Question 1

In the basic Keynesian model, a decrease in transfer payments:

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 D)
F) A) and B)

Question 2

If planned aggregate expenditure (PAE)  in an economy equals 2,000 + 0.8Y and potential output (Y*)  equals 11,000, then this economy has:

Accepted Answer

A)   an expansionary gap.
B)   a recessionary gap.
C)   no output gap.
D)   no autonomous expenditure.E) C) and D)
F) A) and D)

Question 3

In the short-run Keynesian model, to close a recessionary gap of $1 billion dollars government purchases must be:

Accepted Answer

A)   increased by $1 billion.
B)   decreased by $1 billion.
C)   increased by more than $1 billion.
D)   increased by less than $1 billion.E) A) and D)
F) None of the above

Question 4

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

Accepted Answer

A)   structural
B)   cyclical
C)   productivity
D)   stabilizationE) A) and D)
F) A) and C)

Question 5

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*)  equals 9,000, then transfers must be ______ by approximately ______ to eliminate any output gap.

Accepted Answer

A)   decreased; 250
B)   decreased; 200
C)   increased; 250
D)   increased; 200E) A) and B)
F) B) and D)

Question 6

The decision whether to change prices frequently or infrequently is an application of the:

Accepted Answer

A)   principle of comparative advantage.
B)   scarcity principle.
C)   principle of increasing opportunity cost.
D)   cost-benefit principle.E) None of the above
F) A) and C)

Question 7

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will:

Accepted Answer

A)   reduce production.
B)   increase production.
C)   increase planned aggregate expenditure.
D)   decrease planned aggregate expenditure.E) B) and D)
F) B) and C)

Question 8

The bursting of the housing bubble in 2006 caused ______ to cut back on their spending, thereby shifting the PAE line _____.

Accepted Answer

A)   businesses and households; upward
B)   businesses and households; downward
C)   government and businesses; downward
D)   government and businesses; upwardE) A) and B)
F) None of the above

Question 9

Menu costs are the costs of:

Accepted Answer

A)   running a restaurant.
B)   changing prices.
C)   increasing aggregate demand.
D)   changing production.E) None of the above
F) A) and B)

Question 10

Suppose that the owner of a local ice cream store, knowing that demand for ice cream is higher when the weather is warmer, always charges a price in cents for a scoop of ice cream that is equal to two times the current outdoor temperature, measured in Fahrenheit (so that if it is 90 degrees outside, the ice cream is $1.80 per scoop) . This type of behavior is ______.

Accepted Answer

A)   exactly the type of behavior that Keynes believed most firms exhibit.
B)   known as meeting demand.
C)   inconsistent with the key assumption upon which the basic Keynesian model is built.
D)   free from menu costs.E) None of the above
F) B) and C)

Question 11

In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned aggregate spending by $20 billion at any output level, government spending must be increased by ______ or net taxes must be decreased by _____.

Accepted Answer

A)   $20 billion; $20 billion
B)   more than $20 billion; more than $20 billion
C)   less than $20 billion; less than $20 billion
D)   $20 billion; more than $20 billionE) B) and C)
F) A) and C)

Question 12

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*)  equals 9,000, then taxes must be ______ by approximately ______ to eliminate any output gap.

Accepted Answer

A)   decreased; 250
B)   decreased; 200
C)   increased; 250
D)   increased; 200E) B) and C)
F) C) and D)

Question 13

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

Accepted Answer

A)   for government to finance deficit spending.
B)   to fight inflation.
C)   for businesses and consumers to borrow money.
D)   to shift the PAE line downward.E) A) and B)
F) C) and D)

Question 14

In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:

Accepted Answer

A)   increased by $10 billion.
B)   decreased by $10 billion.
C)   increased by more than $10 billion.
D)   decreased by less than $10 billion.E) B) and C)
F) A) and D)

Question 15

A decrease in stock prices alters the consumption function by:

Accepted Answer

A)   increasing the mpc.
B)   decreasing the mpc.
C)   increasing the constant term.
D)   decreasing the constant term.E) A) and B)
F) C) and D)

Question 16

If consumption increases by $9 when after-tax disposable income increases by $10, the marginal propensity to consume (mpc)  equals:

Accepted Answer

A)   0.1.
B)   0.9.
C)   1.0.
D)   9.0.E) None of the above
F) A) and B)

Question 17

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. Autonomous expenditure equals:

Accepted Answer

A)   990.
B)   940.
C)   900.
D)   890.E) A) and B)
F) A) and D)

Question 18

In the short run with predetermined prices, when output is greater than planned aggregate expenditure:

Accepted Answer

A)   potential output is greater than short-run equilibrium output.
B)   potential output is less than short-run equilibrium output.
C)   planned investment is less than actual investment.
D)   planned investment is greater than actual investment.E) All of the above
F) A) and C)

Question 19

An economic recession in the U.S. ______ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n)  ______ output gap in Canada.

Accepted Answer

A)   reduces; expansionary
B)   increases; expansionary
C)   reduces; recessionary
D)   increases; recessionaryE) All of the above
F) B) and D)

Question 20

When real output increases, planned aggregate expenditures increase because:

Accepted Answer

A)   autonomous expenditures increase.
B)   autonomous expenditures decrease.
C)   induced expenditures increase.
D)   induced expenditures decrease.E) A) and B)
F) A) and D)

Exam 11: Financial Markets and International Capital Flows

The bursting of the housing bubble in 2006 caused __ to cut back on their spending, thereby shifting the PAE line _.

Correct Answer
verified

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then taxes must be by approximately to eliminate any output gap.

Correct Answer
verified

When real output increases, planned aggregate expenditures increase because:

Correct Answer
verified

In the basic Keynesian model, a decrease in transfer payments:

Correct Answer
verified

The decision whether to change prices frequently or infrequently is an application of the:

Correct Answer
verified

In the short-run Keynesian model, to close a recessionary gap of $1 billion dollars government purchases must be:

Correct Answer
verified

If planned aggregate expenditure (PAE) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has:

Correct Answer
verified

In the short run with predetermined prices, when output is greater than planned aggregate expenditure:

Correct Answer
verified

In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned aggregate spending by $20 billion at any output level, government spending must be increased by __ or net taxes must be decreased by _.

Correct Answer
verified

A decrease in stock prices alters the consumption function by:

Correct Answer
verified

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. Autonomous expenditure equals:

Correct Answer
verified

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then transfers must be by approximately to eliminate any output gap.

Correct Answer
verified

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

Correct Answer
verified

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will:

Correct Answer
verified

Menu costs are the costs of:

Correct Answer
verified

Correct Answer
verified

In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:

Correct Answer
verified

An economic recession in the U.S. the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) output gap in Canada.

Correct Answer
verified

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

Correct Answer
verified

If consumption increases by $9 when after-tax disposable income increases by $10, the marginal propensity to consume (mpc) equals:

Correct Answer
verified

Exam 11: Financial Markets and International Capital Flows

The bursting of the housing bubble in 2006 caused ______ to cut back on their spending, thereby shifting the PAE line _____.

Correct AnswerverifiedShow Answer

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then taxes must be ______ by approximately ______ to eliminate any output gap.

Correct AnswerverifiedShow Answer

When real output increases, planned aggregate expenditures increase because:

Correct AnswerverifiedShow Answer

In the basic Keynesian model, a decrease in transfer payments:

Correct AnswerverifiedShow Answer

The decision whether to change prices frequently or infrequently is an application of the:

Correct AnswerverifiedShow Answer

In the short-run Keynesian model, to close a recessionary gap of $1 billion dollars government purchases must be:

Correct AnswerverifiedShow Answer

If planned aggregate expenditure (PAE) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has:

Correct AnswerverifiedShow Answer

In the short run with predetermined prices, when output is greater than planned aggregate expenditure:

Correct AnswerverifiedShow Answer

In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned aggregate spending by $20 billion at any output level, government spending must be increased by ______ or net taxes must be decreased by _____.

Correct AnswerverifiedShow Answer

A decrease in stock prices alters the consumption function by:

Correct AnswerverifiedShow Answer

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. Autonomous expenditure equals:

Correct AnswerverifiedShow Answer

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then transfers must be ______ by approximately ______ to eliminate any output gap.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will:

Correct AnswerverifiedShow Answer

Menu costs are the costs of:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:

Correct AnswerverifiedShow Answer

An economic recession in the U.S. ______ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) ______ output gap in Canada.

Correct AnswerverifiedShow Answer

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

Correct AnswerverifiedShow Answer

If consumption increases by $9 when after-tax disposable income increases by $10, the marginal propensity to consume (mpc) equals:

Correct AnswerverifiedShow Answer

The bursting of the housing bubble in 2006 caused __ to cut back on their spending, thereby shifting the PAE line _.

Correct Answer
verified

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then taxes must be by approximately to eliminate any output gap.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned aggregate spending by $20 billion at any output level, government spending must be increased by __ or net taxes must be decreased by _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then transfers must be by approximately to eliminate any output gap.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

An economic recession in the U.S. the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) output gap in Canada.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified