Question 1

For an economy starting at potential output, a decrease in autonomous expenditure in the short run results in a(n):

Accepted Answer

A decrease in autonomous expenditure means a decrease in aggregate demand, leading to a decrease in output below potential output. This is known as a recessionary output gap.

Question 2

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because:

Accepted Answer

When autonomous spending changes, it directly changes the income of producers. This leads to additional changes in spending, as higher income leads to higher consumption and potentially more investment. This cycle of increased spending and income continues until the total increase in output is greater than the initial increase in autonomous spending, resulting in a multiplier effect.

Question 3

A recession in the United States ______ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) ______ output gap in Canada.

Accepted Answer

A recession in the US would reduce the demand for exports from Canada, which would in turn reduce Canadian autonomous expenditures (i.e. spending that is not related to changes in income or output) leading to a reduction in output or a recessionary output gap.

Question 4

In the Keynesian model, a $1 billion increase in autonomous consumption leads to ______ in short-run equilibrium output.

Accepted Answer

According to the Keynesian model, an increase in autonomous consumption (which is a component of aggregate demand) leads to a multiplied increase in output due to the multiplier effect. The size of the multiplier depends on the marginal propensity to consume (MPC), which is the fraction of each additional dollar of income that is spent on consumption. The larger the MPC, the larger the multiplier will be. Assuming an MPC greater than zero, a $1 billion increase in autonomous consumption will lead to a greater than $1 billion increase in short-run equilibrium output.

Question 5

If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.9Y and potential output (Y*) equals 9,000, then this economy has:

Accepted Answer

Potential output (Y*) is 9,000 and PAE is 1,000 + 0.9Y. At full employment, Y* is produced with no inflationary pressures. However, if aggregate expenditure exceeds Y*, it creates an expansionary gap. In this case, the PAE equation suggests that when income increases by 1 unit, aggregate expenditure increases by 0.9 units - indicating that an increase in income results in an even greater increase in expenditure, which pushes the economy beyond its potential output level, leading to inflationary pressures. Therefore, this economy has an expansionary gap.

Question 6

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

Accepted Answer

The financial market disruptions led to a credit crunch, making it difficult for businesses and consumers to access loans.

Question 7

The bursting of the housing bubble in 2006 caused ______ to cut back on their spending, thereby shifting the PAE line _____.

Accepted Answer

The bursting of the housing bubble in 2006 caused businesses and households to cut back on their spending as they faced financial difficulties. This led to a decrease in consumption, which shifted the PAE line downward.

Question 8

The smaller the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.

Accepted Answer

As the mpc gets smaller, so does the income-expenditure multiplier and the final effects of changes in autonomous spending.

Question 9

Refer to the figure below.  Based on the figure, the income-expenditure multiplier in the economy illustrated equals:

Accepted Answer

The answer of Refer to the figure below.  Based...

Question 10

The larger the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.

Accepted Answer

The income-expenditure multiplier is calculated as 1/(1-MPC). Therefore, the larger the MPC, the smaller the denominator and the larger the multiplier. This means that a change in autonomous spending will have a larger impact on short-run equilibrium output.

Question 11

For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n):

Accepted Answer

An increase in autonomous expenditure, such as government spending or investment, will increase aggregate demand and cause output to temporarily exceed potential output, resulting in an expansionary output gap. However, this is a short-term effect and potential output remains unchanged in the long run.

Question 12

For an economy starting at potential output, a decrease in planned investment in the short run results in a(n):

Accepted Answer

A decrease in planned investment results in a decrease in aggregate demand, which leads to a contractionary gap or a recessionary output gap. This gap is the difference between actual output and potential output, where potential output remains unchanged in the short run. Therefore, option B is the best choice. Options A, C, and D are incorrect as they do not reflect the impact of a decrease in planned investment on the output gap or potential output.

Question 13

Refer to the figure below.  Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is ______, and ______ could return the economy to potential output (Y*).

Accepted Answer

The answer of Refer to the figure below.  Based...

Question 14

Refer to the figure below.  Based on the figure, if the economy is in short-run equilibrium with output equal to 16,000, then there is ______, and ______ could return the economy to potential output (Y*).

Accepted Answer

The answer of Refer to the figure below.  Based...

Question 15

For an economy starting at potential output, an increase in planned investment in the short run results in a(n):

Accepted Answer

An increase in planned investment in the short run causes an increase in aggregate demand, resulting in an output level higher than potential output, which is known as an expansionary output gap. This is because the economy is temporarily operating beyond its capacity, leading to price and wage increases.

Question 16

If planned aggregate expenditure (PAE) in an economy equals 3,000 + 0.75Y and potential output (Y*) equals 12,000, then this economy has:

Accepted Answer

Equilibrium occurs where PAE equals Y. In this economy, (3,000 + 0.75Y)= Y, so Y = 12,000. Since Y* = 12,000 and actual output equals potential output, there is no output gap.

Question 17

House prices in the U.S.increased dramatically _____, and decreased dramatically ______.

Accepted Answer

According to historical data and analysis, house prices in the United States increased dramatically from 2001 to 2006, reaching their peak in 2006. However, from 2007 to 2009, the U.S. housing market experienced a significant decline due to the subprime mortgage crisis, causing house prices to decrease dramatically.

Question 18

A recession in Japan ______ the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n) ______ output gap in the East Asian countries.

Accepted Answer

A recession in Japan would reduce the demand for exports from East Asian countries, leading to a decrease in autonomous expenditures and creating a recessionary output gap in these countries.

Question 19

An economic expansion in the United States ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) ______ output gap in Mexico.

Accepted Answer

An economic expansion in the United States increases the demand for exports from Mexico, which leads to an increase in Mexican autonomous expenditures (expenditures that are independent of income levels, such as government spending or exports). This would lead to an expansionary output gap in Mexico, as demand for goods and services in the country is greater than its current level of production.

Question 20

If planned aggregate expenditure (PAE) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has:

Accepted Answer

Equilibrium occurs where PAE equals Y. In this economy, (2,000 + 0.8Y)= Y, so Y = 10,000. Since Y* = 11,000 and actual output falls short of potential output, there is a recessionary gap.

Quiz 11: Spending, Output, and Fiscal Policy

For an economy starting at potential output, a decrease in autonomous expenditure in the short run results in a(n) :

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because:

A recession in the United States the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) output gap in Canada.

In the Keynesian model, a $1 billion increase in autonomous consumption leads to ______ in short-run equilibrium output.

If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.9Y and potential output (Y*) equals 9,000, then this economy has:

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

The bursting of the housing bubble in 2006 caused __ to cut back on their spending, thereby shifting the PAE line _.

The smaller the mpc, the the income-expenditure multiplier and the the effect of a change in autonomous spending on short-run equilibrium output.

Refer to the figure below. Based on the figure, the income-expenditure multiplier in the economy illustrated equals:

The larger the mpc, the the income-expenditure multiplier and the the effect of a change in autonomous spending on short-run equilibrium output.

For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n) :

For an economy starting at potential output, a decrease in planned investment in the short run results in a(n) :

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is , and could return the economy to potential output (Y*) .

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 16,000, then there is , and could return the economy to potential output (Y*) .

For an economy starting at potential output, an increase in planned investment in the short run results in a(n) :

If planned aggregate expenditure (PAE) in an economy equals 3,000 + 0.75Y and potential output (Y*) equals 12,000, then this economy has:

House prices in the U.S.increased dramatically _, and decreased dramatically __.

A recession in Japan the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n) output gap in the East Asian countries.

An economic expansion in the United States the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) output gap in Mexico.

If planned aggregate expenditure (PAE) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has:

Quiz 11: Spending, Output, and Fiscal Policy

For an economy starting at potential output, a decrease in autonomous expenditure in the short run results in a(n) :

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because:

A recession in the United States ______ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) ______ output gap in Canada.

In the Keynesian model, a $1 billion increase in autonomous consumption leads to ______ in short-run equilibrium output.

If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.9Y and potential output (Y*) equals 9,000, then this economy has:

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

The bursting of the housing bubble in 2006 caused ______ to cut back on their spending, thereby shifting the PAE line _____.

The smaller the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.

Refer to the figure below. Based on the figure, the income-expenditure multiplier in the economy illustrated equals:

The larger the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.

For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n) :

For an economy starting at potential output, a decrease in planned investment in the short run results in a(n) :

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is ______, and ______ could return the economy to potential output (Y*) .

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 16,000, then there is ______, and ______ could return the economy to potential output (Y*) .

For an economy starting at potential output, an increase in planned investment in the short run results in a(n) :

If planned aggregate expenditure (PAE) in an economy equals 3,000 + 0.75Y and potential output (Y*) equals 12,000, then this economy has:

House prices in the U.S.increased dramatically _____, and decreased dramatically ______.

A recession in Japan ______ the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n) ______ output gap in the East Asian countries.

An economic expansion in the United States ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) ______ output gap in Mexico.

If planned aggregate expenditure (PAE) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has:

A recession in the United States the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) output gap in Canada.

The bursting of the housing bubble in 2006 caused __ to cut back on their spending, thereby shifting the PAE line _.

The smaller the mpc, the the income-expenditure multiplier and the the effect of a change in autonomous spending on short-run equilibrium output.

The larger the mpc, the the income-expenditure multiplier and the the effect of a change in autonomous spending on short-run equilibrium output.

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is , and could return the economy to potential output (Y*) .

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 16,000, then there is , and could return the economy to potential output (Y*) .

House prices in the U.S.increased dramatically _, and decreased dramatically __.

A recession in Japan the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n) output gap in the East Asian countries.

An economic expansion in the United States the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) output gap in Mexico.