Question 1

If equilibrium GDP exceeds full-employment GDP,

Accepted Answer

A)  The difference is the recessionary GDP gap.
B)  The difference is the inflationary GDP gap.
C)  Inventories will accumulate.
D)  Leakages must be greater than injections.E) A) and C)
F) All of the above

Question 2

A decrease in sales expectations may shift the AD curve to the

Accepted Answer

A)  Left,causing more undesired investment.
B)  Left,causing less undesired investment.
C)  Right,causing more undesired investment.
D)  Right, causing less undesired investment.E) A) and B)
F) A) and C)

Question 3

Unplanned inventory depletion is a warning sign of

Accepted Answer

A)  Impending inflation.
B)  A recessionary gap.
C)  Cyclical unemployment.
D)  Both a recessionary gap and cyclical unemployment.E) A) and C)
F) None of the above

Question 4

An addition of spending to the circular flow of income is

Accepted Answer

A)  An injection.
B)  A leakage.
C)  A surplus.
D)  Household taxes.E) A) and C)
F) A) and B)

Question 5

Investment represents

Accepted Answer

A)  A leakage from the circular flow,like saving.
B)  A leakage from the circular flow,like taxes.
C)  An injection into the circular flow,like government spending.
D)  An injection into the circular flow, like imports.E) All of the above
F) B) and C)

Question 6

Actual investment equals

Accepted Answer

A)  Desired investment plus planned investment.
B)  Planned investment minus undesired investment.
C)  Desired investment plus undesired investment.
D)  Desired investment minus undesired investment.E) A) and B)
F) A) and C) C

Question 7

If planned leakages exceed planned injections,then Keynesians believe

Accepted Answer

A)  The economy will quickly adjust to full employment if left alone.
B)  Income will fall until planned leakages equal planned injections.
C)  Investment will quickly rise to bring the system to equilibrium.
D)  No macro equilibrium can be achieved.E) None of the above
F) A) and D)

Question 8

Assume the equilibrium level of output is less than full employment.To achieve full-employment equilibrium,the aggregate demand curve must shift to the right by

Accepted Answer

A)  The amount of the recessionary GDP gap.
B)  An amount less than the recessionary GDP gap because the spending increase causes the multiplier process to occur.
C)  An amount greater than the recessionary GDP gap because the spending increase raises the price level.
D)  An amount less than the recessionary GDP gap because the spending increase raises output and prices.E) A) and B)
F) A) and C)

Question 9

Which of the following is eliminated when the economy's output is equal to full-employment GDP?

Accepted Answer

A)  The real GDP gap.
B)  The multiplier.
C)  Leakages and injections.
D)  The MPC.E) A) and B)
F) All of the above A

Question 10

If aggregate demand shifts to the left by $400 billion and aggregate supply is upward-sloping,then real output will decrease by

Accepted Answer

A)  $400 billion,and the price level will not change.
B)  Less than $400 billion,and the price level will fall.
C)  $400 billion,and the price level will fall.
D)  More than $400 billion, and the price level will not change.E) None of the above
F) A) and D)

Question 11

Assume a decrease in interest rates causes an initial increase in desired investment and aggregate demand.Additional increases in aggregate demand will

Accepted Answer

A)  Be caused by multiplier-induced increases in autonomous investment.
B)  Be caused by increases in induced expenditures.
C)  Be insignificant compared to the initial increase.
D)  Not occur.E) A) and C)
F) All of the above

Question 12

-Use Table 10.3,which shows the relationship between consumption and income.Assume the price level is constant.  If full-employment income were $400 billion per year in Table 10.3,

Accepted Answer

A)  There would be an inflationary gap.
B)  Full-employment income would equal equilibrium income.
C)  There would be a recessionary gap.
D)  Further information is needed to determine equilibrium income.E) A) and B)
F) B) and C)

Question 13

When investment increases,there is usually no impact on household income.

Accepted Answer

A) True 
 B)False

Question 14

A recessionary GDP gap is the

Accepted Answer

A)  Horizontal distance between full-employment GDP and equilibrium GDP.
B)  Same as an inflationary gap.
C)  Difference between leakages and injections.
D)  Sum of leakages and injections.E) None of the above
F) A) and B)

Question 15

When unwanted inventories pile up in retail stores,retail managers will take actions that lead to greater

Accepted Answer

A)  Inflation.
B)  Unemployment.
C)  Wages.
D)  Economic growth.E) None of the above
F) A) and B)

Question 16

Which of the following situations results in the lowest level of cyclical unemployment?

Accepted Answer

A)  Undesired inventory accumulation.
B)  Total value of goods supplied exceeds total value of goods demanded.
C)  A period of significant inflation.
D)  Desired saving exceeds desired investment.E) A) and B)
F) A) and C)

Question 17

Purchases of new plants and equipment plus any desired changes in business inventories are

Accepted Answer

A)  Economic investment.
B)  Undesired investment.
C)  Desired investment.
D)  Actual investment.E) All of the above
F) B) and D)

Question 18

A leakage is

Accepted Answer

A)  An export from the economy.
B)  A decline in the capacity of the economy to produce goods.
C)  A diversion of income from spending on domestic output.
D)  A decrease in aggregate supply.E) A) and B)
F) A) and C) C

Question 19

The marginal propensity to consume is

Accepted Answer

A)  That part of the average consumer dollar that goes to saving.
B)  The same as the spending multiplier.
C)  The change in consumption divided by the change in disposable income.
D)  Always equal to 1.E) None of the above
F) All of the above

Question 20

Classical economists believe aggregate spending adjusts quickly to equal full-employment output.

Accepted Answer

A) True 
 B)False

Exam 10: Self-Adjustment or Instability

If equilibrium GDP exceeds full-employment GDP,

Correct AnswerverifiedShow Answer

A decrease in sales expectations may shift the AD curve to the

Correct AnswerverifiedShow Answer

Unplanned inventory depletion is a warning sign of

Correct AnswerverifiedShow Answer

An addition of spending to the circular flow of income is

Correct AnswerverifiedShow Answer

Investment represents

Correct AnswerverifiedShow Answer

Actual investment equals

Correct AnswerverifiedC

If planned leakages exceed planned injections,then Keynesians believe

Correct AnswerverifiedShow Answer

Assume the equilibrium level of output is less than full employment.To achieve full-employment equilibrium,the aggregate demand curve must shift to the right by

Correct AnswerverifiedShow Answer

Which of the following is eliminated when the economy's output is equal to full-employment GDP?

Correct AnswerverifiedA

If aggregate demand shifts to the left by $400 billion and aggregate supply is upward-sloping,then real output will decrease by

Correct AnswerverifiedShow Answer

Assume a decrease in interest rates causes an initial increase in desired investment and aggregate demand.Additional increases in aggregate demand will

Correct AnswerverifiedShow Answer

-Use Table 10.3,which shows the relationship between consumption and income.Assume the price level is constant. If full-employment income were $400 billion per year in Table 10.3,

Correct AnswerverifiedShow Answer

When investment increases,there is usually no impact on household income.

Correct AnswerverifiedShow Answer

A recessionary GDP gap is the

Correct AnswerverifiedShow Answer

When unwanted inventories pile up in retail stores,retail managers will take actions that lead to greater

Correct AnswerverifiedShow Answer

Which of the following situations results in the lowest level of cyclical unemployment?

Correct AnswerverifiedShow Answer

Purchases of new plants and equipment plus any desired changes in business inventories are

Correct AnswerverifiedShow Answer

A leakage is

Correct AnswerverifiedC

The marginal propensity to consume is

Correct AnswerverifiedShow Answer

Classical economists believe aggregate spending adjusts quickly to equal full-employment output.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified