Question 1

Government policies that are used to affect aggregate expenditure, with the objective of eliminating output gaps, are called ______ policies.

Accepted Answer

A)   structural
B)   cyclical
C)   productivity
D)   stabilizationE) All of the above
F) A) and C)

Question 2

In the basic Keynesian model, a decrease in government purchases:

Accepted Answer

A)   reduces short-run equilibrium output.
B)   increases short-run equilibrium output.
C)   reduces potential output.
D)   increases potential output.E) B) and C)
F) A) and D)

Question 3

Changes in government purchases affect spending _____, and changes in taxes and/or transfers affect spending _______.

Accepted Answer

A)   directly; directly
B)   directly; indirectly
C)   directly; not at all
D)   indirectly; indirectlyE) A) and B)
F) A) and C)

Question 4

In the long run, total spending only influences:

Accepted Answer

A)   actual output.
B)   potential output.
C)   productive capacity.
D)   inflation.E) C) and D)
F) A) and B)

Question 5

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time.  Which of the turning points are troughs?

Accepted Answer

A)   (
A)  , (
B)  , and (
C)  
B)   (
C)  , (
D)  , and (
E)  
C)   (
A)  , (
C)  , and (
E)  
D)   (
B)   and (
D)  E) B) and D)
F) None of the above

Question 6

Provisions in the law that automatically increase government spending or decrease taxes when real output declines are called:

Accepted Answer

A)   autonomous stabilizers.
B)   automatic stabilizers.
C)   the marginal propensity to consume.
D)   the income-expenditure multiplier.E) A) and B)
F) A) and C)

Question 7

The four components of aggregate expenditure are:

Accepted Answer

A)   spending on domestic goods, domestic services, foreign goods, and foreign services.
B)   spending on durable goods, inventory investment, government debt, and net exports.
C)   consumption, investment, government transfers, and net interest.
D)   consumption, investment, government purchases, and net exportsE) A) and D)
F) B) and C)

Question 8

In the United States since 1929, the duration of recessions on average has been:

Accepted Answer

A)   longer than the duration of expansions.
B)   shorter than the duration of expansions.
C)   steadily decreasing.
D)   steadily increasing.E) None of the above
F) A) and C)

Question 9

Data on after-tax income and consumption spending for the Adam Smith family are given below:  Based on these data, the Adam Smith family has a marginal propensity to consume equal to:

Accepted Answer

A)   0.9.
B)   0.8.
C)   0.75.
D)   0.6.E) B) and D)
F) B) and C)

Question 10

When prices are predetermined, the level of output that equals aggregate expenditure is called ______ output.

Accepted Answer

A)   the natural rate of
B)   potential
C)   short-run equilibrium
D)   inducedE) None of the above
F) B) and D)

Question 11

The consumption function is relationship between consumption and:

Accepted Answer

A)   aggregate expenditure.
B)   total spending.
C)   investment.
D)   disposable income.E) B) and D)
F) B) and C)

Question 12

When housing prices decrease, household wealth _____, and consumption _____.

Accepted Answer

A)   increases; increases
B)   increases; decreases
C)   decreases; decreases
D)   decreases; increasesE) B) and D)
F) A) and B)

Question 13

Indicators of economic activity that move at the same time as the overall economy are called ______ indicators.

Accepted Answer

A)   short-term
B)   long-term
C)   real
D)   coincidentE) All of the above
F) B) and D)

Question 14

An expansion is:

Accepted Answer

A)   a period in which the economy is growing at a rate significantly below normal.
B)   a period in which the economy is growing at a rate significantly above normal.
C)   the high point of economic activity prior to a downturn.
D)   the low point of economic activity prior to a recovery.E) A) and C)
F) A) and B)

Question 15

An expansion occurs when ______, when _______, or when both of these occur.

Accepted Answer

A)   potential output grows rapidly; actual output rises above potential output.
B)   potential output grows slowly; actual output rises above potential output
C)   potential output grows rapidly; actual output equals potential output
D)   potential output grows slowly; actual output equals potential outputE) A) and B)
F) None of the above

Question 16

In the long run, output gaps are eliminated by:

Accepted Answer

A)   reducing potential output.
B)   increasing potential output.
C)   price changes.
D)   increased efficiency in labor markets.E) A) and B)
F) C) and D)

Question 17

Data on output and aggregate expenditure in Macroland are given below.  Based on these data, the short-run equilibrium level of output is:

Accepted Answer

A)   1,000.
B)   2,500.
C)   4,000.
D)   5,000.E) B) and C)
F) A) and D)

Question 18

Compared to older workers, younger workers change jobs more frequently, so they are more prone to ________ unemployment; also, younger workers have fewer skills, so they are more prone to ________ unemployment.

Accepted Answer

A)   cyclical; frictional
B)   frictional; structural
C)   structural; frictional
D)   frictional; cyclicalE) B) and D)
F) All of the above

Question 19

Falling growth rates during the 2007-2009 recession occurred:

Accepted Answer

A)   only in the high-tech sectors of the U.S. economy.
B)   only in the United States.
C)   in the United States, Canada, Germany, the United Kingdom, and Japan.
D)   in the United States and Canada, but not in Germany, the United Kingdom, or Japan.E) None of the above
F) All of the above

Question 20

For an economy starting at potential output, an increase in investment in the short run results in a(n) :

Accepted Answer

A)   expansionary output gap.
B)   recessionary output gap.
C)   increase in potential output.
D)   decrease in potential output.E) None of the above
F) All of the above

Exam 10: Short-Term Economic Fluctuations and Fiscal Policy

In the long run, total spending only influences:

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The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. Which of the turning points are troughs?

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When housing prices decrease, household wealth _____, and consumption _____.

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Indicators of economic activity that move at the same time as the overall economy are called ______ indicators.

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Data on after-tax income and consumption spending for the Adam Smith family are given below: Based on these data, the Adam Smith family has a marginal propensity to consume equal to:

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For an economy starting at potential output, an increase in investment in the short run results in a(n) :

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When prices are predetermined, the level of output that equals aggregate expenditure is called ______ output.

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An expansion occurs when ______, when _______, or when both of these occur.

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An expansion is:

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The four components of aggregate expenditure are:

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The consumption function is relationship between consumption and:

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In the basic Keynesian model, a decrease in government purchases:

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Compared to older workers, younger workers change jobs more frequently, so they are more prone to ________ unemployment; also, younger workers have fewer skills, so they are more prone to ________ unemployment.

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Falling growth rates during the 2007-2009 recession occurred:

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Provisions in the law that automatically increase government spending or decrease taxes when real output declines are called:

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In the long run, output gaps are eliminated by:

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Changes in government purchases affect spending _____, and changes in taxes and/or transfers affect spending _______.

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Data on output and aggregate expenditure in Macroland are given below. Based on these data, the short-run equilibrium level of output is:

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In the United States since 1929, the duration of recessions on average has been:

Correct AnswerverifiedShow Answer

Government policies that are used to affect aggregate expenditure, with the objective of eliminating output gaps, are called ______ policies.

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When housing prices decrease, household wealth _, and consumption _.

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An expansion occurs when , when _, or when both of these occur.

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Compared to older workers, younger workers change jobs more frequently, so they are more prone to unemployment; also, younger workers have fewer skills, so they are more prone to unemployment.

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Changes in government purchases affect spending _, and changes in taxes and/or transfers affect spending ___.

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