Question 1

The economy is in equilibrium,TP = TE,and Real GDP is $4,000 billion.The MPC is 0.60,the multiplier is operative,and idle resources exist at each expenditure round.Autonomous investment spending rises by $13 billion.As a result,the __________ curve shifts __________,inventory levels unexpectedly __________,business firms __________ the quantity of goods and services they produce,and Real GDP __________ by __________.

Accepted Answer

When autonomous investment spending rises by $13 billion, it increases aggregate expenditure (AE) by $13 billion, which equals MPC × $13 billion = 0.60 × $13 billion = $7.8 billion. Because real GDP is in equilibrium, the increase in AE will raise real GDP by a multiple of $7.8 billion. Using the formula for the spending multiplier, we can determine that the change in real GDP is $7.8 billion times the multiplier: $7.8 billion × 4.166 = $32.5 billion. Therefore, real GDP rises by $32.5 billion. As a result of the increase in AE, the TE curve shifts upward, inventory levels unexpectedly rise, and business firms increase the quantity of goods and services they produce. The TP curve is not affected by the increase in autonomous investment spending.

Question 2

Government purchases rise by $100 billion and the MPC is equal 0.75.Assuming that idle resources exist at each expenditure round,and the multiplier is operative,the change in Real GDP equals

Accepted Answer

The change in Real GDP can be calculated using the spending multiplier formula: Multiplier = 1/(1-MPC). With an MPC of 0.75, the multiplier is 1/(1-0.75) = 4. Therefore, the change in Real GDP is $100 billion * 4 = $400 billion.

Question 3

Inventory levels unexpectedly fall and firms increase the quantity of goods and services they produce.Which of the following is consistent with these two occurrences?

Accepted Answer

When inventory levels fall unexpectedly, it indicates that total production (TP) is less than total expenditure (TE), as firms are selling more than they are producing, leading them to increase production to meet demand.

Question 4

The economy is in equilibrium,TP = TE,and Real GDP is $4,555 billion.The MPC is 0.80,the multiplier is operative,and idle resources exist at each expenditure round.Government purchases rise by $10 billion.As a result,the __________ curve shifts __________,inventory levels unexpectedly __________,business firms ___________ the quantity of goods and services they produce,and Real GDP __________ by __________.

Accepted Answer

Since the MPC is 0.80 and the multiplier is operative, a rise in government purchases by $10 billion will lead to a $50 billion increase in Real GDP (multiplier effect = 1/1-MPC = 1/0.2 = 5; 5 x $10 billion = $50 billion). This increase in Real GDP will shift the TE curve upward. Since idle resources exist, business firms will increase the quantity of goods and services they produce, leading to an increase in inventory levels. Thus, the only answer choice that fits all conditions is C.

Question 5

If total production (TP)is greater than total expenditures (TE),it follows that

Accepted Answer

When total production exceeds total expenditures, it implies that the amount produced is more than what is being bought or consumed, leading to an increase in actual inventory levels as unsold goods accumulate.

Question 6

Which of the following is true?

Accepted Answer

The multiplier is calculated as 1/(1-MPC) or 1/MPS. For A, if MPC = 0.50, the multiplier is 1/(1-0.50) = 2.00. For C, if MPS = 0.35, then MPC = 1 - MPS = 0.65, and the multiplier is 1/(1-0.65) = 2.86. Both A and C are correct.

Question 7

The answer is: "It is sometimes in the best interest of business firms to pay their employees higher-than-equilibrium wage rates." What is the question?

Accepted Answer

This statement refers to the idea of efficiency wages, which is a topic covered in the study of labor economics.

Question 8

If total production (TP)is less than total expenditures (TE),it follows that

Accepted Answer

If TP is less than TE, it implies that demand (reflected by expenditures) exceeds supply (production), suggesting firms have underproduced (B) and would likely increase production (C) to meet demand.

Question 9

The economy is in equilibrium,TP = TE,and Real GDP is $4,000 billion.The MPC is 0.70,the multiplier is operative,and idle resources exist at each expenditure round.Government purchases fall by $17 billion.As a result,the TE curve shifts __________,inventory levels unexpectedly __________,business firms __________ the quantity of goods and services they produce,and Real GDP __________ by __________.

Accepted Answer

When government purchases fall by $17 billion, the aggregate expenditure will reduce by $17 billion as well, which means the TE curve will shift downward. This will lead to an unexpected increase in inventory levels, causing firms to decrease the quantity of goods and services they produce. Since the multiplier is operative, the decrease in government purchases of $17 billion will cause the Real GDP to fall by approximately $56.7 billion (multiplier effect: 1/ (1-0.70) x (-$17 billion) = -$56.7 billion). Therefore, option A is the correct answer to this question.

Question 10

The economy is in equilibrium,TP = TE.Then,autonomous consumption rises.As a result,__________ rises,the __________ curve shifts __________,inventory levels unexpectedly __________,and business firms __________ the quantity of goods and services they produce.

Accepted Answer

When autonomous consumption rises, it leads to an overall rise in consumption. As consumption is a component of the aggregate expenditure, the aggregate expenditure curve shifts upward. This causes a new equilibrium point to be established at a higher level of output where the aggregate expenditure intersects with the production level. As a result of this rise in output, inventory levels unexpectedly fall, and businesses increase the quantity of goods and services they produce to meet the higher demand. Therefore, the correct option is B: consumption; TE; upward; fall; increase.

Question 11

The economy is in equilibrium,TP = TE.Then,net exports fall.As a result,the __________ curve shifts __________,inventory levels unexpectedly __________,and business firms __________ the quantity of good and services they produce.

Accepted Answer

If net exports fall, this means there is a decrease in the amount of goods and services being exported, causing a decrease in the total expenditure (TE) in the economy. However, the total production (TP) remains the same, meaning there is now an excess inventory of goods. To correct this, businesses will decrease the quantity of goods and services they produce, shifting the TE curve downward. Thus, the economy is no longer in equilibrium and this will cause a rise in inventory levels as goods go unsold. The TP curve remains the same because there has been no change in the production capacity of the economy. This is why choice C is the best option.

Question 12

Which of the following statements is true?

Accepted Answer

None of the statements are true. TP and TE can be equal at any level of output, not just at natural real GDP. Inventory levels can rise or fall for many reasons, not just when TE is greater or less than TP respectively.

Question 13

Inventory levels unexpectedly rise and firms cutback on production.Which of the following is consistent with these two occurrences?

Accepted Answer

When inventory levels rise unexpectedly, it indicates that Total Production (TP) is greater than Total Expenditure (TE), as firms are producing more than what is being consumed or sold, leading to an accumulation of unsold goods.

Question 14

There are no idle resources,the multiplier is operative,and autonomous spending rises.It follows that

Accepted Answer

The answer of There are no idle resources,the multiplier is...

Question 15

Here is a consumption function: C = C₀ + MPC(Y_d).Which of the following is true about the consumption function?

Accepted Answer

The consumption function shows that consumption (C) is determined by autonomous consumption (C₀) and the marginal propensity to consume (MPC) times disposable income (Yd). Therefore, consumption will rise if either autonomous consumption or disposable income rises (A), and for every $1 increase in autonomous consumption, consumption will also increase by $1 (D).

Question 16

Here is a consumption function: C = C₀ + MPC(Y_d).If consumption is $3,300,MPC =0.85,and disposable income is $2,100,what does autonomous consumption equal?

Accepted Answer

The answer of Here is a consumption function: C =...

Question 17

Which of the following statements is false?

Accepted Answer

MPC (Marginal Propensity to Consume) is defined as the ratio of the change in consumption to the change in disposable income, not the ratio of additional saving to additional disposable income. This makes statement B false.

Question 18

If consumption is greater than disposable income,it follows that

Accepted Answer

If consumption is greater than disposable income, it means that individuals are spending more than what they earn. This implies that they are not saving any money and may even be borrowing to finance their consumption, leading to negative saving.

Question 19

The change in disposable income is $200 and the change in saving is $50.What is the marginal propensity to consume (MPC)?

Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in disposable income. If the change in saving is $50, then the change in consumption is $150 (since the change in disposable income is $200 and what is not saved is consumed). Therefore, MPC = $150 / $200 = 0.75.

Question 20

Autonomous spending rises by $10 billion and Real GDP rises by $50 billion.What does the marginal propensity to save equal?

Accepted Answer

Autonomous spending increases by $10 billion, which is the initial increase in spending that does not depend on income or other variables. Real GDP increases by $50 billion, implying that there was a multiplier effect. 
Multiplier = 1/(1-MPC)
MPC = 1 - (1/Multiplier)
MPC = 1 - (1/5)
MPC = 0.20
Therefore, the marginal propensity to save equals 0.20.

Quiz 10: Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Government purchases rise by $100 billion and the MPC is equal 0.75.Assuming that idle resources exist at each expenditure round,and the multiplier is operative,the change in Real GDP equals

Inventory levels unexpectedly fall and firms increase the quantity of goods and services they produce.Which of the following is consistent with these two occurrences?

If total production (TP) is greater than total expenditures (TE) ,it follows that

Which of the following is true?

The answer is: "It is sometimes in the best interest of business firms to pay their employees higher-than-equilibrium wage rates." What is the question?

If total production (TP) is less than total expenditures (TE) ,it follows that

The economy is in equilibrium,TP = TE.Then,autonomous consumption rises.As a result, rises,the curve shifts ,inventory levels unexpectedly ,and business firms __ the quantity of goods and services they produce.

The economy is in equilibrium,TP = TE.Then,net exports fall.As a result,the curve shifts ,inventory levels unexpectedly ,and business firms the quantity of good and services they produce.

Which of the following statements is true?

Inventory levels unexpectedly rise and firms cutback on production.Which of the following is consistent with these two occurrences?

There are no idle resources,the multiplier is operative,and autonomous spending rises.It follows that

Here is a consumption function: C = C₀ + MPC(Y_d) .Which of the following is true about the consumption function?

Here is a consumption function: C = C₀ + MPC(Y_d) .If consumption is $3,300,MPC =0.85,and disposable income is $2,100,what does autonomous consumption equal?

Which of the following statements is false?

If consumption is greater than disposable income,it follows that

The change in disposable income is $200 and the change in saving is $50.What is the marginal propensity to consume (MPC) ?

Autonomous spending rises by $10 billion and Real GDP rises by $50 billion.What does the marginal propensity to save equal?

Quiz 10: Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Government purchases rise by $100 billion and the MPC is equal 0.75.Assuming that idle resources exist at each expenditure round,and the multiplier is operative,the change in Real GDP equals

Inventory levels unexpectedly fall and firms increase the quantity of goods and services they produce.Which of the following is consistent with these two occurrences?

If total production (TP) is greater than total expenditures (TE) ,it follows that

Which of the following is true?

The answer is: "It is sometimes in the best interest of business firms to pay their employees higher-than-equilibrium wage rates." What is the question?

If total production (TP) is less than total expenditures (TE) ,it follows that

The economy is in equilibrium,TP = TE.Then,autonomous consumption rises.As a result,__________ rises,the __________ curve shifts __________,inventory levels unexpectedly __________,and business firms __________ the quantity of goods and services they produce.

The economy is in equilibrium,TP = TE.Then,net exports fall.As a result,the __________ curve shifts __________,inventory levels unexpectedly __________,and business firms __________ the quantity of good and services they produce.

Which of the following statements is true?

Inventory levels unexpectedly rise and firms cutback on production.Which of the following is consistent with these two occurrences?

There are no idle resources,the multiplier is operative,and autonomous spending rises.It follows that

Here is a consumption function: C = C0 + MPC(Yd) .Which of the following is true about the consumption function?

Here is a consumption function: C = C0 + MPC(Yd) .If consumption is $3,300,MPC =0.85,and disposable income is $2,100,what does autonomous consumption equal?

Which of the following statements is false?

If consumption is greater than disposable income,it follows that

The change in disposable income is $200 and the change in saving is $50.What is the marginal propensity to consume (MPC) ?

Autonomous spending rises by $10 billion and Real GDP rises by $50 billion.What does the marginal propensity to save equal?

The economy is in equilibrium,TP = TE.Then,autonomous consumption rises.As a result, rises,the curve shifts ,inventory levels unexpectedly ,and business firms __ the quantity of goods and services they produce.

The economy is in equilibrium,TP = TE.Then,net exports fall.As a result,the curve shifts ,inventory levels unexpectedly ,and business firms the quantity of good and services they produce.

Here is a consumption function: C = C₀ + MPC(Y_d) .Which of the following is true about the consumption function?

Here is a consumption function: C = C₀ + MPC(Y_d) .If consumption is $3,300,MPC =0.85,and disposable income is $2,100,what does autonomous consumption equal?