Question 1

An increase in the marginal propensity to consume leads to an increase in the Keynesian multiplier.

Accepted Answer

A) True 
 B)False

Question 2

The spending multiplier is the ratio of the change in real GDP to

Accepted Answer

A)   a shift in the expenditure line.
B)   a movement along the expenditure line.
C)   a shift in the 45-degree line.
D)   a change in marginal propensity to consume.
E)   a change in potential GDP.F) A) and E)
G) A) and D)

Question 3

Most short-term forecasts are based on expected changes in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 4

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) C) and D)
G) A) and B)

Question 5

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) A) and B)
G) A) and E)

Question 6

Exhibit 23-5 
-If output was at the level corresponding to point E in Exhibit 23-5, then

Accepted Answer

A)   income would increase.
B)   aggregate output would decrease.
C)   it would be in equilibrium.
D)   the marginal propensity to consume would decrease.
E)   spending would decrease.F) B) and C)
G) D) and E)

Question 7

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) D) and E)
G) A) and B)

Question 8

The rational expectations assumption implies that anticipated tax changes have no impact on consumption at all.

Accepted Answer

A) True 
 B)False

Question 9

Sketch the 45-degree line and the expenditure line on a diagram. Use this diagram to show what happens to the level of income if government purchases decline. Does income decrease by more or by less than the downward shift in government purchases? Explain.

Accepted Answer

As shown in the diagram below, a decline...

Question 10

Which of the following statements is true?

Accepted Answer

A)   A change in income has no effect on consumption, but a change in consumption will cause income to change.
B)   A change in income will affect consumption, but a change in consumption will not affect income.
C)   A change in income has no effect on consumption, and a change in consumption has no effect on income.
D)   A change in income causes consumption to change, and a change in consumption will cause income to change.
E)   None of theseF) A) and E)
G) A) and D)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

The Keynesian multiplier measures

Accepted Answer

A)   both the short-run and long-run impacts of an initial change in spending on real GDP.
B)   the long-run impact of an initial change in spending on real GDP.
C)   the short-run impact of an initial change in spending on real GDP.
D)   the long-run impact of a change in real GDP on consumption.
E)   the short-run impact of a change in real GDP on total spending.F) A) and B)
G) A) and C)

Question 13

If there is an increase in government purchases, real GDP will

Accepted Answer

A)   increase by more than the amount of the purchases.
B)   increase by less than the amount of the purchases.
C)   not change.
D)   increase by the amount of the purchases.
E)   decrease by less than the amount of the purchases.F) B) and D)
G) B) and C)

Question 14

A conditional forecast is based on what is likely to happen.

Accepted Answer

A) True 
 B)False

Question 15

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 16

The marginal propensity to consume is best defined as

Accepted Answer

A)   the change in consumption expenditure caused by an increase in the interest rate.
B)   the change in consumption expenditure caused by a one-unit increase in income.
C)   the change in real GDP caused by a change in consumption expenditure.
D)   the change in consumption expenditure caused by a change in some other spending category.
E)   total consumption divided by total income.F) C) and D)
G) D) and E)

Question 17

If the marginal propensity to consume declines, then

Accepted Answer

A)   for any given change in income, there will be a smaller change in saving.
B)   nothing will happen to the consumption function.
C)   for any given change in income, there will be a larger change in consumption.
D)   for any given change in consumption, there will be a smaller change in income.
E)   for any given change in income, there will be a smaller change in consumption.F) A) and D)
G) B) and E)

Question 18

Equilibrium output in the short run, as given by spending balance, can be above or below potential GDP.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following would not shift the expenditure line?

Accepted Answer

A)   An increase in government spending to finance a war
B)   An increase in investment
C)   A decrease in net exports brought about by an appreciation of the dollar
D)   All of these would shift the expenditures curve.E) All of the above
F) C) and D)

Question 20

Suppose that the expenditure line initially intersects the 45-degree line at a point where potential GDP is equal to real GDP. Now, suppose over the next year the economy goes into a boom. Draw a graph showing what happens to the expenditure line as the economy moves into a boom.

Accepted Answer

Initially, the expenditure line is at E₁ ...

Exam 11: The Nature and Causes of Economic Fluctuations

Exhibit 23-5 -If output was at the level corresponding to point E in Exhibit 23-5, then

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Between 2001 and 2007

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The spending multiplier is the ratio of the change in real GDP to

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When the unemployment rate drops below the natural unemployment rate,

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The marginal propensity to consume is best defined as

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A conditional forecast is based on what is likely to happen.

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If the marginal propensity to consume declines, then

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Which of the following statements is true?

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The Keynesian multiplier measures

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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

Most short-term forecasts are based on expected changes in aggregate demand.

Correct AnswerverifiedShow Answer

Equilibrium output in the short run, as given by spending balance, can be above or below potential GDP.

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

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If there is an increase in government purchases, real GDP will

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Suppose that the expenditure line initially intersects the 45-degree line at a point where potential GDP is equal to real GDP. Now, suppose over the next year the economy goes into a boom. Draw a graph showing what happens to the expenditure line as the economy moves into a boom.

Correct AnswerverifiedInitially, the expenditure line is at E1 ...View AnswerShow Answer

An increase in the marginal propensity to consume leads to an increase in the Keynesian multiplier.

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Sketch the 45-degree line and the expenditure line on a diagram. Use this diagram to show what happens to the level of income if government purchases decline. Does income decrease by more or by less than the downward shift in government purchases? Explain.

Correct AnswerverifiedAs shown in the diagram below, a decline...View AnswerShow Answer

Which of the following would not shift the expenditure line?

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The rational expectations assumption implies that anticipated tax changes have no impact on consumption at all.

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Along the 45-degree line,

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Initially, the expenditure line is at E₁ ...
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As shown in the diagram below, a decline...
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