Question 1

A decrease in stock prices alters the consumption function by:

Accepted Answer

A)  increasing the slope.
B)  decreasing the slope.
C)  increasing the vertical intercept.
D)  decreasing the vertical intercept.E) A) and B)
F) A) and C)

Question 2

In the Keynesian model, consumption depends on:

Accepted Answer

A)  whether the government has a budget surplus or deficit.
B)  potential output.
C)  the natural rate of unemployment.
D)  disposable income.E) All of the above
F) None of the above

Question 3

Menu costs are the costs of:

Accepted Answer

A)  running a restaurant.
B)  changing prices.
C)  increasing aggregate demand.
D)  changing production.E) B) and C)
F) None of the above

Question 4

Autonomous expenditure is the portion of planned aggregate expenditure that:

Accepted Answer

A)  equals aggregate output.
B)  equals planned spending.
C)  equals induced expenditure.
D)  is independent of output.E) A) and B)
F) None of the above

Question 5

In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:

Accepted Answer

A)  increased by $10 billion.
B)  decreased by $10 billion.
C)  increased by more than $10 billion.
D)  decreased by less than $10 billion.E) A) and B)
F) A) and C)

Question 6

Refer to the figure below.  Based on the Keynesian cross diagram, short-run equilibrium output equals:

Accepted Answer

A)  3,000.
B)  3,250.
C)  4,000.
D)  4,750.E) A) and C)
F) None of the above

Question 7

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

Accepted Answer

A)  Y = PAE.
B)  PAE = C + Ip + G + NX.
C)  I Ip.
D)  Y* = Y.E) All of the above
F) A) and C)

Question 8

Data on output and planned aggregate expenditure in Macroland are given below.  Based on these data, the short-run equilibrium level of output is:

Accepted Answer

A)  2,000.
B)  3,200.
C)  4,100.
D)  5,000.E) All of the above
F) A) and B)

Question 9

An economic expansion in the United States ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n)  ______ output gap in Mexico.

Accepted Answer

A)  reduces; expansionary
B)  increases; expansionary
C)  reduces; recessionary
D)  increases; recessionaryE) C) and D)
F) A) and B)

Question 10

Refer to the figure below.  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 D)

Question 11

In the Keynesian model, a $5 billion decrease in autonomous planned investment leads to ______ in short-run equilibrium output.

Accepted Answer

A)  a $5 billion increase
B)  a greater than $5 billion decrease
C)  no change.
D)  a $5 billion decreaseE) A) and B)
F) A) and D)

Question 12

In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned 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) A) and B)
F) B) and C)

Question 13

The slope of the consumption function:

Accepted Answer

A)  is vertical.
B)  is horizontal.
C)  equals 1.
D)  equals the marginal propensity to consume.E) A) and D)
F) A) and C)

Question 14

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

Accepted Answer

A)  expansionary output gap.
B)  recessionary output gap.
C)  increase in potential output.
D)  decrease in potential output.E) B) and C)
F) None of the above

Question 15

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.Autonomous expenditure equals:

Accepted Answer

A)  990.
B)  940.
C)  900.
D)  890.E) B) and D)
F) All of the above

Question 16

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) A) and D)

Question 17

Refer to the figure below.  Based on the figure, when PAE = 400 + 0.5Y, short-run equilibrium output equals:

Accepted Answer

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

Question 18

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

Accepted Answer

A)  for government to finance deficit spending.
B)  to fight inflation.
C)  for businesses and consumers to borrow money.
D)  to shift the PAE line downwarD.After the housing bubble burst, many loans went bad and banks and other lenders reduced availability of loans.E) All of the above
F) B) and C)

Question 19

The vertical intercept of the consumption function equals ______ and the slope equals _____.

Accepted Answer

A)  the mpc; autonomous consumption
B)  autonomous consumption; the mpc
C)  the unplanned component of consumption; the planned component of consumption
D)  the planned component of consumption; the unplanned component of consumptionE) C) and D)
F) B) and D)

Question 20

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.Autonomous expenditure equals:

Accepted Answer

A)  320.
B)  320 + 0.25Y.
C)  290.
D)  290 + 0.75Y.E) A) and C)
F) B) and D)

Exam 11: Spending, Output, and Fiscal Policy

In the Keynesian model, consumption depends on:

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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.Autonomous expenditure equals:

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The vertical intercept of the consumption function equals ______ and the slope equals _____.

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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.Autonomous expenditure equals:

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An economic expansion in the United States ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) ______ output gap in Mexico.

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

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The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

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

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Autonomous expenditure is the portion of planned aggregate expenditure that:

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

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Refer to the figure below. Based on the figure, when PAE = 400 + 0.5Y, short-run equilibrium output equals:

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The slope of the consumption function:

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

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In the Keynesian model, a $5 billion decrease in autonomous planned investment leads to ______ in short-run equilibrium output.

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Changes in taxes and transfers affect planned spending:

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Data on output and planned aggregate expenditure in Macroland are given below. Based on these data, the short-run equilibrium level of output is:

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Menu costs are the costs of:

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In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:

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A decrease in stock prices alters the consumption function by:

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Refer to the figure below. Based on the Keynesian cross diagram, short-run equilibrium output equals:

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The vertical intercept of the consumption function equals __ and the slope equals _.

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An economic expansion in the United States the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) output gap in Mexico.

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

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