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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
177. The formula for the multiplier can be written as change in
a.
Y/change in I.
b.
I/change in Y.
c.
Y/change in C.
d.
Y/change in GDP.
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
178. Assume that the MPC is .75, and investment spending rises by $25 billion. How much will real GDP change?
a.
$25 billion
b.
$75 billion
c.
$100 billion
d.
$175 billion
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
179. Assume that the MPC is .9 and investment falls by $30 billion. What is the change in real GDP?
a.
−$300 billion
b.
−$270 billion
c.
−$93 billion
d.
−$39 billion
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Changes on the Demand Side: Multiplier Analysis
180. Assume that the MPC is 0.85 and investment spending rises by $100 million. How much consumption spending will
this generate in the second round of spending?
a.
$15 million
b.
$85 million
c.
$100 million
d.
$118 million
e.
$185 million
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
181. Assume that the MPC is 0.80 and investment rises by $50 million. How much additional saving will this generate in
the second round of spending?
a.
b.
c.
d.
e.
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
182. In a simple, private economy, suppose that the MPC is .8 and investment rises by $20 million. At the new
equilibrium, how much will saving have increased?
a.
$8 million
b.
$16 million
c.
$20 million
d.
$80 million
e.
$100 million
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
183. In the real world, the actual multiplier is ____ the simplified multiplier.
a.
much larger than
b.
slightly larger than
c.
equal to
d.
slightly smaller than
e.
much smaller than
e
Easy
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
184. If an increase in investment of $100 billion generates an increase of $500 billion in real GDP, the multiplier is
a.
20.
b.
50.
c.
1.50.
d.
5.00.
Easy
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
185. Identify the “oversimplified multiplier formula.”
a.
Multiplier = 1 divided by (1 − change in GDP)
b.
Multiplier = 1 divided by (1 − marginal propensity to consume)
c.
Multiplier = 1 divided by (1 − marginal propensity to save)
d.
Multiplier = 1 divided by (1 − rate of inflation)
Moderate
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
186. If the multiplier is 4 and real GDP increases by $520 billion, the increase in investment spending must have been
a.
$110 billion.
b.
$120 billion.
c.
$130 billion.
d.
$140 billion.
c
Easy
187. The MPC in the U.S. economy has been estimated to be near 0.95. If this is an accurate measure, then the numerical
value for the multiplier would be
a.
0.9.
b.
1.8.
c.
9.5.
d.
10.0.
e.
20.0.
e
Moderate
188. A major Internet service provider decides to spend $70 million to purchase new server equipment. If the marginal
propensity to consume is 0.8, the eventual change in GDP will be
a.
b.
c.
d.
e.
Moderate
189. If the multiplier is 4, a decrease in spending equal to $80 billion will be accompanied by a decrease in GDP of
a.
$480 billion.
b.
$320 billion.
c.
$240 billion.
d.
$84 billion.
e.
$48 billion.
Easy
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
190. In comparison to the oversimplified formula for the multiplier, the real-world multiplier is
a.
lower.
b.
higher.
c.
almost equal to it.
d.
higher if taxes are included.
a
Easy
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
191. According to Baumol and Blinder, the real-world multiplier will be smaller than 1/(1 − MPC) because the 1/(1 −
MPC) measure is based on
a.
a model that ignores inflation associated with the expansion of income.
b.
a model that ignores taxes that tend to change as income changes.
c.
a model that ignores the effects of international trade.
d.
all of the above.
Easy
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Changes on the Demand Side: Multiplier Analysis
192. If we observe that every increase in income of $120 million generates an increase in consumption of $80 million,
then the simple multiplier is
a.
2/3.
b.
3/2.
c.
2.
d.
3.
e.
8.
Difficult
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Changes on the Demand Side: Multiplier Analysis
193. Movements along the consumption function are called
a.
autonomous consumption.
b.
leakage consumption.
c.
induced consumption.
d.
injected consumption.
c
Easy
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Multiplier is a General Concept
194. An increase in autonomous consumption has the same equilibrium effect as a(n)
a.
decrease in investment.
b.
increase in investment.
c.
decrease in net exports.
d.
increase in taxes.
Moderate
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Multiplier is a General Concept
195. A decrease in autonomous consumption would have the same effect on the expenditures schedule as a(n)
a.
decrease in investment.
b.
increase in government purchases.
c.
increase in net exports.
d.
decrease in taxes
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Multiplier is a General Concept
196. The U.S. fiscal stimulus in 2009 did not increase GDP substantially because
a.
the Federal Reserve was decreasing interest rates and real world estimates for the multiplier might be less than
one.
b.
the Federal Reserve was increasing interest rates and real world estimates for the multiplier might be less than
one.
c.
state governments were decreasing spending and real world estimates for the multiplier might be less than one.
d.
state governments were increasing spending and real world estimates for the multiplier might be less than one.
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Multiplier is a General Concept
197. The oversimplified multiplier formula assumes that the
a.
level of consumption spending is fixed.
b.
price level is fixed.
c.
government spending is fixed.
d.
net exports depend on income.
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Multiplier And The Aggregate Demand Curve
198. For a given price level, an upward shift of the expenditures schedule corresponds to an
a.
inward shift of the aggregate demand curve.
b.
outward shift of the aggregate demand curve
c.
outward shift of the aggregate supply curve.
d.
inward shift of the aggregate supply curve.
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Multiplier And The Aggregate Demand Curve
199. For a given price level, a downward shift of the expenditures schedule corresponds to an
a.
inward shift of the aggregate demand curve.
b.
outward shift of the aggregate demand curve.
c.
outward shift of the aggregate supply curve.
d.
inward shift of the aggregate supply curve.
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Multiplier And The Aggregate Demand Curve
200. Using the saving-investment approach, which of the following describes an equilibrium condition of GDP?
a.
I = X − IM
b.
S = X − IM
c.
I = S + (X − IM)
d.
S = I + (X − IM)
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Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Appendix A: The Simple Algebra of Income Determination and the Multiplier
201. For a simple economy (no government, no foreign sector), the condition for equilibrium can be stated correctly as
a.
saving equals actual investment.
b.
saving equals inventory accumulation.
c.
saving equals planned investment.
d.
inventory accumulation equals planned investment.
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Appendix A: The Simple Algebra of Income Determination and the Multiplier
202. In the standard 45-degree line expenditure model, the C + I line and the C line are parallel because,
a.
all I is assumed to be autonomous.
b.
all I is assumed to be induced.
c.
consumption depends on disposable income.
d.
I rises with GDP at the same rate as C.
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Appendix A: The Simple Algebra of Income Determination and the Multiplier
203. U.S. exports:
a.
rise as our GDP rises, and fall as our GDP falls
b.
fall as our GDP rises, and rise as our GDP falls
c.
are insensitive to our GDP
d.
have no relation to our GDP
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Measuring the Economy
Appendix B The Multiplier with Variable Imports
204. A higher price level leads to:
a.
lower real wealth
b.
lower real income
c.
a lower consumption function
d.
All of the above.
e.
All of the above except b.
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The Aggregate Demand Curve
Essay
205. What is meant by the concept of a “coordination failure” in macroeconomics?
Moderate
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The Coordination of Saving and Investment
206. Carefully define the following terms and explain their importance in the study of macroeconomics:
a.
expenditure schedule
b.
saving schedule
c.
equilibrium GDP
d.
leakages schedule
e.
injections schedule
leakages must equal the level of injections.
Moderate
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The Mechanics of Income Determination
207. Where does equilibrium occur in an income expenditure diagram? What would be the effect if production is at either
on the left or right side of the equilibrium point?
208. Why does the aggregate demand curve slope downward?
209. Suppose the economy is suffering in a recessionary period. Firms are facing increasing inventories and individual
consumers are increasing their saving to prepare for hard times ahead. What is likely to happen to the economy and can it
correct itself and grow toward full employment in the short run?
210. Describe the role of business inventory change in determining the equilibrium level of GDP and changes in the level
of GDP.
211. Differentiate between an induced increase in consumption and an autonomous increase in consumption. How are
they represented on a graph?
212. The expenditure schedule and the aggregate demand curve show much the same thing, with one crucial difference-
the price level. How does the price level affect the two schedules?
213. Define the terms recessionary gap and inflationary gap. Why do they occur?
214. Why do booms and recessions tend to be transmitted across national borders?
215. The total expenditure schedule in Macroland begins with these initial levels (in billions of dollars): Income = 1,000;
Consumption = 900; Investment = 200; Government = 300; Net Exports = −100. If the MPC = 0.75 and income increases
in increments of 200, find the equilibrium level of income. If full employment requires an income level of 2,000, what (if
anything) should the government do? Indicate both the direction of the spending change and the size of the spending
change.
216. What is a multiplier? How does the multiplier effect occur?