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31-101
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. mixed open economy.
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 pic :
Equilibrium versus Full-Employment GDP
Type: Table
188.
Real
GDP
Consumption (after
taxes)
Gross
Investment
Net
Exports
Government
Purchases
$0
-$20
$10
$+5
$15
10
0
10
+5
15
40
20
10
+5
15
70
40
10
+5
15
100
60
10
+5
15
130
80
10
+5
15
160
100
10
+5
15
Refer to the table. The after-tax MPC in the economy shown is
A. 0.5.
31-102
189.
Real
GDP
Consumption (after
taxes)
Gross
Investment
Net
Exports
Government
Purchases
$0
-$20
$10
$+5
$15
10
0
10
+5
15
40
20
10
+5
15
70
40
10
+5
15
100
60
10
+5
15
130
80
10
+5
15
160
100
10
+5
15
Refer to the table. The after-tax MPS shown is
A. 0.1.
190.
Real
GDP
Consumption (after
taxes)
Gross
Investment
Net
Exports
Government
Purchases
$0
-$20
$10
$+5
$15
10
0
10
+5
15
40
20
10
+5
15
70
40
10
+5
15
100
60
10
+5
15
130
80
10
+5
15
160
100
10
+5
15
Refer to the table. The multiplier is
A.
5.
191.
Real
GDP
Consumption (after
taxes)
Gross
Investment
Net
Exports
Government
Purchases
$0
-$20
$10
$+5
$15
10
0
10
+5
15
40
20
10
+5
15
70
40
10
+5
15
100
60
10
+5
15
130
80
10
+5
15
160
100
10
+5
15
Refer to the table. Equilibrium GDP is
A. $40.
31-104
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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 pic :
Equilibrium versus Full-Employment GDP
Type: Table
192.
Real
GDP
Consumption (after
taxes)
Gross
Investment
Net
Exports
Government
Purchases
$0
-$20
$10
$+5
$15
10
0
10
+5
15
40
20
10
+5
15
70
40
10
+5
15
100
60
10
+5
15
130
80
10
+5
15
160
100
10
+5
15
Refer to the table. If the full-employment real GDP is $100, the
A.
inflationary expenditure gap is $30.
193.
Real
Consumption (after
Gross
Net
Government
31-105
GDP
taxes)
Investment
Exports
Purchases
$0
-$20
$10
$+5
$15
10
0
10
+5
15
40
20
10
+5
15
70
40
10
+5
15
100
60
10
+5
15
130
80
10
+5
15
160
100
10
+5
15
Refer to the table. If the full-employment real GDP is $40, the
A. inflationary expenditure gap is $30.
194.
Real
GDP
Consumption (after
taxes)
Gross
Investment
Net
Exports
Government
Purchases
$0
-$20
$10
$+5
$15
10
0
10
+5
15
40
20
10
+5
15
70
40
10
+5
15
100
60
10
+5
15
130
80
10
+5
15
160
100
10
+5
15
Refer to the table. If the full-employment real GDP is $70, the
A. inflationary expenditure gap is $30.
195.
Real
GDP
Consumption (after
taxes)
Gross
Investment
Net
Exports
Government
Purchases
$0
-$20
$10
$+5
$15
10
0
10
+5
15
40
20
10
+5
15
70
40
10
+5
15
100
60
10
+5
15
130
80
10
+5
15
160
100
10
+5
15
Refer to the table. Exports might be and imports .
D. $5; 10
31-107
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: I
To pic :
Equilibrium versus Full-Employment GDP
Type: Table
196.
Real
GDP
Consumption (after
taxes)
Gross
Investment
Net
Exports
Government
Purchases
$0
-$20
$10
$+5
$15
10
0
10
+5
15
40
20
10
+5
15
70
40
10
+5
15
100
60
10
+5
15
130
80
10
+5
15
160
100
10
+5
15
Refer to the table. An increase in net exports of $10 would
197.
Real
GDP
Consumption (after
taxes)
Gross
Investment
Net
Exports
Government
Purchases
$0
-$20
$10
$+5
$15
10
0
10
+5
15
40
20
10
+5
15
31-108
70
40
10
+5
15
100
60
10
+5
15
130
80
10
+5
15
160
100
10
+5
15
Refer to the table. A decrease in government purchases of $5 would
A.
increase real GDP by $5.
198.
Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are
at AE3, the
A.
inflationary expenditure gap is BC.
199.
Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are
at AE1, the
A.
inflationary expenditure gap is BC.
200.
Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are
at AE2, the
A.
inflationary expenditure gap is ed.
201.
Refer to the diagram. The value of the multiplier for this economy is
31-111
D. df/BC.
202.
A recessionary expenditure gap exists if
203.
Assume the current equilibrium level of income is $200 billion as compared to the full-
employment income level of $240 billion. If the MPC is 0.625, what change in aggregate
expenditures is needed to achieve full employment?
A.
a decrease of $12 billion
31-112
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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 pic :
Equilibrium versus Full-Employment GDP
204.
If the MPS is 0.25 and the economy has a recessionary expenditure gap of $5 billion, then
equilibrium GDP is
A.
$5 billion below the full-employment GDP.
205.
Which of the following statements concerning the equilibrium level of GDP is incorrect?
A.
There will be no tendency for businesses to alter the aggregate rate of production.
206.
If the economy is in equilibrium at $400 billion of GDP and the full-employment GDP is
$500 billion,
A.
real and nominal GDP will both increase.
207.
If an increase in aggregate expenditures results in no increase in real GDP, we can
surmise that the
A.
economy is in a deep recession.
208.
If the MPC is 0.50 and the equilibrium GDP is $40 billion below the full-employment
GDP, then the size of the recessionary expenditure gap is
A.
$40 billion.
31-114
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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 pic :
Equilibrium versus Full-Employment GDP
209.
The recessionary expenditure gap associated with the recession of 2007–2009 resulted
from
A.
the government's attempt to control hyperinflation.
210.
In an effort to stop the U.S. recession of 2007–2009, the federal government
D. avoided Keynesian policies because of the threat of inflation.
211.
The U.S. recession of 2007–2009 provides a good example of
A.
demand-pull inflation.
212.
Viewed through the aggregate expenditures model, the U.S. recession of 2007–2009
resulted mainly from
A.
a fall in the average propensity to save.
213.
(Last Word) Say's law and classical macroeconomics were disputed by
A.
Adam Smith.
31-116
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 31-01 Explain how sticky prices relate to the aggregate expenditures
model.
Test Bank: I
To pic :
Assumptions and Simplifications
214.
(Last Word) Classical macroeconomics was dealt severe blows by
D. the strong recovery after the Second World War and Alvin Hansen's stagnation thesis.
215.
(Last Word) In The General Theory of Employment, Interest, and Money,
A.
Adam Smith stated his idea of the invisible hand.
True / False Questions
216.
Graphically, the height of the investment schedule depends on the real interest rate,
together with the location of the investment demand curve.
31-117
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Accessibility:
Keyboard Navigation
Blooms: Understand
Di f f i c u l t y :
02 Medium
Learning Objective: 31-02 Explain how an economys investment schedule is derived from the
investment demand curve and an interest rate.
Test Bank: I
To pic :
Consumption and Investment Schedules
217.
In the aggregate expenditures model presented in the textbook, investment is assumed to
rise with increases in real GDP and fall with decreases in real GDP.
218.
In the private closed economy, equilibrium GDP occurs where C + Ig = GDP.
219.
When C + Ig = GDP in a private closed economy, S = Ig and there are no unplanned
changes in inventories.
31-118
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Accessibility:
Keyboard Navigation
Blooms: Understand
Di f f i c u l t y :
02 Medium
Learning Objective: 31-03 Illustrate how economists combine consumption and investment to
depict an aggregate expenditures schedule for a private closed economy and how that schedule
can be used to demonstrate the economys equilibrium level of output where the total quantity of
goods produced equals the total quantity of goods purchased.
Test Bank: I
To pic :
Equilibrium GDP: C Ig = GDP
220.
If C + Ig exceeds GDP in a private closed economy, GDP will decline.
221.
If the MPC is 0.8 in a private closed economy, a $30 billion increase in planned
investment will increase equilibrium real GDP by $120 billion.
222.
Actual investment consists of planned investment plus unplanned changes in inventories
(plus or minus).
31-119
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
TRUE
223.
A $20 billion decrease in investment in a private closed economy that has an MPS of 0.5
will reduce saving by $10 billion once the multiplier process has ended.
224.
Exports are added to, and imports are subtracted from, aggregate expenditures in moving
from a closed to an open economy.
225.
For an open mixed economy, the equilibrium level of GDP is determined where Sa + Ig
+ X = T + G.
226.
Equal increases in government expenditures and tax collections will leave the equilibrium
GDP unchanged.
227.
A $10 billion decrease in taxes will increase the equilibrium GDP by more than would a
$10 billion increase in government expenditures.
228.
A lump-sum tax causes the after-tax consumption schedule to be flatter than the before-tax
consumption schedule.
