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Exam 11: The Aggregate Expenditures Model

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Question 41

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Suppose the GDP is in equilibrium at full employment and the MPC is .80. If government wants to increase its purchase of goods and services by $16 billion without changing equilibrium GDP, taxes should be:

A) Increased by $20 billion
B) Reduced by $16 billion
C) Increased by $16 billion
D) Reduced by $20 billion

E) All of the above
F) C) and D)

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Question 42

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Positive net exports increase aggregate expenditures beyond what they would be in a closed economy and thus have an expansionary effect on domestic GDP.

A) True
B) False

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Question 43

Multiple Choice

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The data below is the consumption schedule in an economy. All figures are in billions of dollars. Refer to the above table. If gross investment is $34 billion, net exports are zero, and there is a lump-sum tax of $30 billion at all levels of GDP, then the after-tax equilibrium level of GDP will be:

In the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a:

In the above graph it is assumed that investment, net exports, and government expenditures:

The major economic issue during the Great Depression of the 1930s that concerned John Maynard Keynes was:

If the MPC in the economy is 0.7 and aggregate expenditures fall by $10 billion, then real GDP will fall by $17 billion.

A newspaper story states: "For the fourth straight quarter, the nation purchased more goods from abroad than ever before." The event described would:

A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because:

Refer to the above graph for a private closed economy. The multiplier for the above economy is:

In a private closed economy, there will be an unplanned increase in inventories when:

Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model?

Refer to the graph above for a private closed economy. The equilibrium level of GDP in this economy is:

All of the following are true when there is an unplanned decrease in inventories, except:

All figures below are in billions of dollars. Refer to the table above. If gross investment is $12 billion, the equilibrium level of GDP will be:

Saving is $40 billion and planned investment is $28 billion at the $175 billion level of output in a private closed economy. At this level:

In the aggregate expenditures model of a private closed economy, if aggregate expenditures are greater than output or income, then real GDP will increase towards its equilibrium level.

In which of the following situations for an open mixed economy will the level of GDP contract?

The table shows the consumption schedule for a hypothetical economy. All figures are in billions of dollars. Refer to the above table. If planned investments were fixed at $16, taxes were zero, government purchases of goods and services were zero, and net exports were zero, then equilibrium real GDP would be $630 initially. If government purchases were then raised from $0 to $4, other things constant, then the equilibrium real GDP would become:

The steeper is the consumption schedule in an economy, the larger will be the multiplier.