Question 1

1 to AD2,the multiplier effect is likely to A) Create a second induced shift from AD2 to AD3. B) Create a second induced shift from AD2 to AD0. C) Have no effect on the AD curve. D) Create a second induced shift from AD2 back to AD1." class="answers-bank-image d-inline" rel="preload" > Refer to Figure 10.3.If autonomous investment spending drops by enough to shift the aggregate demand curve from AD1 to AD2,the multiplier effect is likely to

Accepted Answer

A)  Create a second induced shift from AD2 to AD3.
B)  Create a second induced shift from AD2 to AD0.
C)  Have no effect on the AD curve.
D)  Create a second induced shift from AD2 back to AD1.E) B) and C)
F) A) and C)

Question 2

The critical issue for macro stability is whether spending injections will actually equal spending leakages at full employment.
Otherwise there is too little or too much spending,which results in an inflationary or recessionary GDP gap.

Accepted Answer

A) True 
 B)False  True

Question 3

Keynes believed that the combination of unplanned and alternating AD shifts reinforced by multiplier effects causes recurring business cycles.
Any initial unplanned autonomous change is magnified by multiplier effects,creating larger swings in economic activity,which essentially are what the business cycle is all about.

Accepted Answer

A) True 
 B)False

Question 4

Desired investment equals

Accepted Answer

A)  Desired changes in business inventories.
B)  Purchases of new plants and equipment plus desired changes in business inventories.
C)  Desired investment plus undesired investment.
D)  Desired changes in business inventories less purchases of new plants and equipment.E) A) and C)
F) None of the above

Question 5

A recessionary GDP gap is the

Accepted Answer

A)  Horizontal distance between full-employment GDP and equilibrium GDP.
B)  Same as an inflationary gap.
C)  Difference between leakages and injections.
D)  Sum of leakages and injections.E) All of the above
F) A) and D)

Question 6

A decrease in sales expectations may shift the AD curve to the

Accepted Answer

A)  Left,causing more undesired investment.
B)  Left,causing less undesired investment.
C)  Right,causing more undesired investment.
D)  Right,causing less undesired investment.E) A) and B)
F) A) and C)

Question 7

Calculate the total change in aggregate demand because of an initial $300 decrease in investment spending,given that C = 150 + 0.50YD.

Accepted Answer

A)  $300 decrease.
B)  $150 decrease.
C)  $1,200 decrease.
D)  $600 decrease.E) A) and B)
F) A) and C) D

Question 8

0 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? A) $12 billion because there are no multiplier effects associated with a change in consumption. B) $600 billion. C) $24 billion. D) $60 billion." class="answers-bank-image d-inline" rel="preload" > 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?

Accepted Answer

A)  $12 billion because there are no multiplier effects associated with a change in consumption.
B)  $600 billion.
C)  $24 billion.
D)  $60 billion.E) None of the above
F) C) and D)

Question 9

The value of the multiplier will be larger,the

Accepted Answer

A)  Smaller the slope of the savings function.
B)  Smaller the APC.
C)  Larger the slope of the savings function.
D)  Smaller the APS.E) B) and C)
F) A) and B)

Question 10

If consumers spend 80 cents out of every extra dollar received,the multiplier is

Accepted Answer

A)  5.
B)  8.
C)  0.80.
D)  1.25.E) B) and D)
F) A) and B)

Question 11

Because the aggregate supply curve rises more steeply as the economy approaches full employment,

Accepted Answer

A)  Inflation tends to accelerate.
B)  The recessionary GDP gap becomes larger.
C)  Aggregate demand shifts to the left.
D)  It becomes easier to reach full employment.E) B) and D)
F) C) and D)

Question 12

What are leakages,and how do they affect the economy?

Accepted Answer

A leakage is income not spent directly o...

Question 13

Which of the following can eliminate a recessionary GDP gap,ceteris paribus?

Accepted Answer

A)  An increase in consumption expenditure.
B)  A decrease in investment.
C)  An increase in saving.
D)  A decrease in government spending.E) All of the above
F) B) and C)

Question 14

When an economy is operating at "full employment," as economists usually define the term,

Accepted Answer

A)  Everyone who wants a job has a job.
B)  Inflation is a significant problem.
C)  The unemployment rate is 4-6 percent.
D)  The unemployment rate is 0 percent.E) B) and D)
F) A) and C)

Question 15

Inventory depletion is a warning sign of

Accepted Answer

A)  Inflation.
B)  Deflation.
C)  A drop in AS.
D)  A drop in AD.To replenish inventories,firms will increase production and hire more,putting upward pressure on costs that later shows up as a higher price level,or inflation.E) A) and D)
F) A) and C)

Question 16

In a purely private economy,the difference between actual investment and desired investment measures the undesired change in inventory.
If actual investment exceeds desired investment,inventory levels are increasing to undesirable levels; and when actual investment is less than desired investment,inventory levels are decreasing to undesirable levels.

Accepted Answer

A) True 
 B)False

Question 17

A leakage is

Accepted Answer

A)  An export from the economy.
B)  A decline in the capacity of the economy to produce goods.
C)  A diversion of income from spending on domestic output.
D)  A decrease in aggregate supply.E) A) and C)
F) A) and B)

Question 18

Classical economists assume that

Accepted Answer

A)  Spending leakages exceed spending injections.
B)  Interest rate adjustment will cause business investment to equal consumer saving.
C)  The economy might experience persistent macro instability.
D)  No leakages would occur.E) A) and D)
F) None of the above

Question 19

Leakages include

Accepted Answer

A)  Business saving.
B)  Exports.
C)  Government spending.
D)  Inventories.E) A) and D)
F) None of the above

Question 20

Disposable income is less than GDP due to

Accepted Answer

A)  Taxes by governments along with exports.
B)  Income held by businesses.
C)  Taxes by governments and income held back as saving by businesses.
D)  Taxes by governments along with imports.E) B) and D)
F) B) and C) C

Exam 10: Self-Adjustment or Instability

Refer to Figure 10.3.If autonomous investment spending drops by enough to shift the aggregate demand curve from AD₁ to AD₂,the multiplier effect is likely to

Correct Answer
verified

The critical issue for macro stability is whether spending injections will actually equal spending leakages at full employment. Otherwise there is too little or too much spending,which results in an inflationary or recessionary GDP gap.

Correct Answer
verified
True

Correct Answer
verified

Desired investment equals

Correct Answer
verified

A recessionary GDP gap is the

Correct Answer
verified

A decrease in sales expectations may shift the AD curve to the

Correct Answer
verified

Calculate the total change in aggregate demand because of an initial $300 decrease in investment spending,given that C = 150 + 0.50Y_D.

Correct Answer
verified
D

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?

Correct Answer
verified

The value of the multiplier will be larger,the

Correct Answer
verified

If consumers spend 80 cents out of every extra dollar received,the multiplier is

Correct Answer
verified

Because the aggregate supply curve rises more steeply as the economy approaches full employment,

Correct Answer
verified

What are leakages,and how do they affect the economy?

Correct Answer
verified
A leakage is income not spent directly o...
View Answer

Which of the following can eliminate a recessionary GDP gap,ceteris paribus?

Correct Answer
verified

When an economy is operating at "full employment," as economists usually define the term,

Correct Answer
verified

Inventory depletion is a warning sign of

Correct Answer
verified

Correct Answer
verified

A leakage is

Correct Answer
verified

Classical economists assume that

Correct Answer
verified

Leakages include

Correct Answer
verified

Disposable income is less than GDP due to

Correct Answer
verified
C

Exam 10: Self-Adjustment or Instability

Refer to Figure 10.3.If autonomous investment spending drops by enough to shift the aggregate demand curve from AD1 to AD2,the multiplier effect is likely to

Correct AnswerverifiedShow Answer

The critical issue for macro stability is whether spending injections will actually equal spending leakages at full employment. Otherwise there is too little or too much spending,which results in an inflationary or recessionary GDP gap.

Correct AnswerverifiedTrue

Correct AnswerverifiedShow Answer

Desired investment equals

Correct AnswerverifiedShow Answer

A recessionary GDP gap is the

Correct AnswerverifiedShow Answer

A decrease in sales expectations may shift the AD curve to the

Correct AnswerverifiedShow Answer

Calculate the total change in aggregate demand because of an initial $300 decrease in investment spending,given that C = 150 + 0.50YD.

Correct AnswerverifiedD

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?

Correct AnswerverifiedShow Answer

The value of the multiplier will be larger,the

Correct AnswerverifiedShow Answer

If consumers spend 80 cents out of every extra dollar received,the multiplier is

Correct AnswerverifiedShow Answer

Because the aggregate supply curve rises more steeply as the economy approaches full employment,

Correct AnswerverifiedShow Answer

What are leakages,and how do they affect the economy?

Correct AnswerverifiedA leakage is income not spent directly o...View AnswerShow Answer

Which of the following can eliminate a recessionary GDP gap,ceteris paribus?

Correct AnswerverifiedShow Answer

When an economy is operating at "full employment," as economists usually define the term,

Correct AnswerverifiedShow Answer

Inventory depletion is a warning sign of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A leakage is

Correct AnswerverifiedShow Answer

Classical economists assume that

Correct AnswerverifiedShow Answer

Leakages include

Correct AnswerverifiedShow Answer

Disposable income is less than GDP due to

Correct AnswerverifiedC

Refer to Figure 10.3.If autonomous investment spending drops by enough to shift the aggregate demand curve from AD₁ to AD₂,the multiplier effect is likely to

Correct Answer
verified

Correct Answer
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True

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Calculate the total change in aggregate demand because of an initial $300 decrease in investment spending,given that C = 150 + 0.50Y_D.

Correct Answer
verified
D

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?

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified
A leakage is income not spent directly o...
View Answer

Correct Answer
verified

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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Correct Answer
verified
C