Question 1

If an unplanned increase in business inventories occurs:

Accepted Answer

A)   we can expect aggregate production to be unaffected.
B)   we can expect businesses to increase the level of production.
C)   we can expect businesses to lower the level of production.
D)   aggregate expenditures must exceed the domestic output.E) B) and D)
F) All of the above

Question 2

Refer to the above diagram, which applies to a private closed economy. If the initial gross investment Ig1 increases to Ig2, the equilibrium GDP will increase by:

Accepted Answer

A)   FE.
B)   AB.
C)   AD.
D)   GE.E) B) and D)
F) C) and D)

Question 3

When investment remains the same at each level of GDP in a private closed economy, the slope of the aggregate expenditures schedule:

Accepted Answer

A)   exceeds the MPC.
B)   is less than the MPC.
C)   equals the MPS.
D)   equals the MPC.E) B) and D)
F) A) and B)

Question 4

The table shows a private, open economy. All figures are in billions of dollars.
 
-Refer to the above table. If net exports increased by $10 billion at each level of GDP, the equilibrium real GDP would be:

Accepted Answer

A)   $550.
B)   $600.
C)   $650.
D)   $700.E) B) and C)
F) A) and C)

Question 5

-Refer to the above diagram which is for a private closed economy. All figures are in billions of dollars. If gross investment is $15, the equilibrium level of GDP:

Accepted Answer

A)   is $30.
B)   is $380.
C)   is $300.
D)   is $340.E) A) and D)
F) A) and C)

Question 6

In a private closed economy, where aggregate expenditures exceed domestic output:

Accepted Answer

A)   domestic output will decline to the break-even level.
B)   business inventories will rise.
C)   saving exceeds planned investment.
D)   planned investment exceeds saving.E) A) and C)
F) A) and D)

Question 7

Assuming the MPC is .75, an equal $10 billion increases in government spending and tax collections will:

Accepted Answer

A)   leave the equilibrium GDP unchanged.
B)   increase the equilibrium GDP by $10 billion.
C)   increase the equilibrium GDP by $2.5 billion.
D)   reduce the equilibrium GDP by $10 billion.E) All of the above
F) C) and D)

Question 8

Planned investment is $75 billion and saving is $62 billion in a private closed economy. In equilibrium actual investment must be:

Accepted Answer

A)   $13 billion.
B)   $75 billion.
C)   $62 billion.
D)   minus $13 billion.E) C) and D)
F) All of the above

Question 9

A recessionary expenditure gap in a mixed open economy can be measured as the extent to which aggregate expenditures fall short of those required to achieve the full-employment GDP.

Accepted Answer

A) True 
 B)False

Question 10

The letters Y, C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports respectively. Figures are in billions of dollars.
C = 26 + .75Y
Ig = 60
X = 24
M = 10
-The equilibrium level of GDP for the above open economy is:

Accepted Answer

A)   $390.
B)   $375.
C)   $320.
D)   $400.E) B) and C)
F) B) and D)

Question 11

If an unplanned increase in business inventories occurs at some level of GDP, then GDP:

Accepted Answer

A)   entails a rate of aggregate expenditures in excess of the rate of aggregate production.
B)   may be either above or below the equilibrium output.
C)   is too low for equilibrium.
D)   will decrease.E) B) and D)
F) C) and D)

Question 12

If the economy is in equilibrium at the $400 billion level of GDP and the full-employment level of GDP is $500 billion:

Accepted Answer

A)   real and nominal GDP will both increase.
B)   economy does not reach full-employment unless aggregate expenditures increases.
C)   real GDP will increase, but nominal GDP will decrease.
D)   the price level will increase.E) A) and C)
F) None of the above

Question 13

-Refer to the above information. If the real interest rate is 20 percent, the equilibrium level of GDP will be:

Accepted Answer

A)   $100.
B)   $200.
C)   $300.
D)   $400.E) B) and C)
F) B) and D)

Question 14

Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE1, the: 1, the:   A)  inflationary expenditure gap is hg. B)  recessionary expenditure gap is BC. C)  inflationary expenditure gap is zero. D)  inflationary expenditure gap is ed." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   inflationary expenditure gap is hg.
B)   recessionary expenditure gap is BC.
C)   inflationary expenditure gap is zero.
D)   inflationary expenditure gap is ed.E) A) and C)
F) A) and D)

Question 15

In reality, if a nation imposes tarrifs, then the final result will be that:

Accepted Answer

A)   net exports and GDP will increase.
B)   net exports and GDP will decrease.
C)   there will be is no long term effect on net exports and GDP.
D)   there will be a decrease in imports and an increase in GDP.E) C) and D)
F) A) and B)

Question 16

Suppose the economy's multiplier is 2. Other things equal, a $25 billion decrease in government expenditures on national defence will cause equilibrium GDP to:

Accepted Answer

A)   decrease by $50 billion.
B)   decrease by $150 billion.
C)   remain unchanged since spending on military goods is unproductive and usually wasteful.
D)   decrease by $25 billion.E) B) and C)
F) None of the above

Question 17

Assume in a private economy that the equilibrium level of income is $380 and the MPS is 0.25. Now suppose government collects taxes of $50 and spends the entire amount. As a result:

Accepted Answer

A)   the equilibrium level of real income and the price level will both remain unchanged.
B)   nominal wage rates will fall.
C)   the equilibrium level of income will rise to $420.
D)   the equilibrium level of income will rise to $430.E) B) and C)
F) All of the above

Question 18

g)  are the private expenditures in the closed economy and Xn2 are the net exports in the open economy: A)  exports are negative. B)  net exports are positive. C)  net exports are negative. D)  exports are positive." class="answers-bank-image d-inline" rel="preload" > Other: Pick-up
-Refer to the above diagram. If (C + Ig)  are the private expenditures in the closed economy and Xn2 are the net exports in the open economy:

Accepted Answer

A)   exports are negative.
B)   net exports are positive.
C)   net exports are negative.
D)   exports are positive.E) B) and C)
F) None of the above

Question 19

The relationship between investment and GDP is shown by the:

Accepted Answer

A)   consumption of fixed capital schedule.
B)   saving schedule.
C)   investment schedule.
D)   consumption schedule.E) A) and B)
F) C) and D)

Question 20

In a private closed economy, aggregate expenditures will equal GDP where:

Accepted Answer

A)   consumption equals investment.
B)   consumption plus investment equals aggregate expenditures.
C)   planned investment equals saving.
D)   disposable income equals consumption minus saving.E) B) and D)
F) None of the above

Exam 9: The Aggregate Expenditures Model

The relationship between investment and GDP is shown by the:

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The letters Y, C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports respectively. Figures are in billions of dollars. C = 26 + .75Y Ig = 60 X = 24 M = 10 -The equilibrium level of GDP for the above open economy is:

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If an unplanned increase in business inventories occurs:

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Assuming the MPC is .75, an equal $10 billion increases in government spending and tax collections will:

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-Refer to the above diagram which is for a private closed economy. All figures are in billions of dollars. If gross investment is $15, the equilibrium level of GDP:

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A recessionary expenditure gap in a mixed open economy can be measured as the extent to which aggregate expenditures fall short of those required to achieve the full-employment GDP.

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In reality, if a nation imposes tarrifs, then the final result will be that:

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Assume in a private economy that the equilibrium level of income is $380 and the MPS is 0.25. Now suppose government collects taxes of $50 and spends the entire amount. As a result:

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In a private closed economy, aggregate expenditures will equal GDP where:

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If the economy is in equilibrium at the $400 billion level of GDP and the full-employment level of GDP is $500 billion:

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Planned investment is $75 billion and saving is $62 billion in a private closed economy. In equilibrium actual investment must be:

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The table shows a private, open economy. All figures are in billions of dollars. -Refer to the above table. If net exports increased by $10 billion at each level of GDP, the equilibrium real GDP would be:

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-Refer to the above information. If the real interest rate is 20 percent, the equilibrium level of GDP will be:

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Refer to the above diagram, which applies to a private closed economy. If the initial gross investment Ig1 increases to Ig2, the equilibrium GDP will increase by:

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If an unplanned increase in business inventories occurs at some level of GDP, then GDP:

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When investment remains the same at each level of GDP in a private closed economy, the slope of the aggregate expenditures schedule:

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Suppose the economy's multiplier is 2. Other things equal, a $25 billion decrease in government expenditures on national defence will cause equilibrium GDP to:

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Other: Pick-up -Refer to the above diagram. If (C + Ig) are the private expenditures in the closed economy and Xn2 are the net exports in the open economy:

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Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE1, the:

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In a private closed economy, where aggregate expenditures exceed domestic output:

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The letters Y, C, I_g, X, and M stand for GDP, consumption, gross investment, exports, and imports respectively. Figures are in billions of dollars. C = 26 + .75Y I_g = 60 X = 24 M = 10 -The equilibrium level of GDP for the above open economy is:

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Refer to the above diagram, which applies to a private closed economy. If the initial gross investment I_g1 increases to I_g2, the equilibrium GDP will increase by:

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Other: Pick-up -Refer to the above diagram. If (C + I_g) are the private expenditures in the closed economy and X_n2 are the net exports in the open economy:

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Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE₁, the:

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