Macro Economics Chapter 09 Quiz

Question 1

In the aggregate expenditures-output model, if aggregate expenditures (AE) are greater than GDP, then: A: inventory is accumulated.B: inventory is unchanged.C: employment decreases.D: employment increases.

Answer 1

D

Question 2

In the aggregate expenditures-output model, if an economy operates above equilibrium GDP, there will be: A: unplanned inventory accumulation.B: unplanned inventory depletion. C: an increase in GDP. D: an increase in employment.

Answer 2

B

Question 3

In the Keynesian model, investment, government spending, and net exports are treated as autonomous expenditures, which means they are independent of: A: expectations. B: the price level. C: political processes. D: real GDP.

Answer 3

D

Question 4

At the equilibrium level of real GDP, total production equals total: A: saving. B: investment. C: net exports. D: spending.

Answer 4

D

Question 5

The formula to compute the spending multiplier is: A: 1/(MPC + MPS). B: 1/(1 - MPC). C: 1/(1 - MPS). D: 1/(C + I).

Answer 5

B

Question 6

If the marginal propensity to consume (MPC) is 0.80, the value of the spending multiplier is: A: 2. B; 5. C: 8. D: 10.

Answer 6

B

Question 7

If an economy spends 90 percent of any increase in real GDP, then an increase in investment of $1 billion would result ultimately in an increase in real GDP of: A: $0. B: $0.9 billion. C: $1.0 billion. D: $10 billion.

Answer 7

D

Question 8

If MPC = 0.80, how much should government spending change to correct a recessionary gap of $500? A; -100. B: +80. C: -80. D: +500. E: +100.

Answer 8

E

Question 9

If the economy experiences a recessionary gap then: A: aggregate expenditures exceed the level of spending necessary to provide for full employment. B: Keynesian economics would recommend a reduction in government spending or an increase in taxes.C: Keynesian economics would recommend an increase in government spending or a decrease in taxes.D: the equilibrium level of output and income is above full employment.

Answer 9

C

Question 10

Assume that an inflationary gap must be closed by reducing aggregate expenditures. If consumers refuse to cut spending on consumption and producers won’t cut demand for investment goods, the President: A: can do nothing. B: must build more roads. C: must borrow from Wall Street. D: must increase Social Security expenditures. E: must cut government spending.

Answer 10

E