise by $180 billion t...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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B

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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_ spending includes some autonomous spending and some spending that is dependent on income. _ spending are solely autonomous.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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