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31-61
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
31-62
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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.
31-64
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.
31-65
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
31-66
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.
31-67
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written consent of McGraw-Hill Education.
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
31-68
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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.
31-72
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written consent of McGraw-Hill Education.
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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written consent of McGraw-Hill Education.
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.
31-74
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written consent of McGraw-Hill Education.
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.
31-76
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written consent of McGraw-Hill Education.
Test Bank: I
To p i c:
Adding the Public Sector
138.
GDP
C
$140
$150
180
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
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
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.
31-79
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
31-80
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
