Question 1

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The vertical intercept of the Expenditure Line is:

Accepted Answer

A)   890.
B)   900.
C)   940.
D)   990.E) B) and D)
F) None of the above

Question 2

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because:

Accepted Answer

A)   the direct changes in spending change the income of producers which leads to additional changes in spending.
B)   multiple deposits are generated when new reserves are produced through fractional reserve banking.
C)   autonomous spending supports more output than induced spending.
D)   planned changes in inventories signal producers to adjust the level of output.E) All of the above
F) A) and B)

Question 3

Government policy actions intended to decrease planned spending and output are called ______ policies.

Accepted Answer

A)   aggregate
B)   monetary
C)   fiscal
D)   contractionaryE) C) and D)
F) B) and C)

Question 4

Planned aggregate expenditure is total:

Accepted Answer

A)   value added in the economy.
B)   planned spending on final goods and services.
C)   income of households, businesses, governments, and foreigners.
D)   revenue from the sale of goods and services.E) A) and B)
F) A) and C)

Question 5

Firms do not change prices frequently because:

Accepted Answer

A)   there are legal prohibitions against doing so.
B)   it is easier to change the quantity of capital used in production.
C)   it is costly to do so.
D)   customers will refuse to patronize firms that change prices frequently.E) None of the above
F) A) and B)

Question 6

When actual investment is less than planned investment:

Accepted Answer

A)   firms sold less output than expected.
B)   firms sold more output than expected.
C)   the quantity of output sold is the amount the firm expected to sell.
D)   the economy produces short-run equilibrium output.E) A) and B)
F) A) and C)

Question 7

The expenditure line in the Keynesian cross diagram represents the:

Accepted Answer

A)   equilibrium condition that Y = PAE.
B)   relationship between planned expenditure and output.
C)   relationship between consumption and after-tax disposable income.
D)   equilibrium condition that Y = Y*.E) A) and D)
F) None of the above B

Question 8

If short-run equilibrium output equals 20,000 and potential output (Y*)  equals 25,000, then this economy has a(n)  ______ gap that can be closed by _________.

Accepted Answer

A)   recessionary; increasing taxes
B)   expansionary; increasing transfer payments
C)   expansionary; increasing government purchases
D)   recessionary; increasing government purchasesE) A) and B)
F) All of the above

Question 9

One drawback in using fiscal policy as a stabilization tool is that fiscal policy:

Accepted Answer

A)   affects potential output as well as planned aggregate expenditure.
B)   effects are frequently offset by automatic stabilizers.
C)   is too flexible to use to close output gaps.
D)   is not useful for dealing with prolonged episodes of recession.E) All of the above
F) B) and D)

Question 10

If firms sell less than expected, actual investment increases because _____, which is counted as investment.

Accepted Answer

A)   the unsold goods are added to inventory
B)   the government buys the unsold goods
C)   the unsold goods are distributed to poor households
D)   households buy the unsold goods are bargain pricesE) All of the above
F) C) and D)

Question 11

In Macroland autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The slope of the Expenditure Line is:

Accepted Answer

A)   0.25.
B)   0.75.
C)   290.
D)   320.E) A) and D)
F) C) and D)

Question 12

Contractionary policies are government stabilization policy actions intended to decrease:

Accepted Answer

A)   population.
B)   unemployment.
C)   average labor productivity.
D)   planned spending.E) A) and B)
F) A) and C)

Question 13

For an economy starting at potential output, a decrease in autonomous expenditure 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) A) and C)
F) B) and C)

Question 14

In the Keynesian model, a $5 billion decrease in autonomous planned investment leads to ______ in short-run equilibrium output.

Accepted Answer

A)   a $5 billion increase
B)   a greater than $5 billion decrease
C)   no change
D)   a $5 billion decreaseE) A) and B)
F) A) and C)

Question 15

House prices in the U.S. increased dramatically _____, and decreased dramatically ______.

Accepted Answer

A)   from 2001 to 2006; from 2007 to 2009
B)   from 2007 to 2009; from 2001 to 2006
C)   from 2001 to 2009; from 2006 to 2007
D)   from 2006 to 2009; from 2001 to 2006E) C) and D)
F) A) and B)

Question 16

In the Keynesian model, consumption depends on:

Accepted Answer

A)   whether the government has a budget surplus or deficit.
B)   potential output.
C)   the natural rate of unemployment.
D)   disposable income.E) A) and B)
F) B) and D)

Question 17

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

Accepted Answer

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

Question 18

The smaller the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.

Accepted Answer

A)   larger; larger
B)   larger; smaller
C)   smaller; smaller
D)   smaller; largerE) A) and D)
F) C) and D)

Question 19

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

Accepted Answer

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

Question 20

The marginal propensity to consume (mpc)  is the:

Accepted Answer

A)   amount by which disposable income increases when consumption increases by $1.
B)   amount by which consumption increases when disposable income increases by $1.
C)   percentage by which consumption increases when disposable income increases by 1%.
D)   percentage by which disposable income increases when consumption increases by 1%.E) B) and D)
F) C) and D)

Exam 11: Financial Markets and International Capital Flows

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The vertical intercept of the Expenditure Line is:

Correct AnswerverifiedShow Answer

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because:

Correct AnswerverifiedShow Answer

Government policy actions intended to decrease planned spending and output are called ______ policies.

Correct AnswerverifiedShow Answer

Planned aggregate expenditure is total:

Correct AnswerverifiedShow Answer

Firms do not change prices frequently because:

Correct AnswerverifiedShow Answer

When actual investment is less than planned investment:

Correct AnswerverifiedShow Answer

The expenditure line in the Keynesian cross diagram represents the:

Correct AnswerverifiedB

If short-run equilibrium output equals 20,000 and potential output (Y*) equals 25,000, then this economy has a(n) ______ gap that can be closed by _________.

Correct AnswerverifiedShow Answer

One drawback in using fiscal policy as a stabilization tool is that fiscal policy:

Correct AnswerverifiedShow Answer

If firms sell less than expected, actual investment increases because _____, which is counted as investment.

Correct AnswerverifiedShow Answer

In Macroland autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The slope of the Expenditure Line is:

Correct AnswerverifiedShow Answer

Contractionary policies are government stabilization policy actions intended to decrease:

Correct AnswerverifiedShow Answer

For an economy starting at potential output, a decrease in autonomous expenditure in the short run results in a(n) :

Correct AnswerverifiedShow Answer

In the Keynesian model, a $5 billion decrease in autonomous planned investment leads to ______ in short-run equilibrium output.

Correct AnswerverifiedShow Answer

House prices in the U.S. increased dramatically _____, and decreased dramatically ______.

Correct AnswerverifiedShow Answer

In the Keynesian model, consumption depends on:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

The smaller the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

The marginal propensity to consume (mpc) is the:

Correct AnswerverifiedShow Answer

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B

If short-run equilibrium output equals 20,000 and potential output (Y*) equals 25,000, then this economy has a(n) gap that can be closed by ___.

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House prices in the U.S. increased dramatically _, and decreased dramatically __.

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

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C

The smaller the mpc, the the income-expenditure multiplier and the the effect of a change in autonomous spending on short-run equilibrium output.

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C

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