Question 1

Recessions begin at ______ and end at _____.

Accepted Answer

A)   the highest unemployment rate; the lowest unemployment rate
B)   the lowest unemployment rate; the highest unemployment rate
C)   a peak; a trough
D)   a trough; a peakE) None of the above
F) A) and C)

Question 2

A fiscal policy action to close a recessionary gap is to:

Accepted Answer

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

Question 3

The natural rate of unemployment is equal to the unemployment rate when there is only:

Accepted Answer

A)   structural and cyclical unemployment.
B)   frictional unemployment.
C)   cyclical unemployment.
D)   structural and frictional unemployment.E) None of the above
F) A) and D)

Question 4

In the short-run Keynesian model, if the mpc equals 0.8, then to increase aggregate spending by $20 billion at any output level, government spending must be increased by ______ or net taxes must be decreased by _____.

Accepted Answer

A)   $20 billion; $20 billion
B)   more than $20 billion; more than $20 billion
C)   less than $20 billion; less than $20 billion
D)   $20 billion; more than $20 billionE) B) and D)
F) A) and D)

Question 5

Assuming that the government can act immediately before the multiplier takes effect, then to offset an increase in investment by $1 billion, government purchases must be:

Accepted Answer

A)   increased by $1 billion.
B)   decreased by $1 billion.
C)   decreased by $0.5 billion.
D)   decreased by $2 billion.E) A) and C)
F) A) and B)

Question 6

Which of the following does not describe a characteristic of short-term economic fluctuations?

Accepted Answer

A)   Expansions and recessions are felt throughout the economy.
B)   Expansions and recessions are irregular in length and severity.
C)   The unemployment rate rises during recessions.
D)   Durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries.E) A) and B)
F) C) and D)

Question 7

The amount by which consumption increases when disposable income increases by $1 is called:

Accepted Answer

A)   an automatic stabilizer.
B)   the consumption function.
C)   the marginal propensity to consume.
D)   autonomous expenditure.E) A) and D)
F) A) and C)

Question 8

The tendency of changes in asset prices to affect spending on consumption goods is called the ______ effect.

Accepted Answer

A)   income
B)   substitution
C)   wealth
D)   multiplierE) A) and B)
F) B) and C)

Question 9

If short-run equilibrium output equals 20,000 and potential output (Y*)  equals 25,000, then this economy has a(n)  ______ gap that can be closed by _________.

Accepted Answer

A)   recessionary; increasing taxes
B)   expansionary; increasing transfer payments
C)   expansionary; increasing government purchases
D)   recessionary; increasing government purchasesE) B) and D)
F) A) and B)

Question 10

The beginning of a recession is called the:

Accepted Answer

A)   depression.
B)   expansion.
C)   peak.
D)   trough.E) B) and C)
F) A) and D)

Question 11

The increase in the unemployment rate during a recession is associated with which type of unemployment?

Accepted Answer

A)   Frictional unemployment
B)   Cyclical unemployment
C)   Structural unemployment
D)   Nominal unemploymentE) All of the above
F) B) and C)

Question 12

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 D)
F) C) and D)

Question 13

The two parts of the Keynesian consumption function are consumption that depends on ______ and consumption that depends on _____.

Accepted Answer

A)   disposable income; factors other than disposable income
B)   planned spending; unplanned spending
C)   real income; nominal income
D)   money; wealthE) B) and C)
F) None of the above

Question 14

Since 1925, the longest recession in the United States lasted:

Accepted Answer

A)   120 months.
B)   21 months.
C)   43 months.
D)   60 months.E) None of the above
F) A) and D)

Question 15

In the Keynesian model, fluctuations in aggregate spending cause:

Accepted Answer

A)   recessions and expansions.
B)   enhanced labor market mobility.
C)   changes in average labor productivity.
D)   changes in potential output.E) A) and B)
F) B) and C)

Question 16

A decrease in stock prices alters the consumption function by:

Accepted Answer

A)   increasing disposable income.
B)   decreasing disposable income.
C)   increasing autonomous consumption.
D)   decreasing autonomous consumption.E) B) and C)
F) None of the above

Question 17

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals:

Accepted Answer

A)   1,000.
B)   1,160.
C)   1,280.
D)   1,440.E) A) and D)
F) All of the above

Question 18

Suppose that the owner of a local ice cream store, knowing that demand for ice cream is higher when the weather is warmer, always charges a price in cents for a scoop of ice cream that is equal to two times the current outdoor temperature, measured in Fahrenheit (so that if it is 90 degrees outside, the ice cream is $1.80 per scoop) . This type of behavior is ______.

Accepted Answer

A)   exactly the type of behavior that Keynes believed most firms exhibit.
B)   known as meeting demand.
C)   inconsistent with the key assumption upon which the basic Keynesian model is built.
D)   free from menu costs.E) A) and B)
F) All of the above

Question 19

Contractionary policies are government stabilization policies intended to decrease:

Accepted Answer

A)   population.
B)   unemployment.
C)   average labor productivity.
D)   spending.E) None of the above
F) A) and D)

Question 20

When aggregate expenditure is given as Y = 200 + 0.5Y, short-run equilibrium output equals:

Accepted Answer

A)   1,200.
B)   400.
C)   600.
D)   800.E) B) and C)
F) All of the above

Exam 10: Short-Term Economic Fluctuations and Fiscal Policy

The amount by which consumption increases when disposable income increases by $1 is called:

Correct Answer
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In the Keynesian model, fluctuations in aggregate spending cause:

Correct Answer
verified

When aggregate expenditure is given as Y = 200 + 0.5Y, short-run equilibrium output equals:

Correct Answer
verified

Correct Answer
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Contractionary policies are government stabilization policies intended to decrease:

Correct Answer
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The two parts of the Keynesian consumption function are consumption that depends on __ and consumption that depends on _.

Correct Answer
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A decrease in stock prices alters the consumption function by:

Correct Answer
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Assuming that the government can act immediately before the multiplier takes effect, then to offset an increase in investment by $1 billion, government purchases must be:

Correct Answer
verified

The natural rate of unemployment is equal to the unemployment rate when there is only:

Correct Answer
verified

In the short-run Keynesian model, if the mpc equals 0.8, then to increase aggregate spending by $20 billion at any output level, government spending must be increased by __ or net taxes must be decreased by _.

Correct Answer
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The beginning of a recession is called the:

Correct Answer
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A fiscal policy action to close a recessionary gap is to:

Correct Answer
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Since 1925, the longest recession in the United States lasted:

Correct Answer
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In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals:

Correct Answer
verified

The increase in the unemployment rate during a recession is associated with which type of unemployment?

Correct Answer
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The tendency of changes in asset prices to affect spending on consumption goods is called the ______ effect.

Correct Answer
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If short-run equilibrium output equals 20,000 and potential output (Y*) equals 25,000, then this economy has a(n) gap that can be closed by ___.

Correct Answer
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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.

Correct Answer
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Recessions begin at __ and end at _.

Correct Answer
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Which of the following does not describe a characteristic of short-term economic fluctuations?

Correct Answer
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Exam 10: Short-Term Economic Fluctuations and Fiscal Policy

The amount by which consumption increases when disposable income increases by $1 is called:

Correct AnswerverifiedShow Answer

In the Keynesian model, fluctuations in aggregate spending cause:

Correct AnswerverifiedShow Answer

When aggregate expenditure is given as Y = 200 + 0.5Y, short-run equilibrium output equals:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Contractionary policies are government stabilization policies intended to decrease:

Correct AnswerverifiedShow Answer

The two parts of the Keynesian consumption function are consumption that depends on ______ and consumption that depends on _____.

Correct AnswerverifiedShow Answer

A decrease in stock prices alters the consumption function by:

Correct AnswerverifiedShow Answer

Assuming that the government can act immediately before the multiplier takes effect, then to offset an increase in investment by $1 billion, government purchases must be:

Correct AnswerverifiedShow Answer

The natural rate of unemployment is equal to the unemployment rate when there is only:

Correct AnswerverifiedShow Answer

In the short-run Keynesian model, if the mpc equals 0.8, then to increase aggregate spending by $20 billion at any output level, government spending must be increased by ______ or net taxes must be decreased by _____.

Correct AnswerverifiedShow Answer

The beginning of a recession is called the:

Correct AnswerverifiedShow Answer

A fiscal policy action to close a recessionary gap is to:

Correct AnswerverifiedShow Answer

Since 1925, the longest recession in the United States lasted:

Correct AnswerverifiedShow Answer

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals:

Correct AnswerverifiedShow Answer

The increase in the unemployment rate during a recession is associated with which type of unemployment?

Correct AnswerverifiedShow Answer

The tendency of changes in asset prices to affect spending on consumption goods is called the ______ effect.

Correct AnswerverifiedShow Answer

If short-run equilibrium output equals 20,000 and potential output (Y*) equals 25,000, then this economy has a(n) ______ gap that can be closed by _________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Recessions begin at ______ and end at _____.

Correct AnswerverifiedShow Answer

Which of the following does not describe a characteristic of short-term economic fluctuations?

Correct AnswerverifiedShow Answer

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The two parts of the Keynesian consumption function are consumption that depends on __ and consumption that depends on _.

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Correct Answer
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Correct Answer
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In the short-run Keynesian model, if the mpc equals 0.8, then to increase aggregate spending by $20 billion at any output level, government spending must be increased by __ or net taxes must be decreased by _.

Correct Answer
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Correct Answer
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If short-run equilibrium output equals 20,000 and potential output (Y*) equals 25,000, then this economy has a(n) gap that can be closed by ___.

Correct Answer
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Correct Answer
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Recessions begin at __ and end at _.

Correct Answer
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Correct Answer
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