Other things equal, an interest rate increase will:
leave curve A in place but shift curve B downward.
If (C + Ig) are the private expenditures in the closed economy and Xn2 are the net exports in the open economy:
net exports are positive.
Which of the following would increase GDP by the greatest amount?
a $20 billion increase in government spending
Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP, then:
U.S. GDP will fall
The multiplier for this economy is:
a leakage of purchasing power, like saving.
If net exports are positive:
aggregate expenditures are greater at each level of GDP than when net exports are zero or negative
In a mixed open economy the equilibrium GDP is determined at that point where:
Sa + M + T = Ig + X + G.
In the United States from 1929 to 1933, real GDP _____________, and the unemployment rate ________________.
declined by 27 percent; rose to 25 percent
In a private closed economy, when aggregate expenditures equal GDP:
planned investment equals saving
In the aggregate expenditures model, it is assumed that investment:
does not change when real GDP changes
Other things equal, an increase in an economy’s exports will:
increase its domestic aggregate expenditures and therefore increase its equilibrium GDP
Refer to the diagram for a private closed economy. The equilibrium level of GDP is:
Refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when:
GDP is $60 billion
Exports have the same effect on the current size of GDP as:
In moving from a private closed to a mixed closed economy in the aggregate expenditures model, taxes:
must be added to saving
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:
some of the tax increase will be paid out of income that would otherwise have been saved
Refer to the diagram for a private closed economy. The equilibrium GDP is:
If the real interest rate is 10 percent, the equilibrium GDP will be:
Imports have the same effect on the current size of GDP as:
If an unintended increase in business inventories occurs at some level of GDP, then GDP:
is too high for equilibrium.
Other things equal, the multiplier effect associated with a change in government spending is:
equal to that associated with a change in investment or consumption
The aggregate expenditures model is built upon which of the following assumptions?
Prices are sticky downward
At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy. Planned investment must be:
Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by:
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:
decrease by $50 billion
If at some level of GDP the economy is experiencing an unintended decrease in inventories:
domestic output will increase
For a private closed economy if gross investment is $12 billion, the equilibrium level of GDP will be:
Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by:
In a private closed economy, when aggregate expenditures exceed GDP:
business inventories will fall
If aggregate expenditures exceed GDP in a private closed economy:
planned investment will exceed saving
A private closed economy includes:
households and businesses, but not government or international trade
The level of aggregate expenditures in the private closed economy is determined by the:
expenditures of consumers and businesses
If gross investment is $10 at all levels of GDP, the equilibrium GDP will be:
Refer to the diagram for a private closed economy. Unplanned changes in inventories will be zero:
only at the $300 level
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:
increase taxes by $28 billion
Refer to the diagram for a private closed economy. At the equilibrium level of GDP, investment and saving are both:
is an investment demand curve and curve B is an investment schedule
If the real interest rate is 20 percent, the equilibrium GDP will be:
What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?
a rise in the real GDP
If the multiplier in an economy is 5, a $20 billion increase in net exports will:
increase GDP by $100 billion
An upward shift of the aggregate expenditures schedule might be caused by:
a decrease in imports, with no change in exports.
An exchange rate:
is the price at that the currencies of any two nations exchange for one another
John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?
If a nation imposes tariffs and quotas on foreign products, the immediate effect will be to:
increase domestic output and employment
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
a portion of a tax cut will be saved
If the equilibrium level of GDP in a private open economy is $1000 billion and consumption is $700 billion at that level of GDP, then:
Ig + Xn must equal $300 billion.
If the dollar appreciates relative to foreign currencies, we would expect:
a country’s net exports to fall.
In a private closed economy _____ investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where _____ investment is equal to saving.
At the $370 billion level of DI the APS is approximately:
Planned investment plus unintended increases in inventories equals:
In a mixed open economy the equilibrium GDP exists where:
Ca + Ig + Xn + G = GDP
Refer to the diagram for a private closed economy. In this economy investment:
is $40 billion at all levels of GDP.
Refer to the diagram that applies to a private closed economy. The APC is equal to 1 at income level:
All else equal, a large decline in the real interest rate will shift the:
investment schedule upward
If the marginal propensity to consume is 0.9 in a private closed economy, a $20 billion decline in investment spending will decrease:
saving by $20.
In building the aggregate expenditures model, Keynes believed that:
In the aggregate expenditures model, technological progress will shift the investment schedule:
upward and increase aggregate expenditures.
Other things equal, serious recession in the economies of U.S. trading partners will:
depress real output and employment in the U.S. economy
Investment and saving are, respectively:
injections and leakages
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