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Chapter 11 - The Aggregate Expenditures Model
93. Suppose the GDP is in equilibrium at full employment and the MPC is .80. If government
wants to increase its purchase of goods and services by $16 billion without changing
equilibrium GDP, taxes should be:
94. The effect of a decline in taxes on the level of income will differ somewhat from an
increase in government expenditures of the same amount because:
95. Assuming that MPC is .75, equal increases in government spending and tax collections by
$10 billion will:
Chapter 11 - The Aggregate Expenditures Model
96. In a recessionary expenditure gap, the equilibrium level of real GDP is:
97. The amount by which an aggregate expenditures schedule must shift upward to achieve
the full-employment GDP is a(n):
98. In an inflationary expenditure gap, the equilibrium level of real GDP would be:
Chapter 11 - The Aggregate Expenditures Model
99. An economy characterized by high unemployment is likely to be:
100. If the MPC in an economy is 0.8, government could close a recessionary expenditure gap
of $100 billion by cutting taxes by:
101. Assume that the marginal propensity to consume in an economy is 0.75. If the economy's
full-employment real GDP is $900 billion and its equilibrium real GDP is $800 billion, there
is a recessionary expenditure gap of:
Chapter 11 - The Aggregate Expenditures Model
102. Assume that the marginal propensity to consume in an economy is 0.9. If the economy's
full-employment real GDP is $500 billion and its equilibrium real GDP is $550 billion, there
is an inflationary expenditure gap of:
103. To close an inflationary expenditure gap of $20 billion in an economy with a marginal
propensity to consume of 0.8, it would be necessary to:
104. The amount by which aggregate expenditures exceed those associated with the full-
employment level of domestic output can best be described as:
Chapter 11 - The Aggregate Expenditures Model
105. If the MPC is .80, all taxes are lump-sum taxes, and the equilibrium GDP is $25 billion
below the full-employment GDP, then the size of the recessionary expenditure gap is:
106. If the economy has a recessionary expenditure gap of $15 billion and the MPS is 0.3,
then the equilibrium level of GDP is:
107. In an open mixed economy, the inflationary expenditure gap may be described as the:
Chapter 11 - The Aggregate Expenditures Model
108. The amount by which the full-employment level of domestic output exceeds the level of
aggregate expenditure can best be described as:
109. In the Great Recession of 2007-2009, the aggregate expenditures schedule in the U.S.
economy dropped, mostly due to a fall in:
110. The stimulus package enacted by the Federal government in 2009 was intended to:
Chapter 11 - The Aggregate Expenditures Model
111. In 2008, the Federal government provided tax rebate checks to taxpayers in the hope
that:
112. Say's law in classical economics suggests that, over a period of time:
113. One of the most important views expressed by classical macroeconomists was that:
Chapter 11 - The Aggregate Expenditures Model
114. From the perspective of classical macroeconomic theory, if aggregate spending was
temporarily less than output:
115. From the perspective of classical macroeconomic theory, an excess of aggregate
spending would:
116. Classical economists held the view that in the economy:
Chapter 11 - The Aggregate Expenditures Model
117. John Maynard Keynes developed the ideas underlying the aggregate expenditures
model:
118. One major point that Keynes raised pertains to income and spending. He argued that:
119. The major economic issue during the Great Depression of the 1930s that concerned John
Maynard Keynes was:
Chapter 11 - The Aggregate Expenditures Model
120. John Maynard Keynes expressed his ideas about the macroeconomy and attacked
classical economics in his book, The:
121. One basic assumption of the aggregate expenditures model is that the price level in the
economy is fixed.
122. In the aggregate expenditures model, if demand for output increases, then firms will raise
their prices.
Chapter 11 - The Aggregate Expenditures Model
123. In the aggregate expenditures model of a private closed economy, we analyze a
consumption schedule and an investment schedule both which indicate that as income
increases then consumption and investment will increase.
124. If the expected rate of return from investment decreases in an economy, there would
most likely be an upward shift in the investment schedule for that economy.
125. A rightward shift of the investment demand curve translates into an upward shift of the
investment schedule in the aggregate expenditures model.
Chapter 11 - The Aggregate Expenditures Model
126. The investment demand curve shows the amount of investment spending at various
interest rates, whereas the investment schedule shows the amount of investment forthcoming
at each level of GDP.
127. In the aggregate expenditures model of a private closed economy, aggregate
expenditures (C + Ig) is always equal to output GDP.
128. In the aggregate expenditures model of a private closed economy, if aggregate
expenditures are greater than income, then real GDP will increase towards its equilibrium
level.
Chapter 11 - The Aggregate Expenditures Model
129. When a private closed economy is at equilibrium, then (GDP - C) is equal to planned
investment.
130. When there are unplanned increases in inventories, then actual investment ends up being
larger than planned investment.
131. If planned investment is larger than saving, then real GDP will increase as the economy
adjusts towards equilibrium.
132. In a closed private economy, an unplanned decrease in inventories will cause firms to
increase real GDP.
Chapter 11 - The Aggregate Expenditures Model
133. If the MPC in the economy is 0.7 and aggregate expenditures fall by $10 billion, then
real GDP will fall by $17 billion.
134. 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.
135. 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.
136. The steeper is the consumption schedule in an economy, the larger will be the multiplier.
Chapter 11 - The Aggregate Expenditures Model
137. Positive net exports increase aggregate expenditures beyond what they would be in a
closed economy and thus have an expansionary effect on domestic GDP.
138. An increase in imports, other things constant, would tend to raise the equilibrium level of
GDP.
139. An increase in a lump-sum tax has the same effect on equilibrium GDP as an equal
decrease in government purchases.
140. 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.
Chapter 11 - The Aggregate Expenditures Model
141. A decrease in taxes will have a larger effect on equilibrium GDP if the marginal
propensity to consume is smaller.
142. A recessionary expenditure gap is the amount by which aggregate expenditures must
increase in order to reach the full-employment level of GDP.
143. In the Great Recession of 2007-2009, the sector of the economy that decreased the most
was G.
144. In the Great Recession of 2007-2009, consumption C and investment Ig fell while
government G expanded.
Chapter 11 - The Aggregate Expenditures Model
145. In the Great Recession of 2007-2009, the Federal government enacted a "stimulus
package" that was intended to bring inflation down.
146. 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 upwards.
