Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
341. In an open mixed economy, the inflationary expenditure gap may be described as the
A.
excess of GDP over Ca + Ig + Xn + G at the full-employment output.
342. In the Great Recession of 2007–2009, the aggregate expenditures schedule in the U.S.
economy dropped, mostly due to a fall in
A.
consumption spending.
31-178
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topi c :
Equilibrium versus Full-Employment GDP
343. The $787 billion stimulus package enacted by the Federal government in 2009 to try to
deal with the Great Recession was intended to
A.
shift the aggregate expenditures schedule down.
344. In 2008 during the Great Recession, the Federal government provided tax rebate checks to
taxpayers in the hope that
A.
C would shift down.
345. If consumers respond to a tax-cut by saving a large portion of the extra disposable income
(or using it to reduce their debts), then the tax-cut policy would
A.
shift the AE curve up significantly.
31-179
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. not have much effect on the aggregate expenditures curve.
346. Say's law in classical economics suggests that, over a period of time,
A.
aggregate spending would tend to exceed total output and income.
347. One of the most important views expressed by classical macroeconomists was that
A.
wages and prices are inflexible.
31-180
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topi c :
Equilibrium versus Full-Employment GDP
348. From the perspective of classical macroeconomic theory, if aggregate spending was
temporarily less than output,
D. product and resource prices would increase, so that aggregate spending would equal output.
349. From the perspective of classical macroeconomic theory, an excess of aggregate spending
would
A.
increase aggregate output and the level of employment in the economy.
350. Classical economists held the view that in the economy,
A.
demand creates its own supply.
31-181
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B. unemployment is temporary and is soon eliminated.
C. there is an imbalance between saving and investment.
D. it is difficult for an economy to adjust because wages and prices are inflexible.
351. John Maynard Keynes developed the ideas underlying the aggregate expenditures model
A.
in the 1960s.
352. One major point that Keynes raised pertains to income and spending. He argued that
A.
all income is often spent in the same period of time.
31-182
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
inflationary expenditure gaps.
Test Bank: II
Topi c :
Equilibrium versus Full-Employment GDP
353. The major economic issue during the Great Depression of the 1930s that concerned John
Maynard Keynes was
D. hyperinflation.
354. John Maynard Keynes expressed his ideas about the macroeconomy and attacked classical
economics in his book, The
A.
Affluent Society.
True / False Questions
355. One basic assumption of the aggregate expenditures model is that the price level in the
economy is fixed.
31-183
356. The major basic premise of the aggregate expenditures model is that if the total demand
for output increases, then firms will raise their prices.
357. In the aggregate expenditures model of a private closed economy, we analyze a
consumption schedule and an investment schedule, both of which indicate that as income
increases then consumption and investment will increase.
358. If the expected rates of return from investment decrease in an economy, there would most
likely be a downward shift in the investment schedule for that economy.
31-184
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
TRUE
359. A rightward shift of the investment demand curve translates into an upward shift of the
investment schedule in the aggregate expenditures model.
360. A downward-sloping investment demand curve and a horizontal investment schedule
indicate that investments are inversely related to interest rates but are not affected by the level
of income.
361. In the aggregate expenditures model of the economy, equilibrium is attained when planned
aggregate spending equals total output.
362. In the aggregate expenditures model of a private closed economy, aggregate expenditures
(C + Ig) is always equal to output GDP.
363. In the aggregate expenditures model of a private closed economy, if aggregate
expenditures are greater than output or income, then real GDP will increase toward its
equilibrium level.
364. When a private closed economy is at equilibrium, then (GDP − C) is equal to planned
investment.
365. When there are unplanned increases in inventories, then actual investment ends up being
less than planned investment.
366. If planned investment is larger than saving, then real GDP will increase as the economy
adjusts toward equilibrium.
31-187
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topi c :
Other Features of Equilibrium GDP
367. In a closed private economy, an unplanned decrease in inventories will cause firms to
increase real GDP.
368. If the MPC in the economy is 0.7 and aggregate expenditures fall by $10 billion, then real
GDP will fall by $17 billion.
369. If aggregate expenditures rise by $200 billion and real GDP consequently rises by $500
billion, then the MPC in the economy must be 0.4.
370. If households and firms in an economy would save all extra income that they receive so
that MPC = 0, then the multiplier in that economy is zero.
371. The steeper is the consumption schedule in an economy, the larger will be the multiplier.
372. Positive net exports increase aggregate expenditures beyond what they would be in a
closed economy and thus have an expansionary effect on domestic GDP.
373. An increase in imports, other things constant, would tend to raise the equilibrium level of
GDP.
374. An increase in a lump-sum tax has the same effect on equilibrium GDP as an equal
decrease in government purchases.
375. If the government increases its purchases by $200 billion but at the same time raises lump-
sum taxes by $200 billion, then equilibrium GDP will remain constant.
376. A decrease in taxes will have a larger effect on equilibrium GDP if the marginal
propensity to consume is smaller.
377. A recessionary expenditure gap is the amount by which aggregate expenditures must
increase in order to reach the full-employment level of GDP.
378. In the Great Recession of 2007–2009, the sector of the economy that decreased the most
was G.
379. In the Great Recession of 2007–2009, consumption, C, and investment, Ig, fell, while
government, G, expanded.
380. In the Great Recession of 2007–2009, the Federal government enacted a "stimulus
package" that was intended to bring inflation down.
381. When the Federal government provides tax rebate checks to taxpayers, as it did in 2008,
the intent is to push the aggregate expenditures schedule in the economy upward.
