Question 1

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ________ increase in consumption.

Accepted Answer

A)  $13.33
B)  $25
C)  $75
D)  $133E) A) and B)
F) A) and C)

Question 2

Changes in taxes and transfers affect planned spending:

Accepted Answer

A)  only when there is an expansionary gap.
B)  autonomously.
C)  directly, by changing induced expenditures.
D)  indirectly, by changing disposable income and, consequently, consumption.E) B) and C)
F) C) and D)

Question 3

When housing prices decrease, household wealth ________, and consumption ________.

Accepted Answer

A)  increases; increases
B)  increases; decreases
C)  decreases; decreases
D)  decreases; increasesE) B) and C)
F) C) and D)

Question 4

In the basic Keynesian model, a decline in autonomous spending:

Accepted Answer

A)  reduces short-run equilibrium output.
B)  increases short-run equilibrium output.
C)  reduces potential output.
D)  increases potential output.E) A) and C)
F) All of the above

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

A)  an expansionary gap.
B)  a recessionary gap.
C)  no output gap.
D)  no autonomous expenditure.E) A) and B)
F) A) and C)

Question 6

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The vertical intercept of the expenditure line is:

Accepted Answer

A)  890.
B)  900.
C)  940.
D)  990.E) B) and D)
F) C) and D)

Question 7

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

Accepted Answer

A)  the direct changes in spending change the income of producers which leads to additional changes in spending.
B)  multiple deposits are generated when new reserves are produced through fractional reserve banking.
C)  autonomous spending supports more output than induced spending.
D)  planned changes in inventories signal producers to adjust the level of output.E) A) and B)
F) None of the above

Question 8

When actual investment is less than planned investment:

Accepted Answer

A)  firms have sold less output than expected.
B)  firms have sold more output than expected.
C)  the quantity of output sold is the amount the firm expected to sell.
D)  the economy produces short-run equilibrium output.E) B) and D)
F) B) and C)

Question 9

Refer to the accompanying figure.  Based on the Keynesian cross diagram, at short-run equilibrium output,

Accepted Answer

A)  there is a recessionary gap.
B)  there is an expansionary gap.
C)  output equals potential output.
D)  firms will be producing more than they can sell.E) B) and C)
F) A) and C)

Question 10

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

Accepted Answer

A)  from 2001 to 2006; from 2007 to 2009
B)  from 2007 to 2009; from 2001 to 2006
C)  from 2001 to 2009; from 2006 to 2007
D)  from 2006 to 2009; from 2001 to 2006E) None of the above
F) B) and C)

Question 11

As disposable income decreases, consumption:

Accepted Answer

A)  increases.
B)  decreases.
C)  may either increase or decrease depending on the mpc.
D)  may either increase or decrease depending on the wealth effect.E) A) and B)
F) All of the above

Question 12

Refer to the accompanying figure.  Based on the figure, if autonomous spending falls from 400 to 200, then the new short-run equilibrium output will equal:

Accepted Answer

A)  1,200.
B)  400.
C)  600.
D)  800.E) A) and C)
F) A) and B)

Question 13

A fiscal policy action to close an expansionary gap is to:

Accepted Answer

A)  decrease taxes.
B)  increase transfer payments.
C)  decrease government purchases.
D)  increase the marginal propensity to consume.E) None of the above
F) C) and D)

Question 14

In the basic Keynesian model, a tax cut:

Accepted Answer

A)  reduces short-run equilibrium output.
B)  increases short-run equilibrium output.
C)  reduces potential output.
D)  increases potential output.E) A) and B)
F) A) and C)

Question 15

Refer to the accompanying figure.  Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ________ and induced expenditure equals ________.

Accepted Answer

A)  1,000; 3,000
B)  1,000; 4,000
C)  3,000; 4,000
D)  4,000; 2,000E) B) and C)
F) A) and C)

Question 16

All of the following would be included in planned aggregate expenditure EXCEPT:

Accepted Answer

A)  purchases of services provided by government employees.
B)  planned changes in inventories.
C)  sales to foreigners of domestically-produced goods.
D)  social security payments.E) A) and B)
F) A) and C)

Question 17

The four components of planned aggregate expenditure are:

Accepted Answer

A)  spending on domestic goods, domestic services, foreign goods, and foreign services.
B)  spending on durable goods, inventory investment, government debt, and net exports.
C)  consumption, planned investment, government transfers, and net interest.
D)  consumption, planned investment, government purchases, and net exports.E) A) and C)
F) None of the above

Question 18

The decision about whether to change prices frequently or infrequently is an application of the:

Accepted Answer

A)  principle of comparative advantage.
B)  scarcity principle.
C)  principle of increasing opportunity cost.
D)  cost-benefit principle.E) B) and D)
F) A) and B)

Question 19

Planned aggregate expenditure is total:

Accepted Answer

A)  value added in the economy.
B)  planned spending on final goods and services.
C)  income of households, businesses, governments, and foreigners.
D)  revenue from the sale of goods and services.E) B) and D)
F) C) and D)

Question 20

When prices are predetermined, the level of output that equals planned aggregate expenditure is called ________ output.

Accepted Answer

A)  the natural rate of
B)  potential
C)  short-run equilibrium
D)  inducedE) A) and B)
F) All of the above

Exam 25: Spending and Output in the Short Run

When prices are predetermined, the level of output that equals planned aggregate expenditure is called ________ output.

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When actual investment is less than planned investment:

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Refer to the accompanying figure. Based on the Keynesian cross diagram, at short-run equilibrium output,

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Refer to the accompanying figure. Based on the figure, if autonomous spending falls from 400 to 200, then the new short-run equilibrium output will equal:

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All of the following would be included in planned aggregate expenditure EXCEPT:

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In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The vertical intercept of the expenditure line is:

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

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Planned aggregate expenditure is total:

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If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ________ increase in consumption.

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As disposable income decreases, consumption:

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In the basic Keynesian model, a decline in autonomous spending:

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In the basic Keynesian model, a tax cut:

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Refer to the accompanying figure. Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ________ and induced expenditure equals ________.

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

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The decision about whether to change prices frequently or infrequently is an application of the:

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

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Changes in taxes and transfers affect planned spending:

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When housing prices decrease, household wealth ________, and consumption ________.

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A fiscal policy action to close an expansionary gap is to:

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The four components of planned aggregate expenditure are:

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

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Refer to the accompanying figure. Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals and induced expenditure equals .

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When housing prices decrease, household wealth , and consumption .

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