Question 1

Leakages from the income-expenditure stream are

Accepted Answer

A)  consumption, saving, and transfer payments.
B)  saving, taxes, and investment.
C)  saving, taxes, and imports.
D)  imports, taxes, and transfer payments.E) All of the above
F) B) and C)

Question 2

Unintended changes in inventories

Accepted Answer

A)  cause the economy to move away from the equilibrium GDP.
B)  are treated as components of consumption.
C)  bring actual investment and saving into equality only at the equilibrium level of GDP.
D)  bring actual investment and saving into equality at all levels of GDP.E) A) and D)
F) A) and C)

Question 3

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?

Accepted Answer

A)  bank panic of 1907
B)  Great Depression
C)  spectacular economic growth during World War IID) All of the above
E) A) and C)

Question 4

An increase in a lump-sum tax has the same effect on equilibrium GDP as an equal decrease in government purchases.

Accepted Answer

A) True 
 B)False

Question 5

Saving is $15 billion at the $125 billion equilibrium level of output in a closed, private economy.Actual investment must be

Accepted Answer

A)  less than saving
B)  greater than saving.
C)  equal to $15 billion.
D)  equal to $125 billion.E) All of the above
F) B) and C)

Question 6

If a lump-sum tax of $40 billion is levied at each level of income and the MPC is 0.75, then the saving schedule will shift

Accepted Answer

A)  upward by $10 billion.
B)  upward by $25 billion.
C)  downward by $10 billion.
D)  downward by $25 billion.E) A) and D)
F) A) and C)

Question 7

In a private closed economy, the two components of aggregate expenditures are

Accepted Answer

A)  consumption and government spending.
B)  consumption and net exports.
C)  consumption, investment, and net exports.
D)  consumption and investment.E) None of the above
F) A) and B)

Question 8

In the aggregate expenditures model presented in the textbook, investment is assumed to rise with increases in real GDP and fall with decreases in real GDP.

Accepted Answer

A) True 
 B)False

Question 9

If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by

Accepted Answer

A)  $3.75 billion.
B)  $6.7 billion.
C)  $8.75 billion.
D)  $20 billion.E) A) and D)
F) All of the above

Question 10

Which of the following would increase GDP by the greatest amount?

Accepted Answer

A)  a $20 billion reduction in taxes
B)  $20 billion increases in both government spending and taxes
C)  $20 billion decreases in both government spending and taxes
D)  a $20 billion increase in government spendingE) C) and D)
F) B) and C)

Question 11

Other things equal, the slope of the aggregate expenditures schedule will increase as a result of

Accepted Answer

A)  a decline in the size of the inflationary gap.
B)  an increase in the MPC.
C)  an increase in the MPS.
D)  a decline in the general price level.E) None of the above
F) C) and D)

Question 12

When C + I g = GDP in a private closed economy, S = Ig and there are no unplanned changes in inventories.

Accepted Answer

A) True 
 B)False

Question 13

The effect of imposing a lump-sum tax is to

Accepted Answer

A)  reduce the absolute levels of consumption and saving at each level of GDP and to reduce the size of the multiplier.
B)  reduce the absolute levels of consumption and saving at each level of GDP but to not change the size of the multiplier.
C)  reduce the absolute levels of consumption and saving at each level of GDP and to increase the size of the multiplier.
D)  increase the absolute levels of consumption and saving at each level of GDP and to increase the size of the multiplier.E) A) and C)
F) All of the above

Question 14

The multiplier effect demonstrates that

Accepted Answer

A)  equal increases in government spending and taxes do not change the equilibrium GDP.
B)  equal increases in government spending and taxes reduce the equilibrium GDP.
C)  equal increases in government spending and taxes increase the equilibrium GDP.
D)  taxes have a stronger effect upon equilibrium GDP than do government purchases.E) A) and B)
F) C) and D)

Question 15

GDP C S Ig $100 $100 $0 $80
200 160 40 80
300 220 80 80
400 280 120 80
500 340 160 80
600 400 200 80
700 460 240 80
Refer to the accompanying information for a closed economy.If both government spending and taxes are zero, the equilibrium level of GDP is

Accepted Answer

A)  $200.
B)  $300.
C)  $400.
D)  $500.E) All of the above
F) A) and C)

Question 16

A private closed economy includes

Accepted Answer

A)  households, businesses, and government, but not international trade.
B)  households, businesses, and international trade, but not government.
C)  households and businesses, but not government or international trade.
D)  households only.E) None of the above
F) A) and C)

Question 17

(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 this economy, the equilibrium level of income (Y)  is

Accepted Answer

A)  360.
B)  225.
C)  200.
D)  135.E) A) and D)
F) B) and C)

Question 18

Consumption is $141 billion, planned investment is $15 billion, and saving is $15 billion in a private, closed economy.At this level,

Accepted Answer

A)  actual investment does not equal planned investment.
B)  there will be unplanned increases in inventories.
C)  there will be unplanned decreases in inventories.
D)  the economy is in equilibrium.E) B) and C)
F) A) and C)

Question 19

If the government increases its purchases by $200 billion but at the same time raises lump-sum taxes by $200 billion, then equilibrium GDP will remain constant.

Accepted Answer

A) True 
 B)False

Question 20

If the MPC in an economy is 0.75, a $1 billion increase in taxes will ultimately reduce consumption by

Accepted Answer

A)  $1 billion.
B)  $0.75 billion.
C)  $3 billion.
D)  $4 billion.E) None of the above
F) C) and D)

Exam 31: The Aggregate Expenditures Model

If the government increases its purchases by $200 billion but at the same time raises lump-sum taxes by $200 billion, then equilibrium GDP will remain constant.

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Saving is $15 billion at the $125 billion equilibrium level of output in a closed, private economy.Actual investment must be

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An increase in a lump-sum tax has the same effect on equilibrium GDP as an equal decrease in government purchases.

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The multiplier effect demonstrates that

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In a private closed economy, the two components of aggregate expenditures are

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Consumption is $141 billion, planned investment is $15 billion, and saving is $15 billion in a private, closed economy.At this level,

Correct AnswerverifiedShow Answer

If a lump-sum tax of $40 billion is levied at each level of income and the MPC is 0.75, then the saving schedule will shift

Correct AnswerverifiedShow Answer

If the MPC in an economy is 0.75, a $1 billion increase in taxes will ultimately reduce consumption by

Correct AnswerverifiedShow Answer

When C + I g = GDP in a private closed economy, S = Ig and there are no unplanned changes in inventories.

Correct AnswerverifiedShow Answer

If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by

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 this economy, the equilibrium level of income (Y) is

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John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?

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GDP C S Ig $100 $100 $0 $80 200 160 40 80 300 220 80 80 400 280 120 80 500 340 160 80 600 400 200 80 700 460 240 80 Refer to the accompanying information for a closed economy.If both government spending and taxes are zero, the equilibrium level of GDP is

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Leakages from the income-expenditure stream are

Correct AnswerverifiedShow Answer

In the aggregate expenditures model presented in the textbook, investment is assumed to rise with increases in real GDP and fall with decreases in real GDP.

Correct AnswerverifiedShow Answer

Unintended changes in inventories

Correct AnswerverifiedShow Answer

The effect of imposing a lump-sum tax is to

Correct AnswerverifiedShow Answer

A private closed economy includes

Correct AnswerverifiedShow Answer

Other things equal, the slope of the aggregate expenditures schedule will increase as a result of

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Which of the following would increase GDP by the greatest amount?

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