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 Possible Levels of Domestic Output and  Income (GDP = DI)   Consumption $320$320330327340334350341360348370355380362\begin{array} { | c | c | } \hline \begin{array} { c } \text { Possible Levels of Domestic Output and } \\\text { Income (GDP = DI) }\end{array} & \text { Consumption } \\\hline \$ 320 & \$ 320 \\\hline 330 & 327 \\\hline 340 & 334 \\\hline 350 & 341 \\\hline 360 & 348 \\\hline 370 & 355 \\\hline 380 & 362 \\\hline\end{array} The table gives data for a private closed economy. If gross investment is $12 billion, the equilibrium level of GDP will be


A) $380.
B) $370.
C) $360.
D) $350.

E) None of the above
F) A) and B)

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Refer to the diagram for a private closed economy. The equilibrium GDP is A) $60 billion. B) $180 billion. C) between $60 and $180 billion. D) $60 billion at all levels of GDP. Refer to the diagram for a private closed economy. The equilibrium GDP is


A) $60 billion.
B) $180 billion.
C) between $60 and $180 billion.
D) $60 billion at all levels of GDP.

E) A) and D)
F) B) and C)

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Refer to the diagram for a private closed economy. Gross investment A) is positively related to the level of GDP. B) is negatively related to the level of GDP. C) is independent of the level of GDP. D) must be subtracted from consumption to determine aggregate expenditures. Refer to the diagram for a private closed economy. Gross investment


A) is positively related to the level of GDP.
B) is negatively related to the level of GDP.
C) is independent of the level of GDP.
D) must be subtracted from consumption to determine aggregate expenditures.

E) A) and B)
F) All of the above

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Refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when A) C + Ig cuts the 45-degree line. B) GDP is $180 billion. C) GDP is $60 billion. D) GDP is also zero. Refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when


A) C + Ig cuts the 45-degree line.
B) GDP is $180 billion.
C) GDP is $60 billion.
D) GDP is also zero.

E) None of the above
F) C) and D)

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Refer to the diagram for a private closed economy. At the $400 level of GDP, A) aggregate expenditures exceed GDP, with the result that GDP will rise. B) consumption is $350 and planned investment is zero, so aggregate expenditures are $350. C) consumption is $300 and planned investment is $50, so aggregate expenditures are $350. D) consumption is $300 and actual investment is $100, so aggregate expenditures are $400. Refer to the diagram for a private closed economy. At the $400 level of GDP,


A) aggregate expenditures exceed GDP, with the result that GDP will rise.
B) consumption is $350 and planned investment is zero, so aggregate expenditures are $350.
C) consumption is $300 and planned investment is $50, so aggregate expenditures are $350.
D) consumption is $300 and actual investment is $100, so aggregate expenditures are $400.

E) None of the above
F) A) and B)

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Suppose the economy is operating at its full-employment, noninflationary GDP and the MPC is 0.75. The federal government now finds that it must increase spending on military goods by $21 billion in Response to deterioration in the international political situation. To sustain full-employment, Noninflationary GDP, government must


A) reduce taxes by $28 billion.
B) reduce transfer payments by $21 billion.
C) increase taxes by $21 billion.
D) increase taxes by $28 billion.

E) All of the above
F) B) and D)

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GDP(Y)  Consumption (C)   Investment (I)  $0$60$301001204020018050300240604003007050036080\begin{array} { | c | c | c | } \hline G D P ( Y ) & \text { Consumption (C) } & \text { Investment (I) } \\\hline \$ 0 & \$ 60 & \$ 30 \\\hline 100 & 120 & 40 \\\hline 200 & 180 & 50 \\\hline 300 & 240 & 60 \\\hline 400 & 300 & 70 \\\hline 500 & 360 & 80 \\\hline\end{array} (Advanced analysis) The table gives data for a private closed economy. The letters Y, C, S, and I are used to represent real GDP, consumption, saving, and investment, respectively. Equilibrium Y (= GDP) Is


A) $100.
B) $200.
C) $300.
D) $400.

E) None of the above
F) B) and C)

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Refer to the diagrams. Other things equal, an interest rate increase will A) shift curve A to the right and shift curve B upward. B) shift curve A to the left and shift curve B downward. C) leave curve A in place but shift curve B downward. D) leave curve A in place but shift curve B upward. Refer to the diagrams. Other things equal, an interest rate increase will


A) shift curve A to the right and shift curve B upward.
B) shift curve A to the left and shift curve B downward.
C) leave curve A in place but shift curve B downward.
D) leave curve A in place but shift curve B upward.

E) A) and B)
F) None of the above

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SA=−20 + 0.4Y Ig = 25 − 3i (Advanced analysis) The equations refer to a private closed economy, where S is saving, Ig is gross Investment, i is the real interest rate, and Y is GDP. If the real interest rate is 5 (percent) , investment will Be


A) $10 and the equilibrium GDP will be $75.
B) $15 and the equilibrium GDP will be $100.
C) $10 and the equilibrium GDP will be $120.
D) $15 and the equilibrium GDP will be $180.

E) A) and B)
F) All of the above

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Refer to the diagrams. Other things equal, an interest rate reduction coupled with a rightward shift in curve A will A) shift curve B upward. B) shift curve B downward. C) have no effect on curve B. D) reduce GDP. Refer to the diagrams. Other things equal, an interest rate reduction coupled with a rightward shift in curve A will


A) shift curve B upward.
B) shift curve B downward.
C) have no effect on curve B.
D) reduce GDP.

E) C) and D)
F) B) and C)

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C=40+0.8YIg=40X=20M=30\begin{array} { l } C = 40 + 0.8 Y \\I _ { g } = 40 \\X = 20 \\M = 30\end{array} (Advanced analysis) The equations give information for a private open economy. The letters Y,C,Ig,XY , C , I _ { g } , X and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in Billions of dollars. In equilibrium, saving is


A) $20.
B) $30.
C) $40.
D) $50.

E) C) and D)
F) None of the above

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At the equilibrium GDP for a private open economy,


A) net exports may be either positive or negative.
B) imports will always exceed exports.
C) exports will always exceed imports.
D) exports and imports will be equal.

E) A) and B)
F) B) and C)

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(Advanced analysis) 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?


A) $280 billion
B) $320 billion
C) $262 billion
D) $198 billion

E) All of the above
F) B) and D)

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Refer to the diagram for a private closed economy. At the $300 level of GDP, A) aggregate expenditures and GDP are equal. B) consumption is $200 and planned investment is $50. C) saving exceeds planned investment. D) consumption plus saving is $400. Refer to the diagram for a private closed economy. At the $300 level of GDP,


A) aggregate expenditures and GDP are equal.
B) consumption is $200 and planned investment is $50.
C) saving exceeds planned investment.
D) consumption plus saving is $400.

E) A) and B)
F) A) and D)

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


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) C) and D)
F) All of the above

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(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


A) 170.
B) 270.
C) 160.
D) 195.

E) A) and C)
F) B) and C)

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Refer to the diagram for a private closed economy. The $400 level of GDP is A) that output at which saving is zero. B) too high because consumption exceeds investment. C) unsustainable because aggregate expenditures exceed GDP. D) unsustainable because aggregate expenditures are less than GDP. Refer to the diagram for a private closed economy. The $400 level of GDP is


A) that output at which saving is zero.
B) too high because consumption exceeds investment.
C) unsustainable because aggregate expenditures exceed GDP.
D) unsustainable because aggregate expenditures are less than GDP.

E) None of the above
F) A) and B)

Correct Answer

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In a mixed open economy, the equilibrium GDP exists where


A) Ca+Ig+Xn intersects the 45-degree line. C _ { a } + I _ { g } + X _ { n } \text { intersects the 45-degree line. }
B) Ca+Ig=Sa+T+XC _ { a } + I _ { g } = S _ { a } + T + X
C) Ca+Ig+Xn+G= GDP. C _ { a } + I _ { g } + X _ { n } + G = \text { GDP. }
D) Ca+Ig+Xn=Sa+TC _ { a } + I _ { g } + X _ { n } = S _ { a } + T

E) A) and B)
F) B) and C)

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 Domestic Output (GDP=DI)  Aggregate  Expenditures,  Closed Economy  Exports  Imports  Net Exports  Aggregate  Expenditures, Open  Economy $200$230$30$20$−$−2502703020−−3003103020−−3503503020−−4003903020−−4504303020−−5004703020−−\begin{array}{|c|c|c|c|c|c|}\hline\begin{array}{c}\text { Domestic Output } \\(G D P=D I) \end{array} & \begin{array}{c}\text { Aggregate } \\\text { Expenditures, } \\\text { Closed Economy }\end{array} & \text { Exports } & \text { Imports } & \text { Net Exports } & \begin{array}{c}\text { Aggregate } \\\text { Expenditures, Open } \\\text { Economy }\end{array} \\\hline \$ 200 & \$ 230 & \$ 30 & \$ 20 & \$- &\$- \\\hline 250 & 270 & 30 & 20 & -&- \\\hline 300 & 310 & 30 & 20 & -& - \\\hline 350 & 350 & 30 & 20 & -& - \\\hline 400 & 390 & 30 & 20 & -& - \\\hline 450 & 430 & 30 & 20 & -& - \\\hline 500 & 470 & 30 & 20 & -& - \\\hline\end{array} Complete the accompanying table and answer the question based on the resulting data. All ?gures are in billions of dollars. For the open economy, the equilibrium GDP and the multiplier are


A) $300 and 2.5.
B) $450 and 5.
C) $400 and 4.
D) $400 and 5.

E) A) and D)
F) B) and C)

Correct Answer

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C=40+0.8YIg=40X=20M=30\begin{array} { l } C = 40 + 0.8 Y \\I _ { g } = 40 \\X = 20 \\M = 30\end{array} (Advanced analysis) The equations give information for a private open economy. The letters Y,C,Ig,XY , C , I _ { g } , X and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in Billions of dollars. The equilibrium GDP (=Y) in the economy is


A) $200.
B) $245.
C) $320.
D) $350.

E) B) and D)
F) A) and C)

Correct Answer

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