Question 1

Assume that the economy is at equilibrium at $10 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.5 trillion and imports increase by $0.7 trillion,equilibrium income will:

Accepted Answer

Since marginal propensity to consume (MPC) is 0.75, the change in equilibrium income will be calculated as follows:

Change in equilibrium income = (change in exports - change in imports) x 1/(1-MPC)

Substituting the values, 
Change in equilibrium income = ($0.5 trillion - $0.7 trillion) x 1/(1-0.75) = -$0.8 trillion

Therefore, the equilibrium income will fall by $0.8 trillion. The correct answer is D.

Question 2

If the marginal propensity to consume is 0.6,the marginal propensity to save is 0.4,and government spending increases by $2 billion at the same time taxes rise by $2 billion,equilibrium income will:

Accepted Answer

The answer of If the marginal propensity to consume is...

Question 3

Suppose full employment real GDP is $12 trillion,current real GDP is $11 trillion,and the marginal propensity to consume is 0.8.The recessionary gap is:

Accepted Answer

The answer of Suppose full employment real GDP is $12...

Question 4

If the government spends $1 billion to create a wetlands preserve,taxes increase $1 billion to pay for it,and the marginal propensity to consume is 0.75,GDP:

Accepted Answer

When the government spends $1 billion on creating a wetlands preserve, this increases government spending and therefore increases GDP by $1 billion. However, to pay for this, taxes are increased by $1 billion which reduces consumer spending and therefore reduces GDP by $0.75 billion (0.75 x $1 billion). Overall, the net effect on GDP is an increase of $0.25 billion ($1 billion - $0.75 billion) which means that GDP increases by $1 billion.

Question 5

The spending reduction necessary to bring an overheated economy back to full employment is called the:

Accepted Answer

The spending reduction necessary to combat inflation and bring an overheated economy back to full employment is called the inflationary gap. This is because the economy is producing above its potential level, leading to upward pressure on prices.

Question 6

What occurs when spending is above the full employment level?

Accepted Answer

When spending is above the full employment level, it creates an inflationary gap. This means that the demand for goods and services exceeds the productive capacity of the economy, leading to rising prices and inflation. To prevent inflation, the government or central bank may implement contractionary policy measures such as raising interest rates, reducing government spending, or increasing taxes.

Question 7

If the marginal propensity to consume is 0.8 and the government reduces taxes by $5 billion,equilibrium income will:

Accepted Answer

The answer of If the marginal propensity to consume is...

Question 8

In the nation of Economia,the economy is overheating and there is danger of inflation.The chief economist estimates that current income is $50 billion,while the optimal level is $40 billion.The multiplier is 4.If government wants to close the inflationary gap,it should reduce government spending by:

Accepted Answer

The inflationary gap is $10 billion ($50 billion - $40 billion). With a multiplier of 4, the government should reduce spending by $2.5 billion ($10 billion / 4) to close the gap.

Question 9

Exports are ______ of spending into (from)the economy,and imports are ______ of spending into (from)the economy.

Accepted Answer

Exports represent money coming into an economy from abroad, thus they are considered injections. Imports involve spending on foreign goods and services, taking money out of the economy, and are therefore seen as withdrawals.

Question 10

Because the private and foreign sectors of the economy were in a deep slump during the Great Depression of the 1930s,Keynes suggested an increase in:

Accepted Answer

Keynes suggested an increase in government spending as a way to stimulate the economy during the Great Depression. This would have created jobs and increased demand for goods and services, helping to pull the economy out of the slump.

Question 11

In the Keynesian framework,the way to fight a recession is to:

Accepted Answer

In the Keynesian framework, the government should take an active role in combating recession by increasing its spending and/or cutting taxes to stimulate aggregate demand. This will lead to increased production and employment levels. Reducing interest rates may also be a useful tool but may not be sufficient in bringing an economy out of a recession. Doing nothing and waiting for the economy to return to full employment could cause further long-term damage to the economy. Increasing population with more immigration is not a Keynesian policy recommendation for fighting a recession.

Question 12

Assume that the MPC is 0.75.Full employment is considered to be at a GDP level of $500 billion.The GDP is $600 billion.What should the government do to achieve full employment?

Accepted Answer

The answer of Assume that the MPC is 0.75.Full employment...

Question 13

Assume that the MPC is 0.8.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.The government is committed to a balanced budget.To achieve full employment,the government should _______ taxes by ____________ and increase government spending by ________.

Accepted Answer

The government should increase taxes by $20 billion and increase government spending by $100 billion to achieve full employment.

Question 14

Assume that the multiplier is 10.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.According to Keynesian macroeconomics,what should the government do to achieve full employment?

Accepted Answer

According to Keynesian macroeconomics, the government should increase its spending by an amount equal to the output gap (the difference between potential GDP and actual GDP) divided by the multiplier.

Output Gap = potential GDP - actual GDP 
Output Gap = $500 billion - $400 Billion = $100 billion

Multiplier = 10

So, the government should increase its spending by $10 billion (output gap / multiplier) to achieve full employment.

Therefore, the correct answer is B.

Question 15

If a government always balances its budget:

Accepted Answer

If a government always balances its budget, the effect of an increase in government spending on aggregate expenditures is weakened. This is because in order to fund the spending, the government would need to increase taxes or reduce spending elsewhere, offsetting the initial spending increase. This can be detrimental to economic growth, especially in times of recession when government spending can stimulate aggregate demand. Therefore, a government should not always prioritize balancing its budget over other economic priorities.

Question 16

The GDP gap divided by the multiplier yields the:

Accepted Answer

The GDP gap divided by the multiplier yields the inflationary or recessionary gap, which indicates how far the economy is from its potential output level.

Question 17

The increase in aggregate spending needed to bring an economy to full employment is called:

Accepted Answer

The increase in aggregate spending needed to bring an economy to full employment is called the recessionary gap. This gap represents the shortfall in spending that is required to reach the full employment level of output.

Question 18

Suppose full employment real GDP is $13 trillion,current real GDP is $13.2 trillion,and the marginal propensity to consume is 0.5.The inflationary gap is:

Accepted Answer

The answer of Suppose full employment real GDP is $13...

Question 19

Assume that the economy is at equilibrium at $12 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.1 trillion and imports increase by $0.1 trillion,equilibrium income will:

Accepted Answer

The answer of Assume that the economy is at equilibrium...

Question 20

Equilibrium in the full Keynesian model requires that:

Accepted Answer

In the full Keynesian model, equilibrium is achieved when all injections (I + G + X) equal all withdrawals (S + T + M). This is because expenditures are equal to income in a closed economy, and injections and withdrawals represent the sources of expenditures and the uses of income, respectively. Therefore, for the economy to be in equilibrium, these two must be equal. The other options do not accurately describe the conditions for equilibrium in the Keynesian model.

Quiz 8: Aggregate Expenditures

Assume that the economy is at equilibrium at $10 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.5 trillion and imports increase by $0.7 trillion,equilibrium income will:

If the marginal propensity to consume is 0.6,the marginal propensity to save is 0.4,and government spending increases by $2 billion at the same time taxes rise by $2 billion,equilibrium income will:

Suppose full employment real GDP is $12 trillion,current real GDP is $11 trillion,and the marginal propensity to consume is 0.8.The recessionary gap is:

If the government spends $1 billion to create a wetlands preserve,taxes increase $1 billion to pay for it,and the marginal propensity to consume is 0.75,GDP:

The spending reduction necessary to bring an overheated economy back to full employment is called the:

What occurs when spending is above the full employment level?

If the marginal propensity to consume is 0.8 and the government reduces taxes by $5 billion,equilibrium income will:

In the nation of Economia,the economy is overheating and there is danger of inflation.The chief economist estimates that current income is $50 billion,while the optimal level is $40 billion.The multiplier is 4.If government wants to close the inflationary gap,it should reduce government spending by:

Exports are of spending into (from) the economy,and imports are of spending into (from) the economy.

Because the private and foreign sectors of the economy were in a deep slump during the Great Depression of the 1930s,Keynes suggested an increase in:

In the Keynesian framework,the way to fight a recession is to:

Assume that the MPC is 0.75.Full employment is considered to be at a GDP level of $500 billion.The GDP is $600 billion.What should the government do to achieve full employment?

Assume that the MPC is 0.8.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.The government is committed to a balanced budget.To achieve full employment,the government should _ taxes by and increase government spending by __.

Assume that the multiplier is 10.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.According to Keynesian macroeconomics,what should the government do to achieve full employment?

If a government always balances its budget:

The GDP gap divided by the multiplier yields the:

The increase in aggregate spending needed to bring an economy to full employment is called:

Suppose full employment real GDP is $13 trillion,current real GDP is $13.2 trillion,and the marginal propensity to consume is 0.5.The inflationary gap is:

Assume that the economy is at equilibrium at $12 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.1 trillion and imports increase by $0.1 trillion,equilibrium income will:

Equilibrium in the full Keynesian model requires that:

Quiz 8: Aggregate Expenditures

Assume that the economy is at equilibrium at $10 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.5 trillion and imports increase by $0.7 trillion,equilibrium income will:

If the marginal propensity to consume is 0.6,the marginal propensity to save is 0.4,and government spending increases by $2 billion at the same time taxes rise by $2 billion,equilibrium income will:

Suppose full employment real GDP is $12 trillion,current real GDP is $11 trillion,and the marginal propensity to consume is 0.8.The recessionary gap is:

If the government spends $1 billion to create a wetlands preserve,taxes increase $1 billion to pay for it,and the marginal propensity to consume is 0.75,GDP:

The spending reduction necessary to bring an overheated economy back to full employment is called the:

What occurs when spending is above the full employment level?

If the marginal propensity to consume is 0.8 and the government reduces taxes by $5 billion,equilibrium income will:

Exports are ______ of spending into (from) the economy,and imports are ______ of spending into (from) the economy.

Because the private and foreign sectors of the economy were in a deep slump during the Great Depression of the 1930s,Keynes suggested an increase in:

In the Keynesian framework,the way to fight a recession is to:

Assume that the MPC is 0.75.Full employment is considered to be at a GDP level of $500 billion.The GDP is $600 billion.What should the government do to achieve full employment?

Assume that the MPC is 0.8.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.The government is committed to a balanced budget.To achieve full employment,the government should _______ taxes by ____________ and increase government spending by ________.

Assume that the multiplier is 10.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.According to Keynesian macroeconomics,what should the government do to achieve full employment?

If a government always balances its budget:

The GDP gap divided by the multiplier yields the:

The increase in aggregate spending needed to bring an economy to full employment is called:

Suppose full employment real GDP is $13 trillion,current real GDP is $13.2 trillion,and the marginal propensity to consume is 0.5.The inflationary gap is:

Assume that the economy is at equilibrium at $12 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.1 trillion and imports increase by $0.1 trillion,equilibrium income will:

Equilibrium in the full Keynesian model requires that:

Exports are of spending into (from) the economy,and imports are of spending into (from) the economy.

Assume that the MPC is 0.8.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.The government is committed to a balanced budget.To achieve full employment,the government should _ taxes by and increase government spending by __.