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Exam 22: Spending, Output, and Fiscal Policy

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Question 21

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

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

E) B) and C)
F) A) and B)

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Question 22

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In the Keynesian cross diagram,the 45° line represents the short-run equilibrium condition that:

A) Y = PAE.
B) PAE = C + I^p + G + NX.
C) I ≠ I^p.
D) Y* = Y.

E) None of the above
F) B) and D)

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Question 23

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In the short-run Keynesian model where the marginal propensity to consume is 0.75,to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption,transfers must be:

The basic Keynesian model is built on the key assumption that:

The larger the mpc,the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.

As disposable income decreases,consumption:

Planned investment may differ from actual investment because of:

If short-run equilibrium output equals 10,000,the income-expenditure multiplier equals 10,the mpc equals 0.9,and potential output (Y*) equals 9,000,then transfers must be decreased by approximately ______ to eliminate any output gap.

In the basic Keynesian model,a decrease in transfer payments:

In Macroland autonomous consumption equals 100,the marginal propensity to consume equals 0.75,net taxes are fixed at 40,planned investment is fixed at 50,government purchases are fixed at 150,and net exports are fixed at 20.Planned aggregate expenditure equals:

Two drawbacks in using fiscal policy as a stabilization tool are that fiscal policy affects ______ as well as aggregate demand and fiscal policy is _______.

Contractionary policies are government stabilization policy actions intended to decrease:

If firms sell less output than expected,planned investment:

For an economy starting at potential output,an increase in planned investment in the short run results in a(n) :

When real output increases,planned aggregate expenditures increase because:

Planned aggregate expenditure (PAE) equals:

The assumption that firms meet the demand for their products at preset prices is the key assumption upon which ______ is built.

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

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional:

In the short run with predetermined prices,when output is greater than planned aggregate expenditure: