Question 1

Suppose lower interest rates suddenly lead to an injection of $325 additional investment spending into the economy and the marginal propensity to consume is 0.80. Table 10.1
 Spending CyclesFirst-cyclespendingSecond-cyclespendingThird-cyclespendingChange in this Cycle’s Spending and Income$325Cumulative Increase in Spendingand Income$325\begin{array}{c}\begin{array}{|l|}\hline\ 	ext {Spending Cycles}\\hline 	ext {First-cycle}\	ext {spending}\\hline 	ext {Second-cycle}\	ext {spending}\\hline 	ext {Third-cycle}\	ext {spending}\\hline  \end{array}\begin{array}{c|}\hline 	ext {Change in this Cycle&#x27;s Spending}\	ext { and Income}\\hline\\quad\quad\quad\quad\quad\quad\quad\quad \$ 325 \\hline\\\hline\\\hline\end{array}\begin{array}{c|}\hline 	ext {Cumulative Increase in Spending}\ 	ext {and Income}\\hline\\quad\quad\quad\quad\quad\quad\quad\quad \$325\\hline\\\hline\\\hline\end{array}\end{array}Spending CyclesFirst-cyclespendingSecond-cyclespendingThird-cyclespending​​Change in this Cycle’s Spending and Income$325​​Cumulative Increase in Spendingand Income$325​​​ 
 In Table 10.1,what is the change in the second cycle of spending resulting from the higher initial investment?

Accepted Answer

A)  $65.
B)  $1,625.
C)  $325.
D)  $260. E) A) and B)
F) None of the above

Question 2

What are leakages,and how do they affect the economy?

Accepted Answer

A leakage is income not spent directly o...

Question 3

The marginal propensity to consume is

Accepted Answer

A)  Total consumption in a given period divided by total disposable income.
B)  The percentage of total disposable income spent on consumption.
C)  That part of the average consumer dollar that goes to the purchase of final goods.
D)  The fraction of each additional dollar of disposable income spent on consumption.E) None of the above
F) A) and C)

Question 4

The recessionary GDP gap represents the

Accepted Answer

A)  Amount by which aggregate demand must increase to reach full employment.
B)  Value of the goods and services that could be produced but were not due to unemployed resources.
C)  Leakages minus injections.
D)  Amount by which actual investment differs from desired investment.E) A) and C)
F) B) and D)

Question 5

Macro disturbances can be caused by changes in

Accepted Answer

A)  Investment only.
B)  Government spending only.
C)  Consumption,investment,government spending,or exports.
D)  Exports only because this is the only type of expenditure that is not controllable.E) All of the above
F) A) and D)

Question 6

Inventory depletion is a warning sign of

Accepted Answer

A)  Inflation.
B)  Deflation.
C)  A drop in AS.
D)  A drop in AD.E) A) and B)
F) A) and C)

Question 7

Gross business saving is defined as

Accepted Answer

A)  Depreciation allowances and retained earnings.
B)  Depreciation allowances less retained earnings.
C)  Retained earnings less depreciation allowances.
D)  Depreciation allowances and retained earnings and stockholder dividends.E) A) and B)
F) None of the above

Question 8

Keynes believed that the combination of unplanned and alternating AD shifts reinforced by multiplier effects causes recurring business cycles.

Accepted Answer

A) True 
 B)False

Question 9

Disposable income is less than GDP due to

Accepted Answer

A)  Taxes by governments along with exports.
B)  Income held by businesses.
C)  Taxes by governments and income held back as saving by businesses.
D)  Taxes by governments along with imports.E) B) and C)
F) A) and D)

Question 10

If desired investment exceeds actual investment,then

Accepted Answer

A)  A recessionary GDP gap will emerge.
B)  Inventories are less than the desired level.
C)  Inventories are accumulating beyond desired levels.
D)  Cyclical unemployment exists.E) B) and C)
F) A) and D)

Question 11

The multiplier process can occur when a decrease in investment spending

Accepted Answer

A)  Increases household saving,causing consumers to buy more goods and services.
B)  Reduces household incomes,causing consumers to buy fewer goods and services.
C)  Increases household incomes,causing consumers to buy fewer goods and services.
D)  Reduces household incomes,causing consumers to buy more goods and services.E) A) and D)
F) B) and D)

Question 12

Assuming an upward-sloping AS curve,if an economy is at full employment and investment spending decreases while all other levels of spending remaining constant,then

Accepted Answer

A)  A GDP gap emerges.
B)  The price level increases.
C)  Output increases.
D)  The unemployment rate falls.E) All of the above
F) C) and D)

Question 13

A demand-pull inflation problem can best be solved by

Accepted Answer

A)  An increase in production of goods and services.
B)  A reduction in desired spending.
C)  An increase in aggregate demand.
D)  A reduction in aggregate supply.E) A) and B)
F) All of the above

Question 14

3 to AD2. B) AD2 to AD1. C) AD1 to AD0. D) AD2 to AD3." class="answers-bank-image d-inline" rel="preload" > Refer to Figure 10.3.Inflation increases most rapidly as the economy moves from

Accepted Answer

A)  AD3 to AD2.
B)  AD2 to AD1.
C)  AD1 to AD0.
D)  AD2 to AD3.E) A) and C)
F) B) and C)

Question 15

John Maynard Keynes argued that

Accepted Answer

A)  Macro failure is likely to occur,and it isn't likely to go away quickly.
B)  Macro failure is unlikely to occur.
C)  Macro failure is likely to occur but will go away quickly.
D)  None of the choices are correct.E) B) and C)
F) A) and C)

Question 16

If equilibrium GDP exceeds full-employment GDP,

Accepted Answer

A)  The difference is the recessionary GDP gap.
B)  The difference is the inflationary GDP gap.
C)  Inventories will accumulate.
D)  Leakages must be greater than injections.E) None of the above
F) All of the above

Question 17

If the marginal propensity to save is 0.10 and the initial decline in investment is $100,by how much will aggregate demand eventually decrease?

Accepted Answer

A)  $100.
B)  $900.
C)  $1,000.
D)  $10,000.E) A) and D)
F) A) and C)

Question 18

Which of the following situations may lead to a decrease in the level of cyclical unemployment?

Accepted Answer

A)  Undesired inventory accumulation.
B)  Total value of goods supplied exceeds total value of goods demanded.
C)  A period of significant inflation.
D)  Desired saving exceeds desired investment.E) A) and C)
F) A) and B)

Question 19

Equilibrium occurs when the aggregate demand curve intersects the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 20

The impact of the multiplier effect depends on the size of the initial change in expenditures.

Accepted Answer

A) True 
 B)False

Exam 10: Self-Adjustment or Instability

The marginal propensity to consume is

Correct Answer
verified

Refer to Figure 10.3.Inflation increases most rapidly as the economy moves from

Correct Answer
verified

Gross business saving is defined as

Correct Answer
verified

If desired investment exceeds actual investment,then

Correct Answer
verified

Inventory depletion is a warning sign of

Correct Answer
verified

John Maynard Keynes argued that

Correct Answer
verified

Equilibrium occurs when the aggregate demand curve intersects the aggregate supply curve.

Correct Answer
verified

What are leakages,and how do they affect the economy?

Correct Answer
verified
A leakage is income not spent directly o...
View Answer

A demand-pull inflation problem can best be solved by

Correct Answer
verified

Correct Answer
verified

Assuming an upward-sloping AS curve,if an economy is at full employment and investment spending decreases while all other levels of spending remaining constant,then

Correct Answer
verified

Macro disturbances can be caused by changes in

Correct Answer
verified

Keynes believed that the combination of unplanned and alternating AD shifts reinforced by multiplier effects causes recurring business cycles.

Correct Answer
verified

If equilibrium GDP exceeds full-employment GDP,

Correct Answer
verified

If the marginal propensity to save is 0.10 and the initial decline in investment is $100,by how much will aggregate demand eventually decrease?

Correct Answer
verified

The recessionary GDP gap represents the

Correct Answer
verified

The impact of the multiplier effect depends on the size of the initial change in expenditures.

Correct Answer
verified

Disposable income is less than GDP due to

Correct Answer
verified

The multiplier process can occur when a decrease in investment spending

Correct Answer
verified

Which of the following situations may lead to a decrease in the level of cyclical unemployment?

Correct Answer
verified

Exam 10: Self-Adjustment or Instability

The marginal propensity to consume is

Correct AnswerverifiedShow Answer

Refer to Figure 10.3.Inflation increases most rapidly as the economy moves from

Correct AnswerverifiedShow Answer

Gross business saving is defined as

Correct AnswerverifiedShow Answer

If desired investment exceeds actual investment,then

Correct AnswerverifiedShow Answer

Inventory depletion is a warning sign of

Correct AnswerverifiedShow Answer

John Maynard Keynes argued that

Correct AnswerverifiedShow Answer

Equilibrium occurs when the aggregate demand curve intersects the aggregate supply curve.

Correct AnswerverifiedShow Answer

What are leakages,and how do they affect the economy?

Correct AnswerverifiedA leakage is income not spent directly o...View AnswerShow Answer

A demand-pull inflation problem can best be solved by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assuming an upward-sloping AS curve,if an economy is at full employment and investment spending decreases while all other levels of spending remaining constant,then

Correct AnswerverifiedShow Answer

Macro disturbances can be caused by changes in

Correct AnswerverifiedShow Answer

Keynes believed that the combination of unplanned and alternating AD shifts reinforced by multiplier effects causes recurring business cycles.

Correct AnswerverifiedShow Answer

If equilibrium GDP exceeds full-employment GDP,

Correct AnswerverifiedShow Answer

If the marginal propensity to save is 0.10 and the initial decline in investment is $100,by how much will aggregate demand eventually decrease?

Correct AnswerverifiedShow Answer

The recessionary GDP gap represents the

Correct AnswerverifiedShow Answer

The impact of the multiplier effect depends on the size of the initial change in expenditures.

Correct AnswerverifiedShow Answer

Disposable income is less than GDP due to

Correct AnswerverifiedShow Answer

The multiplier process can occur when a decrease in investment spending

Correct AnswerverifiedShow Answer

Which of the following situations may lead to a decrease in the level of cyclical unemployment?

Correct AnswerverifiedShow Answer

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A leakage is income not spent directly o...
View Answer

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