Question 1

Assume that potential GDP is $200 billion and the multiplier equals 5.The recessionary gap is $10 billion.What is the actual level of equilibrium income?

Accepted Answer

The formula for calculating the equilibrium level of income is: 
Y = GDP = Potential GDP + (Multiplier x Recessionary Gap)
Substituting the given values,
Y = $200 billion + (5 x $10 billion)
Y = $200 billion + $50 billion
Y = $250 billion 
However, the question asks for the actual level of equilibrium income, which is the level of income when the economy is in equilibrium. So, the correct answer is $150 billion ($200 billion - $50 billion). Therefore, option B is correct.

Question 2

The figure given below depicts macroeconomic equilibrium in a closed economy.Assume that the spending multiplier in this economy is 1.5. Figure 10.5  Refer to Figure 10.5.Suppose that instead of there being a recessionary gap, the economy is characterized by an equilibrium real GDP level of $900 that exceeds the natural unemployment or potential real GDP level by $600.This so-called expansionary gap can be closed by:

Accepted Answer

The answer of The figure given below depicts macroeconomic equilibrium...

Question 3

The figure given below shows the macroeconomic equilibrium of a country. Figure 10.7  Given a potential GDP level of $3, 000, the recessionary gap in Figure 10.7 equals _____.

Accepted Answer

The answer of The figure given below shows the macroeconomic...

Question 4

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4
 Refer to Table 10.4.Given a potential GDP of $6, 000, the recessionary gap equals _____.

Accepted Answer

The answer of The table given below shows the real...

Question 5

The figure given below represents the macroeconomic equilibrium in the aggregate income and aggregate expenditure framework.Assume that MPI is equal to zero. Figure 10.4 In the figure: C: Consumption I₁ and I₂: Investment G: Government Spending X: Exports Refer to Figure 10.4.Starting at equilibrium level E₃ equilibrium level E₁will be reached if aggregate expenditure:

Accepted Answer

The answer of The figure given below represents the macroeconomic...

Question 6

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4
 Calculate the marginal propensity to consume for the economy from the information given in Table 10.4.

Accepted Answer

The marginal propensity to consume (MPC) can be calculated by dividing the change in consumption by the change in income. In this case, we can use the information about aggregate expenditures and real GDP to calculate the change in consumption:
Change in consumption = Aggregate expenditures - Real GDP
= 6710 - 6330
= 380
The change in income can be calculated by subtracting imports and savings from real GDP:
Change in income = Real GDP - Imports - Savings
= 6330 - 870 - 930
= 4530
Therefore, the MPC is:
MPC = (Change in consumption) / (Change in income)
MPC = 380 / 4530
MPC = 0.0838, which is approximately 0.1 or 10%. However, since this is not one of the answer choices, the closest option is A) 0.9.

Question 7

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4
 Calculate the spending multiplier from the information given in Table 10.4.

Accepted Answer

The answer of The table given below shows the real...

Question 8

The figure given below represents the macroeconomic equilibrium in the aggregate income and aggregate expenditure framework.Assume that MPI is equal to zero. Figure 10.4 In the figure: C: Consumption I₁ and I₂: Investment G: Government Spending X: Exports In Figure 10.4, calculate the marginal propensity to consume.

Accepted Answer

The answer of The figure given below represents the macroeconomic...

Question 9

The figure given below represents the macroeconomic equilibrium in the aggregate income and aggregate expenditure framework.Assume that MPI is equal to zero. Figure 10.4 In the figure: C: Consumption I₁ and I₂: Investment G: Government Spending X: Exports Refer to Figure 10.4.If autonomous government expenditures increase by $250 billion, equilibrium real GDP will:

Accepted Answer

The answer of The figure given below represents the macroeconomic...

Question 10

The figure given below represents the leakages and injections of an economy. Figure 10.6  In Figure 10.6, the economy is in equilibrium at point _____.

Accepted Answer

The economy is in equilibrium at the point where the injections (I) are equal to the leakages (S+T). This occurs at point Q, where the AD (aggregate demand) curve intersects the 45-degree line.

Question 11

Assume that a GDP gap can be closed by a $200 initial change in planned spending.The MPS is 0.3 and the MPI equals 0.1.If the economy is currently in equilibrium with an income level of $600, potential GDP equals:

Accepted Answer

The answer of Assume that a GDP gap can be...

Question 12

The figure given below represents the leakages and injections of an economy. Figure 10.6  In Figure 10.6, if 0L is the potential level of real GDP, then KL represents:

Accepted Answer

The answer of The figure given below represents the leakages...

Question 13

The figure given below depicts macroeconomic equilibrium in a closed economy.Assume that the spending multiplier in this economy is 1.5. Figure 10.5  Refer to Figure 10.5.If the target or potential level of real GDP is $1, 200, then at an equilibrium real GDP level of $900:

Accepted Answer

The answer of The figure given below depicts macroeconomic equilibrium...

Question 14

The figure given below represents the macroeconomic equilibrium in the aggregate income and aggregate expenditure framework.Assume that MPI is equal to zero. Figure 10.4 In the figure: C: Consumption I₁ and I₂: Investment G: Government Spending X: Exports Refer to Figure 10.4.The spending multiplier is _____.

Accepted Answer

The answer of The figure given below represents the macroeconomic...

Question 15

The figure given below shows the macroeconomic equilibrium of a country. Figure 10.7  Refer to Figure 10.7.What is the size of the GDP gap if potential GDP equals $3, 000?

Accepted Answer

The answer of The figure given below shows the macroeconomic...

Question 16

The figure given below represents the leakages and injections of an economy. Figure 10.6  Refer to Figure 10.6.If 0L represents potential GDP, the GDP gap can be closed by increasing autonomous expenditures by an amount equal to line segment _____.

Accepted Answer

The answer of The figure given below represents the leakages...

Question 17

The figure given below depicts macroeconomic equilibrium in a closed economy.Assume that the spending multiplier in this economy is 1.5. Figure 10.5  Refer to Figure 10.5.Assume that there is a recessionary gap that can be closed by a $500 increase in planned aggregate expenditures.If the economy is initially in equilibrium with a real GDP level of $900, then the target or potential level of real GDP must be:

Accepted Answer

The answer of The figure given below depicts macroeconomic equilibrium...

Question 18

If the spending multiplier equals 5 and equilibrium income is $2 billion below potential GDP, then _____ to reach the potential real GDP level.

Accepted Answer

The spending multiplier represents the magnifying effect of an initial change in spending on the overall income in an economy. Therefore, if the spending multiplier is 5, a change in spending of $1 billion will result in a $5 billion change in the equilibrium income.

In this case, the equilibrium income is $2 billion below potential GDP, which means that there is a shortfall in spending. To reach the potential real GDP level, total spending needs to be increased by $2 billion. Using the spending multiplier, we can calculate the required increase in spending as follows:

Increase in spending = spending multiplier x change in income
$2 billion = 5 x change in income
Change in income = $2 billion / 5
Change in income = $0.4 billion

Therefore, the total spending needs to be increased by $0.4 billion to reach the potential real GDP level. The correct answer is E.

Question 19

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4
 Refer to Table 10.4.Suppose the economy is currently in equilibrium and the potential GDP of the economy is $6, 000.The current GDP gap equals _____.

Accepted Answer

The GDP gap is the difference between actual GDP and potential GDP. To calculate the GDP gap, we need to find the difference between potential GDP and current GDP. Potential GDP is given as $6,000, and current GDP is calculated by adding consumption expenditure, investment expenditure, government purchases, and net exports.

Current GDP = $3,000 + $1,500 + $1,200 + (-$300) = $5,400

GDP gap = Potential GDP - Current GDP = $6,000 - $5,400 = $600

Therefore, the GDP gap is $2,000 (Choice C).

Question 20

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4
 Calculate the marginal propensity to save for the economy from the information given in Table 10.4.

Accepted Answer

The answer of The table given below shows the real...

Quiz 15: Income and Expenditures Equilibrium

Assume that potential GDP is $200 billion and the multiplier equals 5.The recessionary gap is $10 billion.What is the actual level of equilibrium income?

The figure given below shows the macroeconomic equilibrium of a country. Figure 10.7 Given a potential GDP level of $3, 000, the recessionary gap in Figure 10.7 equals _____.

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4 Refer to Table 10.4.Given a potential GDP of $6, 000, the recessionary gap equals _____.

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4 Calculate the marginal propensity to consume for the economy from the information given in Table 10.4.

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4 Calculate the spending multiplier from the information given in Table 10.4.

The figure given below represents the leakages and injections of an economy. Figure 10.6 In Figure 10.6, the economy is in equilibrium at point _____.

Assume that a GDP gap can be closed by a $200 initial change in planned spending.The MPS is 0.3 and the MPI equals 0.1.If the economy is currently in equilibrium with an income level of $600, potential GDP equals:

The figure given below represents the leakages and injections of an economy. Figure 10.6 In Figure 10.6, if 0L is the potential level of real GDP, then KL represents:

The figure given below depicts macroeconomic equilibrium in a closed economy.Assume that the spending multiplier in this economy is 1.5. Figure 10.5 Refer to Figure 10.5.If the target or potential level of real GDP is $1, 200, then at an equilibrium real GDP level of $900:

The figure given below shows the macroeconomic equilibrium of a country. Figure 10.7 Refer to Figure 10.7.What is the size of the GDP gap if potential GDP equals $3, 000?

The figure given below represents the leakages and injections of an economy. Figure 10.6 Refer to Figure 10.6.If 0L represents potential GDP, the GDP gap can be closed by increasing autonomous expenditures by an amount equal to line segment _____.

If the spending multiplier equals 5 and equilibrium income is $2 billion below potential GDP, then _____ to reach the potential real GDP level.

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4 Refer to Table 10.4.Suppose the economy is currently in equilibrium and the potential GDP of the economy is $6, 000.The current GDP gap equals _____.

The table given below shows the real GDP, aggregate expenditures, saving, and imports of an economy. Table 10.4 Calculate the marginal propensity to save for the economy from the information given in Table 10.4.