Question 1

In a private closed economy, aggregate expenditures will equal GDP where:

Accepted Answer

A)  consumption equals investment.
B)  consumption plus investment equals aggregate expenditures.
C)  planned investment equals saving.
D)  disposable income equals consumption minus saving.E) None of the above
F) B) and C)

Question 2

In a private closed economy (a)  the marginal propensity to save is 0.25, (b)  consumption equals income when consumption is $120 billion, and (c)  the level of investment is $40 billion.What is the equilibrium level of income?

Accepted Answer

A)  $280 billion
B)  $320 billion
C)  $262 billion
D)  $198 billionE) C) and D)
F) None of the above

Question 3

Which of the following equations hold true at equilibrium GDP in a private closed economy?

Accepted Answer

A)  S = Ig
B)  S - Ig 
C)  S + Ig = 1
D)  S > IgE) A) and C)
F) None of the above

Question 4

The above diagram represents a:

Accepted Answer

A)  mixed closed economy.
B)  mixed open economy.
C)  private closed economy.
D)  private open economy.E) A) and B)
F) None of the above

Question 5

A $10 billion decrease in taxes will increase the equilibrium GDP by more than would a $10 billion increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 6

The following schedule contains data for a private closed economy.All figures are in billions.Assume that gross investment is $10 billion.  Refer to the above data.If gross investment remains at $10 at all levels of GDP, the after-tax equilibrium level of GDP will be:

Accepted Answer

A)  $220
B)  $190
C)  $180
D)  $160E) A) and D)
F) B) and D)

Question 7

A lump-sum tax causes the after-tax consumption schedule:

Accepted Answer

A)  and the before-tax consumption schedule to coincide.
B)  to be steeper than the before-tax consumption schedule.
C)  to be flatter than the before-tax consumption schedule.
D)  to be parallel to the before-tax consumption schedule.E) All of the above
F) A) and B)

Question 8

Other things equal, serious recession in the economies of Canada's trading partners will:

Accepted Answer

A)  have no perceptible impact on the Canadian economy.
B)  cause inflation in the Canadian economy.
C)  depress real output and employment in the Canadian economy.
D)  stimulate real output and employment in the Canadian economy.E) B) and C)
F) A) and D)

Question 9

The following information is for a closed economy:  Refer to the above information.The introduction of $80 billion of government spending has:

Accepted Answer

A)  lowered the multiplier from 2.5 to 2.0.
B)  increased the multiplier from 2.5 to 3.0.
C)  increased the multiplier from 2.0 to 2.5.
D)  had no effect on the size of the multiplier.E) B) and D)
F) B) and C)

Question 10

If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause:

Accepted Answer

A)  a rightward shift in the investment-demand schedule.
B)  an $8 billion downshift in the consumption schedule.
C)  a $4 billion upshift in the consumption schedule.
D)  a $12 billion downshift in the consumption schedule.E) B) and C)
F) All of the above

Question 11

In reality, if a nation imposes tarrifs, then the final result will be that:

Accepted Answer

A)  net exports and GDP will increase.
B)  net exports and GDP will decrease.
C)  there will be is no long term effect on net exports and GDP.
D)  there will be a decrease in imports and an increase in GDP.E) A) and C)
F) B) and D)

Question 12

Refer to the above diagram for a private closed economy.In this economy investment:

Accepted Answer

A)  decreases as GDP increases.
B)  increases as GDP increases.
C)  is $40 billion at all levels of GDP.
D)  is $60 billion at all levels of GDP.E) A) and D)
F) A) and C)

Question 13

When the public sector is added to the aggregate expenditures model:

Accepted Answer

A)  the equilibrium condition becomes G + S = T + Ig + X.
B)  the equilibrium condition becomes G + T = S + Ig + X.
C)  the equilibrium condition becomes Ca + Ig + Xn + G + T = GDP.
D)  we add a new leakage in the form of taxes and a new injection in the form of government spending.E) A) and B)
F) A) and C)

Question 14

The following information is consumption and investment data for a private closed economy.Figures are in billions of dollars.C = 60 + .6Y I = I0 = 30
Refer to the above data.In equilibrium, the level of saving will be:

Accepted Answer

A)  30
B)  26
C)  25
D)  60E) C) and D)
F) B) and D)

Question 15

If government increases lump-sum taxes by $20 billion and the economy's MPC is .6, then the:

Accepted Answer

A)  consumption schedule will shift upward by $12 billion.
B)  consumption schedule will shift downward by $12 billion.
C)  equilibrium GDP will increase by $40 billion.
D)  equilibrium GDP will decrease by $12 billion.E) B) and C)
F) A) and C)

Question 16

Refer to the above diagram for a private closed economy.Planned and actual investment will be equal at:

Accepted Answer

A)  all levels of GDP below $200.
B)  all levels of GDP above $200.
C)  all levels of GDP between $200 and $600.
D)  $600 only.E) B) and D)
F) C) and D)

Question 17

Assume that in a private closed economy consumption is $240 billion and investment is $50 billion at the $280 billion level of domestic output.Thus:

Accepted Answer

A)  saving is $10 billion.
B)  unplanned disinvestment of $10 billion will occur.
C)  the MPC is.80.
D)  unplanned investment of $10 billion will occur.E) C) and D)
F) A) and B)

Question 18

If the MPC is.50, all taxes are lump-sum taxes, and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap:

Accepted Answer

A)  is $40 billion.
B)  is $20 billion.
C)  is $60 billion.
D)  cannot be determined from the information given.E) C) and D)
F) A) and B)

Question 19

In the aggregate expenditures model, equilibrium GDP in a private closed economy is indicated by:

Accepted Answer

A)  the equality of saving and planned investment.
B)  the intersection of aggregate expenditures and the 45-degree line.
C)  the absence of unplanned changes in inventories.
D)  all of the above.E) A) and B)
F) C) and D)

Question 20

Refer to the above information.If the real interest rate is 9 percent, the equilibrium level of GDP will be:

Accepted Answer

A)  $600
B)  $500
C)  $400
D)  $300E) None of the above
F) B) and C)

Exam 11: B: The Aggregate Expenditures Model

If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause:

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A $10 billion decrease in taxes will increase the equilibrium GDP by more than would a $10 billion increase in government expenditures.

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In a private closed economy (a) the marginal propensity to save is 0.25, (b) consumption equals income when consumption is $120 billion, and (c) the level of investment is $40 billion.What is the equilibrium level of income?

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The following information is for a closed economy: Refer to the above information.The introduction of $80 billion of government spending has:

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When the public sector is added to the aggregate expenditures model:

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In reality, if a nation imposes tarrifs, then the final result will be that:

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Refer to the above diagram for a private closed economy.Planned and actual investment will be equal at:

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The following information is consumption and investment data for a private closed economy.Figures are in billions of dollars.C = 60 + .6Y I = I0 = 30 Refer to the above data.In equilibrium, the level of saving will be:

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Refer to the above diagram for a private closed economy.In this economy investment:

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In the aggregate expenditures model, equilibrium GDP in a private closed economy is indicated by:

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If the MPC is.50, all taxes are lump-sum taxes, and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap:

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The above diagram represents a:

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Refer to the above information.If the real interest rate is 9 percent, the equilibrium level of GDP will be:

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If government increases lump-sum taxes by $20 billion and the economy's MPC is .6, then the:

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The following schedule contains data for a private closed economy.All figures are in billions.Assume that gross investment is $10 billion. Refer to the above data.If gross investment remains at $10 at all levels of GDP, the after-tax equilibrium level of GDP will be:

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Which of the following equations hold true at equilibrium GDP in a private closed economy?

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Other things equal, serious recession in the economies of Canada's trading partners will:

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In a private closed economy, aggregate expenditures will equal GDP where:

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A lump-sum tax causes the after-tax consumption schedule:

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Assume that in a private closed economy consumption is $240 billion and investment is $50 billion at the $280 billion level of domestic output.Thus:

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The following information is consumption and investment data for a private closed economy.Figures are in billions of dollars.C = 60 + .6Y I = I₀ = 30 Refer to the above data.In equilibrium, the level of saving will be:

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