ECON201 - Test 3

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41 terms · Holley Chapters 10, 11, 12, 13

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?
-Bank panic of 1907
-Great Depression
-Spectacular economic growth during World War II
-Economic expansion of the 1920s

-Great Depression

In the aggregate expenditures model, it is assumed that investment:
-automatically changes in response to changes in real GDP.
-changes by less in percentage terms than changes in real GDP.
-does not respond to changes in interest rates.
-does not change when real GDP changes.

-does not change when real GDP changes.

The level of aggregate expenditures in the private closed economy is determined by the:
-expenditures of consumers and businesses.
-intersection of the saving schedule and the 45-degree line.
-equality of the MPC and MPS.
-intersection of the saving and consumption schedules.

-expenditures of consumers and businesses.

In a private closed economy, when aggregate expenditures exceed GDP:
-GDP will decline.
-business inventories will rise.
-saving will decline.
-business inventories will fall.

-business inventories will fall.

If aggregate expenditures exceed GDP in a private closed economy:
-leakages will exceed injections.
-planned investment will exceed saving.
-unplanned investment in inventories will occur.
-saving will exceed planned investment.

-planned investment will exceed saving.

Actual investment is $62 billion at an equilibrium output level of $620 billion in a private closed economy. The average propensity to save at this level of output is:
-0.10.
-10.0.
-0.62.
-0.84.

-0.10.

Which of the following statements is correct for a private closed economy?
-Saving equals planned investment only at the equilibrium level of GDP.
-All levels of GDP where planned investment exceeds saving will be too high for equilibrium.
-Planned and actual investment are identical at all possible levels of GDP.
-Saving equals actual investment only at the equilibrium level of GDP.

-Saving equals planned investment only at the equilibrium level of GDP.

At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy. Planned investment must be:
-$138 billion.
-$126 billion.
-$38 billion.
-$180 billion.

-$38 billion.

In a private closed economy (a) the marginal propensity to save is 0.25, (b) consumption equals income at $120 billion, and (c) the level of investment is $40 billion. What is the equilibrium level of income?
-$280 billion
-$320 billion
-$262 billion
-$198 billion

-$280 billion

Imports have the same effect on the current size of GDP as:
-exports.
-investment.
-consumption.
-saving.

-saving.

At the equilibrium GDP for a private open economy:
-net exports may be either positive or negative.
-imports will always exceed exports.
-exports will always exceed imports.
-exports and imports will be equal.

-net exports may be either positive or negative.

Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP, then:
-unemployment will decrease domestically.
-U.S. real GDP will fall.
-inflation will occur domestically.
-U.S. real GDP will rise.

-U.S. real GDP will fall.

An upward shift of the aggregate expenditures schedule might be caused by:
-a decrease in exports, with no change in imports.
-a decrease in imports, with no change in exports.
-an increase in exports, with an equal decrease in investment spending.
-an increase in imports, with no change in exports.

-a decrease in imports, with no change in exports.

In a mixed open economy the equilibrium GDP exists where:
-Ca + Ig + Xn intersects the 45-degree line.
-Ca + Ig = Sa + T + X.
-Ca + Ig + Xn + G = GDP.
-Ca + Ig + Xn = Sa + T.

-Ca + Ig + Xn + G = GDP.

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because:
-the MPC is smaller in the private sector than it is in the public sector.
-declines in government spending always tend to stimulate private investment.
-disposable income will fall by some amount smaller than the tax increase.
-some of the tax increase will be paid out of income that would otherwise have been saved

-some of the tax increase will be paid out of income that would otherwise have been saved

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

-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.

What do investment and government expenditures have in common?
-both represent injections to the circular flow
-both represent leakages from the circular flow
-neither is subject to the multiplier effect
-both represent a decline in indebtedness

-both represent injections to the circular flow

If the marginal propensity to consume in an economy is 0.8, net exports are zero, and government spending is $33 billion at each level of real GDP, the slope of the economy's aggregate expenditures schedule will be:
-.8.
-.2.
-5.
-.125.

-.8.

If MPC = .5, a simultaneous increase in both taxes and government spending of $20 will:
-decrease GDP by $20.
-decrease GDP by $40.
-increase GDP by $20.
-increase GDP by $40.

-increase GDP by $20.

If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to:
-increase by $30 billion.
-increase by $45 billion.
-decrease by $35 billion.
-increase by $50 billion.

-increase by $45 billion.

The recessionary expenditure gap associated with the recession of 2007-2009 resulted from:
-the government's attempt to control hyperinflation.
-a major increase in personal and corporate taxes.
-a rapid decline in investment spending.
-a rapid increase in imports resulting from large tariff reductions.

-a rapid decline in investment spending.

Viewed through the aggregate expenditures model, the U.S. recession of 2007-2009 resulted mainly from:
-a fall in the average propensity to save.
-insufficient aggregate expenditures.
-reduced government spending.
-increased taxes.

-insufficient aggregate expenditures.

If the MPC is .8 in a private closed economy, a $30 billion increase in planned investment will increase equilibrium real GDP by $120 billion.
-True
-False

-False

A recessionary expenditure gap in a mixed open economy can be measured as the extent to which aggregate expenditures (Ca + Ig + Xn + G) fall short of real GDP at the full-employment level of real GDP.
-True
-False

-True

The aggregate demand curve:
- is upsloping because a higher price level is necessary to make production profitable as production costs rise.
- is downsloping because production costs decline as real output increases.
- shows the amount of expenditures required to induce the production of each possible level of real output.
- shows the amount of real output that will be purchased at each possible price level.

- shows the amount of real output that will be purchased at each possible price level.

The interest-rate effect suggests that:
-a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending.
-an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending.
-an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
-an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

-an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

The real-balances effect indicates that:
-an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending.
-a lower price level will decrease the real value of many financial assets and therefore reduce spending.
-a higher price level will increase the real value of many financial assets and therefore increase spending.
-a higher price level will decrease the real value of many financial assets and therefore reduce spending.

-a higher price level will decrease the real value of many financial assets and therefore reduce spending.

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes:
-the output effect.
-the foreign purchases effect.
-the real-balances effect.
-the shift-of-spending effect.

-the foreign purchases effect.

Which of the following is incorrect?
-As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise.
-As the price level falls, the demand for money declines, the interest rate declines, and interest-rate sensitive spending increases.
-When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending.
-Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward flexible prices, reduces the price level.

-When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending.

The determinants of aggregate demand:
-explain why the aggregate demand curve is downsloping.
-explain shifts in the aggregate demand curve.
-demonstrate why real output and the price level are inversely related.
-include input prices and resource productivity.

-explain shifts in the aggregate demand curve.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:
-aggregate demand curve would shift to the right.
-aggregate supply curve would shift to the left.
-aggregate supply curve would shift to the right.
-aggregate demand curve would shift to the left.

-aggregate demand curve would shift to the right.

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:
-leftward by $50 billion at each price level.
-rightward by $10 billion at each price level.
-rightward by $50 billion at each price level.
-leftward by $40 billion at each price level.

-rightward by $50 billion at each price level.

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand?
-$12 billion.
-$20 billion.
-$33.3 billion.
-$50 billion.

-$50 billion.

The immediate-short-run aggregate supply curve represents circumstances where:
-both input and output prices are fixed.
-both input and output prices are flexible.
-input prices are fixed, but output prices are flexible.
-input prices are flexible, but output prices are fixed.

-both input and output prices are fixed.

The immediate-short-run aggregate supply curve is:
-downsloping.
-upsloping.
-vertical.
-horizontal.

-horizontal.

The aggregate supply curve (short-run):
-slopes downward and to the right.
-graphs as a vertical line.
-slopes upward and to the right.
-graphs as a horizontal line.

-slopes upward and to the right.

The aggregate supply curve (short-run) is upsloping because:
-wages and other resource prices match changes in the price level.
-the price level is flexible upward but inflexible downward.
-per-unit production costs rise as the economy moves toward and beyond its full-employment real output.
-wages and other resource prices are flexible upward but inflexible downward.

-per-unit production costs rise as the economy moves toward and beyond its full-employment real output.

Other things equal, an improvement in productivity will:
-shift the aggregate demand curve to the left.
-shift the aggregate supply curve to the left.
-shift the aggregate supply curve to the right.
-increase the price level.

-shift the aggregate supply curve to the right.

Which one of the following would increase per unit production cost and therefore shift the aggregate supply curve to the left?
-a reduction in business taxes
-production bottlenecks occurring when producers near full plant capacity
-an increase in the price of imported resources
-deregulation of industry

-an increase in the price of imported resources

Which of the following would not shift the aggregate supply curve?
-an increase in labor productivity
-a decline in the price of imported oil
-a decline in business taxes
-an increase in the price level

-an increase in the price level

Other things equal, an improvement in productivity will:
-increase the equilibrium price level.
-shift the aggregate supply curve to the left.
-shift the aggregate supply curve to the right.
-shift the aggregate demand curve to the left.

-shift the aggregate supply curve to the right.

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