# Chapter 28 Worksheet

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:
Taxes represent:
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:
\$300.
Refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when:
C.
GDP is \$60 billion
Exports have the same effect on the current size of GDP as:
investment
In moving from a private closed to a mixed closed economy in the aggregate expenditures model, taxes:
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:
\$180 billion
If the real interest rate is 10 percent, the equilibrium GDP will be:
\$300
Imports have the same effect on the current size of GDP as:
saving
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:
\$38 billion
Assume the MPC is .8. If government were to impose \$50 billion of new taxes on household income, consumption spending would initially decrease by:
\$40 billion
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:
\$360
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:
\$50 billion
In a private closed economy, when aggregate expenditures exceed GDP:
If aggregate expenditures exceed GDP in a private closed economy:
planned investment will exceed saving
A private closed economy includes:
The level of aggregate expenditures in the private closed economy is determined by the:
If gross investment is \$10 at all levels of GDP, the equilibrium GDP will be:
\$220
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:
\$50
Curve A:
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:
\$200.
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?
Great Depression
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.
actual; planned
At the \$370 billion level of DI the APS is approximately:
4 percent
Planned investment plus unintended increases in inventories equals:
actual investment.
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:
G
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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