Question 1

Suppose in 2016, real GDP was $160 trillion. Suppose further that the marginal propensity to consume was 0.75 and the marginal propensity to import was 0.25. Using the Keynesian multiplier, how much should government purchases be changed if policymakers attempt to raise real GDP to $180 trillion by changing government purchases?

Accepted Answer

The expected change in real GD...

Question 2

The permanent income model implies the same relationship between changes in consumption and income as

Accepted Answer

A)  the backward-looking model.
B)  the life-cycle model.
C)  the liquidity constraint model.
D)  the Keynesian multiplier.
E)  None of theseF) A) and D)
G) B) and D)

Question 3

The size of the MPC determines how a change in spending affects income.

Accepted Answer

A) True 
 B)False

Question 4

When firms are at full capacity, real GDP equals potential GDP.

Accepted Answer

A) True 
 B)False

Question 5

If two successive levels of disposable personal income are $160 and $190 billion, respectively, and if the change in consumption spending is $20 billion between these two levels of disposable personal income, then the MPC will equal

Accepted Answer

A)  .50.
B)  .67.
C)  .80.
D)  .20.
E)  1.50.F) All of the above
G) A) and B)

Question 6

Exhibit 23-6 
-According to Exhibit 23-6, line abd shows the path of potential GDP. In Year 2, suppose the expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in Year 3, the economy is at point e, then

Accepted Answer

A)   the expenditure line has shifted up the 45-degree line to a point where real GDP equals potential GDP in Year 3.
B)   the expenditure line has shifted up the 45-degree line, but the level of income is less than the amount corresponding to real GDP.
C)   the expenditure line has shifted down the 45-degree line.
D)   the expenditure line has shifted up the 45-degree line more than it would have if real GDP equaled potential GDP in Year 3.
E)   potential GDP has declined, and we've moved to a new point of spending balance.F) A) and B)
G) A) and D)

Question 7

When the unemployment rate drops below the natural unemployment rate,

Accepted Answer

A)  the economy is in a recession.
B)  real GDP is rising above potential GDP.
C)  real GDP is falling below potential GDP.
D)  the capacity utilization rate is declining.
E)  All of theseF) B) and D)
G) A) and B)

Question 8

The relationship describing how consumption depends on income is known by economists as

Accepted Answer

A)  the income function.
B)  the budget constraint function.
C)  the purchasing function.
D)  the affordable function.
E)  None of theseF) A) and E)
G) A) and B)

Question 9

Answer the questions below:

Accepted Answer

The answer of Answer the questions below:
 
...

Question 10

If capacity utilization is 98 percent,

Accepted Answer

A)  the unemployment rate will be below the natural rate of unemployment.
B)  the unemployment rate will equal the natural unemployment rate.
C)  real GDP equals potential GDP.
D)  workers will be laid off.
E)  real GDP is below potential GDP.F) A) and E)
G) B) and E)

Question 11

When does the slope of the expenditure line equal the MPC?

Accepted Answer

The expenditure line is parallel to the ...

Question 12

When spending equals income, people consume according to the consumption function.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 23-4 
-Plot the consumption function based on the data in Exhibit 23-4. What is the marginal propensity to consume? If the marginal propensity to consume changes to 0.85, show what happens to the consumption function.

Accepted Answer

The relationship between consumption and...

Question 14

President Obama's State of the Union address in 2011 made it clear that the recovery from the 2008/09 recession was strong and widespread across the entire U.S. economy.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the expenditure line is given by the equation E = 800 + .75Y, and output is equal to 3,000. Which of the following is true?

Accepted Answer

A)  There is an incentive for firms to increase output.
B)  Spending is less than income.
C)  Spending is equal to income.
D)  The economy is in equilibrium.
E)  There is too much output.F) D) and E)
G) A) and E)

Question 16

Suppose you read in the paper that government purchases will decrease by $50 billion. Next to the article are three forecasting companies' predictions of the effect the reduction in government purchases will have on real GDP. The predictions are:
Firm A: There will be no other changes in spending, and real GDP will fall by $50 billion.
Firm B: There will be no other changes in spending, and real GDP will fall by $75 billion.
Firm C: Investment will increase by $50 billion, and real GDP will remain the same.
Which forecast do you believe?

Accepted Answer

You should not believe Firm A. This firm...

Question 17

Between 2001 and 2007

Accepted Answer

A)  the United States economy was in recession.
B)  the United States economy moved upward and millions of jobs were created.
C)  the United States economy grew, but not many jobs were created.
D)  the United States economy moved downward, but still many jobs were created.
E)  the United States economy remained stationary.F) B) and D)
G) A) and B)

Question 18

Exhibit 23-1 
-According to Exhibit 23-1, which of the following best explains the change in real GDP from year B to year D?

Accepted Answer

A)  The available supply of labor fell.
B)  Foreign countries must have decided to purchase more U.S.goods.
C)  The government must have cut taxes.
D)  Consumers must have become more optimistic.
E)  Firms must have become more pessimistic.F) B) and E)
G) A) and C)

Question 19

Potential GDP growth is relatively smoother than aggregate demand growth.

Accepted Answer

A) True 
 B)False

Question 20

Along the 45-degree line,

Accepted Answer

A)  spending equals income.
B)  real GDP equals potential GDP.
C)  spending is greater than income.
D)  real GDP equals nominal GDP.
E)  spending is equal to the marginal propensity to consume times income.F) A) and E)
G) C) and E)

Exam 23: The Nature and Causes of Economic Fluctuations

Exhibit 23-4 -Plot the consumption function based on the data in Exhibit 23-4. What is the marginal propensity to consume? If the marginal propensity to consume changes to 0.85, show what happens to the consumption function.

Correct Answer
verified
The relationship between consumption and...
View Answer

When the unemployment rate drops below the natural unemployment rate,

Correct Answer
verified

The size of the MPC determines how a change in spending affects income.

Correct Answer
verified

If two successive levels of disposable personal income are $160 and $190 billion, respectively, and if the change in consumption spending is $20 billion between these two levels of disposable personal income, then the MPC will equal

Correct Answer
verified

Along the 45-degree line,

Correct Answer
verified

Answer the questions below:

Correct Answer
verified

Correct Answer
verified
The expected change in real GD...
View Answer

The relationship describing how consumption depends on income is known by economists as

Correct Answer
verified

The permanent income model implies the same relationship between changes in consumption and income as

Correct Answer
verified

When firms are at full capacity, real GDP equals potential GDP.

Correct Answer
verified

If capacity utilization is 98 percent,

Correct Answer
verified

Potential GDP growth is relatively smoother than aggregate demand growth.

Correct Answer
verified

Exhibit 23-1 -According to Exhibit 23-1, which of the following best explains the change in real GDP from year B to year D?

Correct Answer
verified

Exhibit 23-6 -According to Exhibit 23-6, line abd shows the path of potential GDP. In Year 2, suppose the expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in Year 3, the economy is at point e, then

Correct Answer
verified

When does the slope of the expenditure line equal the MPC?

Correct Answer
verified
The expenditure line is parallel to the ...
View Answer

When spending equals income, people consume according to the consumption function.

Correct Answer
verified

President Obama's State of the Union address in 2011 made it clear that the recovery from the 2008/09 recession was strong and widespread across the entire U.S. economy.

Correct Answer
verified

Between 2001 and 2007

Correct Answer
verified

Correct Answer
verified
You should not believe Firm A. This firm...
View Answer

Suppose the expenditure line is given by the equation E = 800 + .75Y, and output is equal to 3,000. Which of the following is true?

Correct Answer
verified

Exam 23: The Nature and Causes of Economic Fluctuations

Exhibit 23-4 -Plot the consumption function based on the data in Exhibit 23-4. What is the marginal propensity to consume? If the marginal propensity to consume changes to 0.85, show what happens to the consumption function.

Correct AnswerverifiedThe relationship between consumption and...View AnswerShow Answer

When the unemployment rate drops below the natural unemployment rate,

Correct AnswerverifiedShow Answer

The size of the MPC determines how a change in spending affects income.

Correct AnswerverifiedShow Answer

If two successive levels of disposable personal income are $160 and $190 billion, respectively, and if the change in consumption spending is $20 billion between these two levels of disposable personal income, then the MPC will equal

Correct AnswerverifiedShow Answer

Along the 45-degree line,

Correct AnswerverifiedShow Answer

Answer the questions below:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe expected change in real GD...View AnswerShow Answer

The relationship describing how consumption depends on income is known by economists as

Correct AnswerverifiedShow Answer

The permanent income model implies the same relationship between changes in consumption and income as

Correct AnswerverifiedShow Answer

When firms are at full capacity, real GDP equals potential GDP.

Correct AnswerverifiedShow Answer

If capacity utilization is 98 percent,

Correct AnswerverifiedShow Answer

Potential GDP growth is relatively smoother than aggregate demand growth.

Correct AnswerverifiedShow Answer

Exhibit 23-1 -According to Exhibit 23-1, which of the following best explains the change in real GDP from year B to year D?

Correct AnswerverifiedShow Answer

Exhibit 23-6 -According to Exhibit 23-6, line abd shows the path of potential GDP. In Year 2, suppose the expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in Year 3, the economy is at point e, then

Correct AnswerverifiedShow Answer

When does the slope of the expenditure line equal the MPC?

Correct AnswerverifiedThe expenditure line is parallel to the ...View AnswerShow Answer

When spending equals income, people consume according to the consumption function.

Correct AnswerverifiedShow Answer

President Obama's State of the Union address in 2011 made it clear that the recovery from the 2008/09 recession was strong and widespread across the entire U.S. economy.

Correct AnswerverifiedShow Answer

Between 2001 and 2007

Correct AnswerverifiedShow Answer

Correct AnswerverifiedYou should not believe Firm A. This firm...View AnswerShow Answer

Suppose the expenditure line is given by the equation E = 800 + .75Y, and output is equal to 3,000. Which of the following is true?

Correct AnswerverifiedShow Answer

Correct Answer
verified
The relationship between consumption and...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The expected change in real GD...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The expenditure line is parallel to the ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
You should not believe Firm A. This firm...
View Answer

Correct Answer
verified