Question 1

The amount by which an aggregate expenditures schedule must shift upward to achieve the full-employment GDP is a(n):

Accepted Answer

A recessionary expenditure gap refers to the difference between the actual level of GDP and the full-employment level of GDP. Therefore, the amount by which aggregate expenditures must shift upward to reach the full-employment GDP is the recessionary expenditure gap. The other options are not relevant to this scenario.

Question 2

The effect of a decline in taxes on the level of income will differ somewhat from an increase in government expenditures of the same amount because:

Accepted Answer

A decline in taxes increases disposable income, but households may save a portion of this increase, leading to a smaller impact on income compared to direct government spending.

Question 3

To close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0.8, it would be necessary to:

Accepted Answer

The answer of To close an inflationary expenditure gap of...

Question 4

In an inflationary expenditure gap, the equilibrium level of real GDP is:

Accepted Answer

In an inflationary expenditure gap, aggregate demand is higher than the economy's capacity to produce goods and services at full employment. As a result, the equilibrium level of real GDP will be greater than full-employment GDP as all available resources will be fully utilised and production will exceed the economy's potential output.

Question 5

Assume that the marginal propensity to consume in an economy is 0.75. If the economy's full-employment real GDP is $900 billion and its equilibrium real GDP is $800 billion, there is a recessionary expenditure gap of:

Accepted Answer

The answer of Assume that the marginal propensity to consume...

Question 6

The following data show levels of planned variables for an economy. I_g = Investment; S_a = Saving after taxes; G = Government spending; T = Taxation; X = Exports; M = Imports. What is the equilibrium level of domestic output?

Accepted Answer

The answer of The following data show levels of planned...

Question 7

A constitutional amendment is passed that requires the government to have an annually balanced budget in the sense that changes in spending should be matched by equivalent changes in taxes. Should the government desire to increase GDP by $25 billion and meet the provisions of the law it:

Accepted Answer

Since the government is required to have an annually balanced budget, any increase in spending must be matched by an equivalent increase in taxes. Therefore, the government could increase spending by $25 billion and increase taxes by the same amount to balance the budget and meet the provisions of the law. Option A is incorrect since breaking the law is not an option. Option B is incorrect because reducing taxes by $25 billion would result in a deficit. Option D is incorrect because increasing spending by $30 billion would result in a higher deficit.

Question 8

In which of the following situations for an open mixed economy will the level of GDP contract?

Accepted Answer

The answer of In which of the following situations for...

Question 9

Leakages from the income-expenditure stream are:

Accepted Answer

Leakages from the income-expenditure stream refer to the amount of income that is not spent on domestic output. These leakages can either be saved, taxed, or used to purchase imports. Option C includes all three of these leakages - saving, taxes, and imports. Options A and B are incorrect because consumption and investment are not considered leakages but rather components of aggregate demand. Option D includes transfer payments, which are not considered leakages but rather government spending.

Question 10

A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because:

Accepted Answer

A personal tax cut may lead households to save a portion of the additional income, reducing the immediate impact on consumption compared to direct government spending, which is fully injected into the economy.

Question 11

If the MPC in an economy is 0.8, government could close a recessionary expenditure gap of $100 billion by cutting taxes by:

Accepted Answer

The answer of If the MPC in an economy is...

Question 12

If a government raises its expenditures by $50 billion and at the same time levies a lump-sum tax of $50 billion, the net effect on the economy will be to:

Accepted Answer

The answer of If a government raises its expenditures by...

Question 13

Assume that the marginal propensity to consume in an economy is 0.9. If the economy's full-employment real GDP is $500 billion and its equilibrium real GDP is $550 billion, there is an inflationary expenditure gap of:

Accepted Answer

The answer of Assume that the marginal propensity to consume...

Question 14

In the aggregate expenditures model, the equilibrium GDP is:

Accepted Answer

The equilibrium GDP in the aggregate expenditures model may be equal to or below the potential GDP level, but it is not necessarily equal to the full-employment GDP level. This is because there can be a gap between the actual level of output and the economy's full potential due to factors such as cyclical unemployment or underutilization of resources. Therefore, the equilibrium GDP can fall short of the full-employment level even when it is at its highest possible level.

Question 15

Assuming that MPC is .75, equal increases in government spending and tax collections by $10 billion will:

Accepted Answer

MPC is 0.75, which means that for every $1 increase in disposable income, consumption will increase by $0.75. Therefore, an increase in government spending and tax collections by $10 billion will increase disposable income by $7.5 billion (MPC * $10 billion). This will lead to an increase in consumption by $5.625 billion ($7.5 billion * MPC). The increase in consumption will lead to an increase in GDP by $10 billion (since GDP = C + I + G + NX). Therefore, the equilibrium GDP will increase by $10 billion.

Question 16

An economy characterized by high unemployment is likely to be:

Accepted Answer

High unemployment typically indicates a decrease in aggregate demand, which can lead to a recessionary expenditure gap. This means that the economy is producing below its potential, resulting in idle resources and high unemployment rates.

Question 17

In a recessionary expenditure gap, the equilibrium level of real GDP is:

Accepted Answer

In a recessionary expenditure gap, the level of real GDP is less than the full-employment GDP because there is insufficient demand for goods and services. This means that actual output is below the potential output, resulting in a shortfall in production and employment. Therefore, the correct option is D, which states that the equilibrium level of real GDP is less than full-employment GDP.

Question 18

Injections into the income-expenditure stream include:

Accepted Answer

Injections into the income-expenditure stream are those that increase the total spending in an economy, and they include government purchases and exports. Transfer payments and taxes are examples of leakages or withdrawals from the income-expenditure stream, while imports are considered both an injection and a leakage depending on whether they are bought from domestic or foreign sources. However, the question asks for injections only, so the best choice is B.

Question 19

If the marginal propensity to consume is .80 and both taxes and government purchases increase by $50 billion, GDP will:

Accepted Answer

When taxes and government purchases increase by $50 billion, the increase in GDP will depend on the marginal propensity to consume (MPC), which is 0.80 in this case. MPC is the fraction of additional income that is spent on consumption. Therefore, if income rises by $50 billion, consumption will increase by 0.80 x $50 billion = $40 billion. The rest of the income ($10 billion) will be saved or used for other purposes. The increase in consumption will lead to a larger increase in GDP, as consumption is an important component of aggregate demand. Therefore, GDP will increase by more than $50 billion, but the exact amount will depend on the multiplier effect. However, since none of the answer choices reflect this, the most accurate answer is (A) Increase by $50 billion.

Question 20

Suppose the GDP is in equilibrium at full employment and the MPC is .80. If government wants to increase its purchase of goods and services by $16 billion without changing equilibrium GDP, taxes should be:

Accepted Answer

To offset the increase in government spending and keep GDP unchanged, taxes should be increased by the amount that will reduce consumption by the same amount. With an MPC of 0.80, a $20 billion tax increase will reduce consumption by $16 billion (0.80 * $20 billion), offsetting the $16 billion increase in government spending.

Quiz 11: The Aggregate Expenditures Model

The amount by which an aggregate expenditures schedule must shift upward to achieve the full-employment GDP is a(n) :

The effect of a decline in taxes on the level of income will differ somewhat from an increase in government expenditures of the same amount because:

To close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0.8, it would be necessary to:

In an inflationary expenditure gap, the equilibrium level of real GDP is:

Assume that the marginal propensity to consume in an economy is 0.75. If the economy's full-employment real GDP is $900 billion and its equilibrium real GDP is $800 billion, there is a recessionary expenditure gap of:

The following data show levels of planned variables for an economy. I_g = Investment; S_a = Saving after taxes; G = Government spending; T = Taxation; X = Exports; M = Imports. What is the equilibrium level of domestic output?

A constitutional amendment is passed that requires the government to have an annually balanced budget in the sense that changes in spending should be matched by equivalent changes in taxes. Should the government desire to increase GDP by $25 billion and meet the provisions of the law it:

In which of the following situations for an open mixed economy will the level of GDP contract?

Leakages from the income-expenditure stream are:

A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because:

If the MPC in an economy is 0.8, government could close a recessionary expenditure gap of $100 billion by cutting taxes by:

If a government raises its expenditures by $50 billion and at the same time levies a lump-sum tax of $50 billion, the net effect on the economy will be to:

Assume that the marginal propensity to consume in an economy is 0.9. If the economy's full-employment real GDP is $500 billion and its equilibrium real GDP is $550 billion, there is an inflationary expenditure gap of:

In the aggregate expenditures model, the equilibrium GDP is:

Assuming that MPC is .75, equal increases in government spending and tax collections by $10 billion will:

An economy characterized by high unemployment is likely to be:

In a recessionary expenditure gap, the equilibrium level of real GDP is:

Injections into the income-expenditure stream include:

If the marginal propensity to consume is .80 and both taxes and government purchases increase by $50 billion, GDP will:

Suppose the GDP is in equilibrium at full employment and the MPC is .80. If government wants to increase its purchase of goods and services by $16 billion without changing equilibrium GDP, taxes should be:

Quiz 11: The Aggregate Expenditures Model

The amount by which an aggregate expenditures schedule must shift upward to achieve the full-employment GDP is a(n) :

The effect of a decline in taxes on the level of income will differ somewhat from an increase in government expenditures of the same amount because:

To close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0.8, it would be necessary to:

In an inflationary expenditure gap, the equilibrium level of real GDP is:

Assume that the marginal propensity to consume in an economy is 0.75. If the economy's full-employment real GDP is $900 billion and its equilibrium real GDP is $800 billion, there is a recessionary expenditure gap of:

The following data show levels of planned variables for an economy. Ig = Investment; Sa = Saving after taxes; G = Government spending; T = Taxation; X = Exports; M = Imports. What is the equilibrium level of domestic output?

A constitutional amendment is passed that requires the government to have an annually balanced budget in the sense that changes in spending should be matched by equivalent changes in taxes. Should the government desire to increase GDP by $25 billion and meet the provisions of the law it:

In which of the following situations for an open mixed economy will the level of GDP contract?

Leakages from the income-expenditure stream are:

A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because:

If the MPC in an economy is 0.8, government could close a recessionary expenditure gap of $100 billion by cutting taxes by:

If a government raises its expenditures by $50 billion and at the same time levies a lump-sum tax of $50 billion, the net effect on the economy will be to:

Assume that the marginal propensity to consume in an economy is 0.9. If the economy's full-employment real GDP is $500 billion and its equilibrium real GDP is $550 billion, there is an inflationary expenditure gap of:

In the aggregate expenditures model, the equilibrium GDP is:

Assuming that MPC is .75, equal increases in government spending and tax collections by $10 billion will:

An economy characterized by high unemployment is likely to be:

In a recessionary expenditure gap, the equilibrium level of real GDP is:

Injections into the income-expenditure stream include:

If the marginal propensity to consume is .80 and both taxes and government purchases increase by $50 billion, GDP will:

Suppose the GDP is in equilibrium at full employment and the MPC is .80. If government wants to increase its purchase of goods and services by $16 billion without changing equilibrium GDP, taxes should be:

The following data show levels of planned variables for an economy. I_g = Investment; S_a = Saving after taxes; G = Government spending; T = Taxation; X = Exports; M = Imports. What is the equilibrium level of domestic output?