978-1259723223 Test Bank TBChap031 Part 4

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Blooms: Understand

Di f f i cu l t y :

02 Medium

Learning Objective: 31–06 Explain how economists integrate the international sector exports

and imports into the aggregate expenditures model.

Test Bank: I

Topic:

Adding International Trade

108.

(Advanced analysis) The equations give information for a private open economy. The letters Y,

C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports,

respectively. Figures are in billions of dollars. International trade in this case

A. has an expansionary effect on GDP.

109. If the equilibrium level of GDP in a private open economy is $1,000 billion and

consumption is $700 billion at that level of GDP, then

A.

saving must be $300 billion.

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written consent of McGraw-Hill Education.

Di f f i cu l t y :

02 Medium

Learning Objective: 31-06 Explain how economists integrate the international sector exports

and imports into the aggregate expenditures model.

Test Bank: I

To p i c:

Adding International Trade

110. An exchange rate

A.

is the ratio of the dollar volume of a nation’s exports to the dollar volume of its imports.

111. If the United States wants to increase its net exports in the short term, it might take steps

to

112. Other things equal, a serious recession in the economies of U.S. trading partners will

D. stimulate real output and employment in the U.S. economy.

113.

Refer to the diagram. If (C + Ig) are the private expenditures in the closed economy and Xn2

are the net exports in the open economy, we can conclude that

A. exports are negative.

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114.

Refer to the diagram. If net exports are Xn2, the GDP in the open economy will exceed GDP in

the closed economy by

A.

AB.

115.

Refer to the diagram. The multiplier in this economy is

A. 0E/0A.

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C. FG/BD.

D. BD/AD.

116.

Refer to the diagram. If aggregate expenditures in this economy are (C + Ig + Xn2), then the

equilibrium levels of GDP and aggregate expenditures will be

A.

0A and 0E, respectively.

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117.

Refer to the diagram. The change in aggregate expenditures as shown from (C + Ig + Xn2) to

(C + Ig + Xn1) might be caused by

D. a rightward shift in this nation’s 45-degree line.

118.

Refer to the diagram. The change in aggregate expenditures as shown from (C + Ig + Xn1) to

(C + Ig + Xn2) will produce

A.

a decrease in real GDP.

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B.

an inflationary expenditure gap if 0D is this nation‘s full-employment level of GDP.

C.

an increase in real GDP if 0A is this nation‘s full-employment level of GDP.

D. an inflationary expenditure gap if 0B is this nation’s full-employment level of GDP.

AACSB: Analytical Thinking

Blooms: Analyze

Difficulty:

03 Hard

Learning Objective: 31-08 Differentiate between equilibrium GDP and full-employment GDP

and identify and describe the nature and causes of recessionary expenditure gaps and

inflationary expenditure gaps.

Test Bank: I

To p i c:

Equilibrium versus Full-Employment GDP

Type: Graph

119. C = 26 + 0.75Y

Ig = 60

X = 24

M = 10

(Advanced analysis) The equations give information for a private open economy. The letters Y,

C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports,

respectively. Figures are in billions of dollars. The equilibrium GDP for the open economy is

A. $390.

120. C = 26 + 0.75Y

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Ig = 60

X = 24

M = 10

(Advanced analysis) The equations give information for a private open economy. The letters Y,

C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports,

respectively. Figures are in billions of dollars. The multiplier for the economy is

A. 4.6.

121.

In a mixed open economy, the equilibrium GDP exists where

A.

Ca + Ig + Xn intersects the 45-degree line.

122.

In a mixed open economy, the equilibrium GDP is determined at that point where

D.

Sa + Ig + X = G + T.

123.

Suppose that a mixed open economy is producing at its equilibrium income and that net

exports are zero. If at the equilibrium income the public sector’s budget shows a surplus,

A.

Ca + Ig + Xn + G must exceed GDP.

124.

Other things equal, if $100 billion of government purchases (G) is added to private

spending (C + Ig + Xn), GDP will

A.

increase by $100 billion.

31–70

written consent of McGraw-Hill Education.

Di f f i cu l t y :

02 Medium

Learning Objective: 31-07 Explain how economists integrate the public sector government

expenditures and taxes into the aggregate expenditures model.

Test Bank: I

To p i c:

Adding the Public Sector

125.

Suppose the economy’s multiplier is 2. Other things equal, a $25 billion decrease in

government expenditures on national defense will cause equilibrium GDP to

D. decrease by $25 billion.

126.

Assume the MPC is 0.8. If government were to impose $50 billion of new taxes on

household income, consumption spending would initially decrease by

A.

$100 billion.

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127.

Refer to the diagram. The level of government spending

A. is equal to tax collections at each level of GDP.

128.

Refer to the diagram. The sizes of the multipliers associated with changes in investment and

government spending in this economy are

A.

2.5 and 1.5, respectively.

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C. both 2.5.

D. 2 and 3, respectively.

129.

Refer to the diagram. The impact of the public sector on the equilibrium GDP

D. cannot be determined from the information given.

130.

Other things equal, the multiplier effect associated with a change in government spending

is

A.

the same as that associated with a change in taxes.

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B. equal to that associated with a change in investment or consumption.

C. less than that associated with a change in investment.

D. greater than that associated with a change in investment.

131.

In which of the following situations for a mixed open economy will the level of GDP

expand?

D. when Ig + M + T exceeds Ca + X + S

132.

If a lump-sum income tax of $25 billion is levied and the MPS is 0.20, the

A.

saving schedule will shift upward by $5 billion.

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To p i c:

Adding the Public Sector

133.

Which of the following statements is incorrect?

A.

Given the economy‘s MPS, a $15 billion reduction in government spending will reduce the

equilibrium GDP by more than would a $15 billion increase in taxes.

134.

Suppose the economy is operating at its full-employment, noninflationary GDP and the

MPC is 0.75. The federal government now finds that it must increase spending on military

goods by $21 billion in response to deterioration in the international political situation. To

sustain full-employment, noninflationary GDP, government must

A.

reduce taxes by $28 billion.

135.

A $1 increase in government spending on goods and services will have a greater impact

on the equilibrium GDP than will a $1 decline in taxes because

investment spending.

136.

In a mixed open economy, if aggregate expenditures exceed GDP,

A.

Ig + X + G = Ca.

137.

An increase in taxes of a specific amount will have a smaller impact on the equilibrium

GDP than will a decline in government spending of the same amount because

A.

the MPC is smaller in the private sector than it is in the public sector.

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Test Bank: I

To p i c:

Adding the Public Sector

138.

GDP

C

$140

$150

180

220

210

260

240

300

270

The accompanying schedule contains data for a private closed economy. All figures are in

billions. If gross investment is $10 at all levels of GDP, the equilibrium GDP will be

A. $300.

139.

GDP

C

$140

$150

180

220

210

260

240

300

270

The accompanying schedule contains data for a private closed economy. All figures are in

billions. If a lump-sum tax of $20 is imposed, the consumption schedule will become

A.

GDP

C

$120

$150

160

180

200

210

240

280

270

300

250

140.

Which of the following is a correct statement of the effects of a lump-sum tax?

A.

Disposable income will increase by the amount of the tax, and consumption at each level of

GDP will decline by the amount of the tax multiplied by the MPC.

141.

The level of aggregate expenditures in a mixed open economy consists of

A.

Ca + Ig + Xn.

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Learning Objective: 31-07 Explain how economists integrate the public sector government

expenditures and taxes into the aggregate expenditures model.

Test Bank: I

To p i c:

Adding the Public Sector

142.

If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will

be to cause

A.

a rightward shift in the investment demand schedule.

143.

In a mixed closed economy,

A.

government purchases and saving are injections, while investment and taxes are leakages.

144.

An increase in taxes will have a greater effect on the equilibrium GDP

A.

if the tax revenues are redistributed through transfer payments.

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145.

A lump-sum tax causes the after-tax consumption schedule

A.

and the before-tax consumption schedule to coincide.

146. Ca = 25 + 0.75 (Y – T)

Ig = 50

Xn = 10

G = 70

T = 30

(Advanced analysis) The accompanying equations are for a mixed open economy. The letters

Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government

purchases, and net taxes, respectively. Figures are in billions of dollars. The equilibrium level

of GDP for this economy is