Question 1

Taxes represent:

Accepted Answer

A)  a leakage of purchasing power, like saving.
B)  an injection of purchasing power, like investment.
C)  an injection of purchasing power, like government spending.
D)  a leakage of purchasing power, like government spending.E) C) and D)
F) B) and C)

Question 2

If a lump-sum income tax of $25 billion is levied and the MPS is 0.20, the:

Accepted Answer

A)  saving schedule will shift upward by $5 billion.
B)  consumption schedule will shift downward by $25 billion.
C)  consumption schedule will shift downward by $20 billion.
D)  consumption schedule will shift upward by $25 billion.E) B) and C)
F) All of the above

Question 3

Refer to the diagram given below. g is gross investment, X is exports, G is government purchases, S and Sa are saving before and after taxes, respectively.M is imports, and T is net taxes, which is taxes less transfers.The effect of the public budget is to: A) lower the equilibrium level of GDP from Y4 to Y2. B) raise the equilibrium level of GDP from Y2 to Y4. C) lower the equilibrium level of GDP from Y4 to Y3. D) raise the equilibrium level of GDP from Y2 to Y3." class="answers-bank-image d-inline" rel="preload" > In the above diagram Ig is gross investment, X is exports, G is government purchases, S and Sa are saving before and after taxes, respectively.M is imports, and T is net taxes, which is taxes less transfers.The effect of the public budget is to:

Accepted Answer

A)  lower the equilibrium level of GDP from Y4 to Y2.
B)  raise the equilibrium level of GDP from Y2 to Y4.
C)  lower the equilibrium level of GDP from Y4 to Y3.
D)  raise the equilibrium level of GDP from Y2 to Y3.E) A) and D)
F) A) and C)

Question 4

The basic assumption of the Keynesian aggregate expenditures model is that prices are fixed.This assumption is based on the observation that prices did not change sufficiently during:

Accepted Answer

A)  the Great Depression.
B)  the financial crisis of 2008-2009.
C)  World War I.
D)  World War II.E) None of the above
F) A) and C)

Question 5

If the economy is in equilibrium at the $400 billion level of GDP and the full-employment level of GDP is $500 billion:

Accepted Answer

A)  real and nominal GDP will both increase.
B)  economy does not reach full-employment unless aggregate expenditures increases.
C)  real GDP will increase, but nominal GDP will decrease.
D)  the price level will increase.E) A) and C)
F) A) and B)

Question 6

The economy will expand when:

Accepted Answer

A)  actual GDP is less than potential GDP.
B)  planned investment exceeds saving.
C)  saving exceeds planned investment.
D)  unplanned investment occurs.E) C) and D)
F) A) and C)

Question 7

Refer to the above diagram.The level of government spending:

Accepted Answer

A)  is equal to tax collections at each level of GDP.
B)  is the same at all levels of GDP.
C)  varies inversely with the level of GDP.
D)  varies directly with the level of GDP.E) A) and B)
F) All of the above

Question 8

Actual investment may be defined as:

Accepted Answer

A)  gross investment less replacement investment.
B)  the ratio of planned to unplanned investment.
C)  unintended less planned investment.
D)  planned plus unplanned investment.E) A) and D)
F) B) and D)

Question 9

Refer to the above information.When the real interest rate is 10 percent, unplanned changes in inventories are equal to:

Accepted Answer

A)  $40
B)  -$30.
C)  $20
D)  -$60.E) None of the above
F) C) and D)

Question 10

The following schedule contains data for a private closed economy.All figures are in billions.Assume that gross investment is $10 billion.  Refer to the above data.If a lump-sum tax of $20 is imposed, the consumption schedule will become:

Accepted Answer

A)  Column A
B)  Column B
C)  Column C
D)  Column DE) A) and B)
F) A) and C)

Question 11

If the MPC is.9, a $20 billion increase in a lump-sum tax will reduce GDP by $200 billion.

Accepted Answer

A) True 
 B)False

Question 12

In an aggregate expenditures diagram equal increases in government spending and in lump-sum taxes will:

Accepted Answer

A)  shift the aggregate expenditures line downward.
B)  shift the aggregate expenditures line upward.
C)  not affect the aggregate expenditures line.
D)  reduce the equilibrium GDP.E) C) and D)
F) None of the above

Question 13

The Sa + M + T schedule has a negative slope.

Accepted Answer

A) True 
 B)False

Question 14

If an unplanned increase in business inventories occurs:

Accepted Answer

A)  we can expect aggregate production to be unaffected.
B)  we can expect businesses to increase the level of production.
C)  we can expect businesses to lower the level of production.
D)  aggregate expenditures must exceed the domestic output.E) A) and D)
F) A) and C)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Refer to the above diagram for a private closed economy.The equilibrium level of GDP in this economy:

Accepted Answer

A)  is $60 billion.
B)  is $180 billion.
C)  is between $60 and $180 billion.
D)  cannot be determined from the information given.E) A) and C)
F) None of the above

Question 17

In reality, if a nation imposes tariffs, then the final result will be that net exports and GDP will decrease.

Accepted Answer

A) True 
 B)False

Question 18

Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion.If the MPC is 0.6, what change in aggregate expenditures is needed to achieve full employment?

Accepted Answer

A)  a decrease of $24 billion
B)  an increase of $24 billion
C)  a decrease of $16 billion
D)  an increase of $16 billionE) C) and D)
F) A) and B)

Question 19

An upward shift of the aggregate expenditures schedule might be caused by:

Accepted Answer

A)  a decrease in exports, with no change in imports.
B)  a decrease in imports, with no change in exports.
C)  an increase in exports, with an equal decrease in investment spending.
D)  an increase in imports, with no change in exports.E) A) and B)
F) None of the above

Question 20

g cuts the 45-degree line. B) GDP is $180 billion. C) GDP is $60 billion. D) GDP is also zero." class="answers-bank-image d-inline" rel="preload" > Refer to the above diagram for a private closed economy.Aggregate saving in this economy will be zero when:

Accepted Answer

A)  C + Ig cuts the 45-degree line.
B)  GDP is $180 billion.
C)  GDP is $60 billion.
D)  GDP is also zero.E) All of the above
F) B) and C)

Exam 11: B: The Aggregate Expenditures Model

In reality, if a nation imposes tariffs, then the final result will be that net exports and GDP will decrease.

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Taxes represent:

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If the MPC is.9, a $20 billion increase in a lump-sum tax will reduce GDP by $200 billion.

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

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Refer to the above diagram.The level of government spending:

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The following schedule contains data for a private closed economy.All figures are in billions.Assume that gross investment is $10 billion. Refer to the above data.If a lump-sum tax of $20 is imposed, the consumption schedule will become:

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If an unplanned increase in business inventories occurs:

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Refer to the diagram given below. In the above diagram Ig is gross investment, X is exports, G is government purchases, S and Sa are saving before and after taxes, respectively.M is imports, and T is net taxes, which is taxes less transfers.The effect of the public budget is to:

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If the economy is in equilibrium at the $400 billion level of GDP and the full-employment level of GDP is $500 billion:

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Refer to the above diagram for a private closed economy.Aggregate saving in this economy will be zero when:

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The economy will expand when:

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Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion.If the MPC is 0.6, what change in aggregate expenditures is needed to achieve full employment?

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If a lump-sum income tax of $25 billion is levied and the MPS is 0.20, the:

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The Sa + M + T schedule has a negative slope.

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In an aggregate expenditures diagram equal increases in government spending and in lump-sum taxes will:

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An upward shift of the aggregate expenditures schedule might be caused by:

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Refer to the above diagram for a private closed economy.The equilibrium level of GDP in this economy:

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The basic assumption of the Keynesian aggregate expenditures model is that prices are fixed.This assumption is based on the observation that prices did not change sufficiently during:

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Refer to the above information.When the real interest rate is 10 percent, unplanned changes in inventories are equal to:

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Actual investment may be defined as:

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Refer to the diagram given below. In the above diagram I_g is gross investment, X is exports, G is government purchases, S and S_a are saving before and after taxes, respectively.M is imports, and T is net taxes, which is taxes less transfers.The effect of the public budget is to:

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The S_a + M + T schedule has a negative slope.

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