Deck 9: Demand-Side Equilibrium: Unemployment or Inflation?

Question 1

If investment spending depends on GDP,this is called induced investment.

Answer 1

True

Question 2

Producers will change their prices when GDP is at the equilibrium level.

Answer 2

False

Question 3

If the economy is suffering a recession,inventories are probably falling.

Answer 3

False

Question 4

Leakages are offset by investment and government spending in the circular flow model.

Question 5

Free markets coordinate economic activity in such a way as to eliminate the possibility of inflation or unemployment.

Question 6

Equilibrium is the point where total spending equals total output,or GDP.

Question 7

Equilibrium GDP occurs when total spending equals total output.

Question 8

When GDP is less than total spending,GDP will fall.

Question 9

An expenditure schedule shows the relationship between GDP and total output.

Question 10

Injections include saving and taxes.

Question 11

If total spending is greater than current output,GDP will rise.

Question 12

The counterpart to the unsold output of firms is the lack of jobs for workers willing to work.

Question 13

The expenditure schedule includes the consumption function.

Question 14

When demand for goods and services is high,firms are more likely to hire more workers.

Question 15

In a simplified circular flow model with no government,in equilibrium,S = I + (X − IM).

Question 16

Leakages from the circular flow include saving and imports.

Question 17

When GDP decreases,consumption spending increases.

Question 18

Investment spending is a leakage from the circular flow model.

Question 19

When income rises,total expenditures remain constant.

Question 20

When spending falls short of output,additional inventories are created.

Question 21

A decrease in the price level causes a lower equilibrium quantity demanded.

Question 22

In a capitalist market economy,the decision to save is made by the same people who make the major investment decisions.

Question 23

If inventories are being depleted,firms may respond by cutting prices.

Question 24

Total expenditures can be written as C + I + G + (X − IM).

Question 25

A recessionary gap exists when the equilibrium level of GDP exceeds potential GDP.

Question 26

The equilibrium level of GDP is always accompanied by full employment and stable prices.

Question 27

An economic recession in Japan will cause the aggregate demand curve in the United States to shift to the right.

Question 28

In a capitalist market economy,recessions and inflation can occur because of coordination failures.

Question 29

Inventory reductions caused by strong demand are signals to retailers to order more products.

Question 30

The full employment level of GDP is sometimes referred to as "potential GDP."

Question 31

A change in the price level will cause a shift in the expenditure schedule.

Question 32

The aggregate demand curve has an upward slope due to the positive relationship between the price level and aggregate quantity demanded.

Question 33

A given income-expenditure diagram always assumes a variable price level.

Question 34

An increase in the U.S.price level (foreign prices held constant)will cause a leftward shift in the aggregate demand curve.

Question 35

Market economies are likely to suffer from recessions and inflation because the government plans all economic activity.

Question 36

When equilibrium GDP falls below potential GDP,an inflationary gap exists.

Question 37

High unemployment and high rates of inflation are examples of coordination successes.

Question 38

The U.S.economy in 2009 was characterized by an excess level of output.This corresponds to a recessionary gap.

Question 39

The multiplier can be expressed as the ratio of the change in Y over the change in I.

Question 40

If firms are experiencing falling inventories,one can expect that firms will cut production.

Question 41

One of the primary functions of markets could be labeled

A) stimulation.
B) coordination.
C) planification.
D) decentralization.

Question 42

John Maynard Keynes concluded that investment spending is determined by

A) business confidence.
B) economic expectations.
C) psychological perceptions about the economy.
D) All of the above are correct.

Question 43

Total output equals total income

A) only at equilibrium.
B) always.
C) only at non-equilibrium levels of income.
D) never.

Question 44

If total spending is less than total output,then price levels will

A) rise and output will increase.
B) rise and output will decrease.
C) fall and output will increase.
D) fall and output will decrease.

Question 45

Recessions and depressions are the principal examples of

A) market failure.
B) coordination failure.
C) central planning.
D) socialist contradictions.

Question 46

When constructing a basic macroeconomic model,several assumptions (not realistic,but necessary to simplify the analysis)are made.Which of the following are assumed to be constant?

A) the price level
B) the rate of interest
C) the foreign exchange rate
D) the level of government spending
E) All of the above are held constant.

Question 47

Workers in a nearby pizza restaurant may indirectly enjoy income increases from a nearby construction process.

Question 48

If retail managers are ordering extra merchandise from their wholesale distributors,then it is probably t that

A) total output is greater than total spending.
B) price levels are decreasing.
C) inventory levels are increasing.
D) inventory levels are decreasing.

Question 49

When businesses are cutting back production,then it probably t that

A) total spending is greater than total output.
B) total output is greater than total income.
C) total spending is less than total output.
D) inventory levels are decreasing.

Question 50

At the equilibrium level of income it must be t that total

A) income equals total spending.
B) product equals total output.
C) output equals total inventory.
D) income equals total saving.

Question 51

Economists are very good at explaining how individual markets work.Economists are less successful at explaining

A) market pricing.
B) recessions and inflation.
C) central planning.
D) business firm profits.

Question 52

In a simple macroeconomic model,only one component of expenditures is allowed to change:

A) investment.
B) consumption.
C) net exports.
D) government spending.
E) transfer payments.

Question 53

Which of the following questions are not answered by the process of demand side GDP determination?

A) How large is equilibrium GDP?
B) Does the economy have unemployment?
C) Is demand side equilibrium consistent with supply side equilibrium?
D) Does the economy have inflation?
E) All of the above are not answered.

Question 54

An expenditure schedule model with no government sector shows the relationship between

A) C and national product.
B) C and disposable income.
C) C + I and national income.
D) GDP and disposable income.

Question 55

In a market economy,the decisions about what to produce and how much of each good or service to produce are made by

A) government officials.
B) economic planners.
C) central bankers.
D) consumers and producers.

Question 56

By definition,total production must always equal total

A) sales.
B) demand.
C) purchases.
D) income.

Question 57

The main examples of macroeconomic coordination failures are

A) profit declines.
B) relative price changes.
C) recessions and depressions.
D) consumer taste changes.

Question 58

If total spending exceeds total output,then

A) inventory levels will rise.
B) inventory levels will remain constant.
C) inventory levels will fall.
D) output will eventually decrease.

Question 59

If inventory levels are decreasing,then we should expect business firms to

A) decrease prices.
B) decrease output.
C) lay off workers.
D) increase output.

Question 60

Economists before Keynes assumed that equilibrium GDP occurred

A) automatically.
B) only with the help of government stabilization.
C) if spending was generally greater than output.
D) only in socialist economies with central planning.

Question 61

If net exports are reduced,the expenditure schedule will shift

A) downward and equilibrium real GDP will rise.
B) upward and equilibrium real GDP will rise.
C) downward and equilibrium real GDP will fall.
D) upward and equilibrium real GDP will fall.

Question 62

Given the slope of the aggregate demand curve,real GDP demanded will decrease when

A) real income rises.
B) real income falls.
C) the price level falls.
D) the price level rises.

Question 63

Which of the following shows the relationship between national income (GDP)and total spending?

A) Demand schedule
B) Consumption curve
C) Expenditure schedule
D) Balance schedule

Question 64

An increase in the U.S.price level will

A) increase the slope of the expenditure schedule.
B) decrease the slope of the expenditure schedule.
C) shift the expenditure schedule upward.
D) shift the expenditure schedule downward.

Question 65

Equilibrium GDP on the demand side occurs when total spending

A) equals total production, and inventories are zero.
B) equals total production, and firms are unable to adjust inventories.
C) exceeds total production, and inventories are rising.
D) equals total production, and inventories remain at desired levels.
E) is less than total production, and inventories are falling.

Question 66

If the price level rises,the effect on the expenditure schedule and equilibrium real GDP is to

A) increase both.
B) decrease both.
C) shift the expenditure schedule upward and decrease equilibrium real GDP.
D) shift the expenditure schedule downward and increase equilibrium real GDP.

Question 67

The aggregate demand curve

A) slopes upward.
B) slopes downward.
C) is perfectly vertical.
D) is perfectly horizontal.

Question 68

The price level effects consumer spending through changes in real

A) disposable income.
B) interest rates.
C) wealth.
D) GDP.

Question 69

The slope of the aggregate demand curve illustrates that real GDP demanded will increase when

A) the price level rises.
B) the price level falls.
C) real income rises.
D) real income falls.

Question 70

45° line diagrams show how

A) investment varies with income.
B) expenditures vary with income.
C) investment spending rises when GDP rises.
D) GDP is affected by government purchases.

Question 71

Investment spending might be larger when GDP is higher.Such added investment as GDP rises is called

A) mutual investment.
B) induced investment.
C) positive investment.
D) net investment.

Question 72

A higher price level would mean ____ for a person who has a bank deposit of $2 million.

A) an increase in real income
B) a decrease in real wealth
C) a decrease in nominal income
D) an increase in nominal income

Question 73

The slope of the aggregate demand curve illustrates that as the price level rises,

A) real GDP demanded decreases.
B) real GDP demanded increases.
C) the aggregate demand curve shifts rightward.
D) the aggregate demand curve shifts leftward.

Question 74

Two variables that affect the slope of the aggregate demand curve are

A) government purchases and real taxes.
B) tax rates and interest rates.
C) government purchases and interest rates.
D) exchange rates and income rates.

Question 75

The expenditure schedule will shift upward when

A) net exports decrease.
B) net exports increase.
C) total imports increase.
D) total exports decrease.

Question 76

If the U.S.economy is experiencing falling price levels,the

A) expenditure schedule will shift downward.
B) expenditure schedule will shift upward.
C) slope of the expenditure schedule increases.
D) slope of the expenditure schedule decreases.

Question 77

If net exports decrease,the expenditure schedule will

A) get steeper.
B) get flatter.
C) shift upward.
D) shift downward.

Question 78

A rising price level should shift the expenditure schedule

A) upward and decrease equilibrium real GDP.
B) downward and increase equilibrium real GDP.
C) downward and decrease equilibrium real GDP.
D) upward and increase equilibrium real GDP.

Question 79

If the economy is in equilibrium,it must be

A) on the 45° line.
B) on the 60° line.
C) below the 45° line.
D) below the 60° line.

Question 80

When the price level in the United States rises,then net exports should

A) rise and equilibrium real GDP should increase.
B) fall and equilibrium real GDP should increase.
C) fall and equilibrium real GDP should decrease.
D) rise and equilibrium real GDP should decrease.