Question 1

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5.Aggregate expenditures must have increased by

Accepted Answer

A)  $100 billion.
B)  $50 billion.
C)  $500 billion.
D)  $5 billion.E) A) and C)
F) B) and C)

Question 2

In a mixed open economy, changes in which of the following all affect the equilibrium GDP in the same direction?

Accepted Answer

A)  Ca, I g, Sa, and M
B)  Sa, T, and M
C)  Ig, T, and Ca
D)  Sa, I g, and XE) B) and D)
F) A) and B)

Question 3

Injections into the income-expenditure stream include

Accepted Answer

A)  transfer payments and imports.
B)  government purchases and exports.
C)  taxes and imports.
D)  taxes and transfer payments.E) C) and D)
F) All of the above

Question 4

Exports are added to, and imports are subtracted from, aggregate expenditures in moving from a closed to an open economy.

Accepted Answer

A) True 
 B)False

Question 5

Saving is always equal to

Accepted Answer

A)  planned investment less unintended increases in inventories.
B)  actual investment.
C)  planned investment.
D)  unintended changes in inventories.E) A) and B)
F) A) and C)

Question 6

Which of the following statements is incorrect?

Accepted Answer

A)  Given the economy's MPS, a $15 billion reduction in government spending will reduce the equilibrium GDP by more than would a $15 billion increase in taxes.
B)  Other things unchanged, a tax reduction of $10 billion will increase the equilibrium GDP by $25 billion when the MPS is 0.4.
C)  If the MPC is 0.8 and GDP has declined by $40 billion, this was caused by a decline in aggregate expenditures of $8 billion.
D)  A government surplus is anti-inflationary; a government deficit is expansionary.E) A) and C)
F) B) and D)

Question 7

A recessionary expenditure gap is the amount by which aggregate expenditures must increase in order to reach the full-employment level of GDP.

Accepted Answer

A) True 
 B)False

Question 8

Other things equal, a serious recession in the economies of U.S.trading partners will

Accepted Answer

A)  have no perceptible impact on the U.S.economy.
B)  cause inflation in the U.S.economy.
C)  depress real output and employment in the U.S.economy.
D)  stimulate real output and employment in the U.S.economy.E) None of the above
F) All of the above

Question 9

A lump-sum tax causes the after-tax consumption schedule to be flatter than the before-tax consumption schedule.

Accepted Answer

A) True 
 B)False

Question 10

John Maynard Keynes developed the aggregate expenditures model in order to understand the

Accepted Answer

A)  Second World War.
B)  Great Depression.
C)  oil crises of the 1970s and 1980s.
D)  Great Recession of 2007-2009.E) A) and C)
F) A) and B)

Question 11

From the perspective of classical macroeconomic theory, an excess of aggregate spending would

Accepted Answer

A)  increase aggregate output and the level of employment in the economy.
B)  decrease the rate of interest and lower the level of investment.
C)  increase consumption, and thus move the economy toward the full-employment level of output.
D)  increase prices, wages, and interest rates, and thus reduce aggregate spending to equal the full-employment level of output.E) B) and D)
F) B) and C)

Question 12

(Advanced analysis)  The given equations describe consumption and investment (in billions of dollars)  for a private closed economy.C = 60 + 0.6Y I = I0 = 30 In equilibrium, the level of consumption spending will be

Accepted Answer

A)  170.
B)  270.
C)  160.
D)  195.E) A) and D)
F) C) and D)

Question 13

In an aggregate expenditures diagram, a lump-sum tax (T)  will

Accepted Answer

A)  not affect the C + Ig + Xn line.
B)  shift the C + Ig + Xn line upward by an amount equal to T.
C)  shift the C + I g + Xn line downward by an amount equal to T.
D)  shift the C + Ig + Xn line downward by an amount equal to T × MPC.E) All of the above
F) C) and D)

Question 14

In a private closed economy, when aggregate expenditures exceed GDP,

Accepted Answer

A)  GDP will decline.
B)  business inventories will rise.
C)  saving will decline.
D)  business inventories will fall.E) All of the above
F) B) and D)

Question 15

In a mixed open economy, the equilibrium GDP exists where

Accepted Answer

A)  Ca + I g + Xn intersects the 45-degree line.
B)  Ca + I g = Sa + T + X.
C)  Ca + Ig + Xn + G = GDP.
D)  Ca + I g + Xn = Sa + T.E) A) and C)
F) A) and B)

Question 16

Assuming that MPC is 0.75, equal increases in government spending and tax collections by $10 billion will

Accepted Answer

A)  leave the equilibrium GDP unchanged.
B)  increase the equilibrium GDP by $10 billion.
C)  increase the equilibrium GDP by $2.5 billion.
D)  reduce the equilibrium GDP by $10 billion.E) A) and B)
F) A) and C)

Question 17

John Maynard Keynes developed the ideas underlying the aggregate expenditures model

Accepted Answer

A)  in the 1960s.
B)  in the 1980s.
C)  as a reinforcement of Say's Law.
D)  as a critique of classical economics.E) B) and D)
F) B) and C)

Question 18

In the aggregate expenditures model of a private closed economy, aggregate expenditures (C + Ig) is always equal to output GDP.

Accepted Answer

A) True 
 B)False

Question 19

The recessionary expenditure gap is the amount by which the equilibrium GDP and the full-employment GDP differ.

Accepted Answer

A) True 
 B)False

Question 20

If a lump-sum tax of $40 billion is imposed and the MPC is 0.6, the saving schedule will shift

Accepted Answer

A)  downward by $24 billion.
B)  upward by $24 billion.
C)  downward by $16 billion.
D)  upward by $16 billion.E) A) and D)
F) A) and B)

Exam 31: The Aggregate Expenditures Model

From the perspective of classical macroeconomic theory, an excess of aggregate spending would

Correct AnswerverifiedShow Answer

In a mixed open economy, changes in which of the following all affect the equilibrium GDP in the same direction?

Correct AnswerverifiedShow Answer

Injections into the income-expenditure stream include

Correct AnswerverifiedShow Answer

John Maynard Keynes developed the ideas underlying the aggregate expenditures model

Correct AnswerverifiedShow Answer

A recessionary expenditure gap is the amount by which aggregate expenditures must increase in order to reach the full-employment level of GDP.

Correct AnswerverifiedShow Answer

A lump-sum tax causes the after-tax consumption schedule to be flatter than the before-tax consumption schedule.

Correct AnswerverifiedShow Answer

Exports are added to, and imports are subtracted from, aggregate expenditures in moving from a closed to an open economy.

Correct AnswerverifiedShow Answer

In an aggregate expenditures diagram, a lump-sum tax (T) will

Correct AnswerverifiedShow Answer

John Maynard Keynes developed the aggregate expenditures model in order to understand the

Correct AnswerverifiedShow Answer

In a mixed open economy, the equilibrium GDP exists where

Correct AnswerverifiedShow Answer

The recessionary expenditure gap is the amount by which the equilibrium GDP and the full-employment GDP differ.

Correct AnswerverifiedShow Answer

Other things equal, a serious recession in the economies of U.S.trading partners will

Correct AnswerverifiedShow Answer

If a lump-sum tax of $40 billion is imposed and the MPC is 0.6, the saving schedule will shift

Correct AnswerverifiedShow Answer

In a private closed economy, when aggregate expenditures exceed GDP,

Correct AnswerverifiedShow Answer

(Advanced analysis) The given equations describe consumption and investment (in billions of dollars) for a private closed economy.C = 60 + 0.6Y I = I0 = 30 In equilibrium, the level of consumption spending will be

Correct AnswerverifiedShow Answer

In the aggregate expenditures model of a private closed economy, aggregate expenditures (C + Ig) is always equal to output GDP.

Correct AnswerverifiedShow Answer

Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

Saving is always equal to

Correct AnswerverifiedShow Answer

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5.Aggregate expenditures must have increased by

Correct AnswerverifiedShow Answer

Assuming that MPC is 0.75, equal increases in government spending and tax collections by $10 billion will

Correct AnswerverifiedShow Answer

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