Deck 19: Output and Expenditure in the Short Run

Question 1

When firms are faced by a decline in demand for their products, resulting in an unexpected increase in inventories. This event results from

A) macroeconomic equilibrium.
B) spending that is greater production.
C) aggregate expenditure that is less than GDP.
D) aggregate expenditure that is greater than GDP.

Answer 1

aggregate expenditure that is less than GDP.

Question 2

Oil prices dropped sharply from a peak of US$147 per barrel in August 2008 to a low price of US$30 by the end of the same year. Despite a decreased government revenues, the governments of the Arab Gulf countries increased their spending. What was the logic behind their move?

A) Governments' demand for goods and services was increased for social and political purposes.
B) Governments' demand for goods and services was increased to prevent sharp price increases
C) Government spending -increased to compensate for the fall in private consumption and investment expenditures.
D) There was no logic behind what the Arab Gulf governments did.

Answer 2

Government spending -increased to compensate for the fall in private consumption and investment expenditures.

Question 3

Oil prices dropped sharply from a peak of US$147 per barrel in August 2008 to a low price of US$30 by the end of the same year. This resulted in a sharp decrease in Arab Gulf government's revenues. These governments responded by:

A) increasing government spending to overcome a recession.
B) it was not clear how these governments responded.
C) reducing government spending because of the crisis.
D) keeping government spending in its level before the crisis.

Answer 3

increasing government spending to overcome a recession.

Question 4

If the marginal propensity to consume is .75, the marginal propensity to save is

A) .25.
B) 3.
C) 1.
D) .5.

Question 5

What was the key factor leading to the growth of steel production capacity in GCC countries after 2004?

A) The downturn in the economic cycle
B) The boom in the construction industry
C) Low costs for fuel
D) Lack of indigenous iron ore

Question 6

Dell holds no inventories of finished computers. When they receive orders from customers, Dell quickly communicates those orders with its suppliers and closely monitors their suppliers' ability to fill orders promptly. This system is called

A) supply chain management.
B) a reverse linkage relationship.
C) prorated inventory programming.
D) computer monitoring production.

Question 7

A general formula for the multiplier is

A)
B)
C)
D)

Question 8

Which of the following is a reason why increases in the price level results in a decline in aggregate expenditure?

A) Price level increases relative to other countries raise net exports, which lowers aggregate expenditures.
B) Price level increases cause firms and consumers to hold more money, which raises the interest rate. Higher interest rates lower consumption and planned investment expenditures, which lowers aggregate expenditures.
C) Price level increases raise real wealth which causes consumption spending and aggregate expenditures to decline.
D) As the price level rises, government spending falls, which lowers aggregate expenditures.

Question 9

In the wake of the global crisis, the layoffs in the Gulf threatened to send many Jordanian workers home. Some economists see this as an opportunity for the Jordanian economy. Why?

A) The Jordanian workers can earn higher wages in Jordan.
B) The government will subsidize the wages of these workers to reduce unemployment.
C) These workers are expected to spend their saved incomes inside the country, creating a new wave of demand, increasing growth prospects of the Jordanian economy.
D) None of the above.

Question 10

Given the equations for C, I, G, and NX below, what is the equilibrium level of GDP?
C = 1,000 + 0.8Y
I = 1,500
G = 1,250
NX = 100

A) $3,080
B) $6,930
C) $3,850
D) $19,250

Question 11

If the consumption function is defined as C = 5,500 + .9Y, what is the autonomous level of consumption expenditure?

A) $6,050
B) $5,500
C) $4,950
D) $6,111

Question 12

Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $21,500, what is the marginal propensity to consume?
C = 1,500 + (MPC)Y
I = 1,000
G = 2,000
NX = -200

A) 0.9
B) 0.8
C) 0.67
D) 0.75

Question 13

If consumption is defined as C = 2,000 + 0.8Y, then the marginal propensity to save is 0.8.