Question 1

The slope of the consumption function:

Accepted Answer

A)  is vertical.
B)  is horizontal.
C)  equals 1.
D)  equals the marginal propensity to consume.E) B) and C)
F) A) and D)

Question 2

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20.Autonomous expenditure equals:

Accepted Answer

A)  320.
B)  320 + 0.25Y.
C)  290.
D)  290 + 0.75Y.E) All of the above
F) B) and C)

Question 3

In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned aggregate spending by $20 billion at any output level, government spending must be increased by ______ or net taxes must be decreased by _____.

Accepted Answer

A)  $20 billion; $20 billion
B)  more than $20 billion; more than $20 billion
C)  less than $20 billion; less than $20 billion
D)  $20 billion; more than $20 billionE) A) and D)
F) None of the above

Question 4

In the Keynesian model, a $5 billion decrease in autonomous planned investment leads to ______ in short-run equilibrium output.

Accepted Answer

A)  a $5 billion increase
B)  a greater than $5 billion decrease
C)  no change.
D)  a $5 billion decreaseE) B) and D)
F) A) and B)

Question 5

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40.Autonomous expenditure equals:

Accepted Answer

A)  990.
B)  940.
C)  900.
D)  890.E) B) and D)
F) A) and B)

Question 6

Refer to the figure below.  Based on the Keynesian cross diagram, at short-run equilibrium output,

Accepted Answer

A)  there is a recessionary gap.
B)  there is an expansionary gap.
C)  output equals potential output.
D)  firms will be producing more than they can sell.E) A) and C)
F) All of the above

Question 7

In the Keynesian cross diagram, the 45-degree line represents the short-run equilibrium condition that:

Accepted Answer

A)  Y = PAE.
B)  PAE = C + Ip + G + NX.
C)  I Ip.
D)  Y* = Y.E) B) and C)
F) All of the above

Question 8

Refer to the figure below.  Based on the figure, when PAE = 400 + 0.5Y, short-run equilibrium output equals:

Accepted Answer

A)  1,200.
B)  400.
C)  600.
D)  800.E) All of the above
F) A) and C)

Question 9

Menu costs are the costs of:

Accepted Answer

A)  running a restaurant.
B)  changing prices.
C)  increasing aggregate demand.
D)  changing production.E) B) and D)
F) A) and B)

Question 10

In the Keynesian model, consumption depends on:

Accepted Answer

A)  whether the government has a budget surplus or deficit.
B)  potential output.
C)  the natural rate of unemployment.
D)  disposable income.E) All of the above
F) A) and C)

Question 11

An economic expansion in the United States ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n)  ______ output gap in Mexico.

Accepted Answer

A)  reduces; expansionary
B)  increases; expansionary
C)  reduces; recessionary
D)  increases; recessionaryE) All of the above
F) B) and C)

Question 12

Autonomous expenditure is the portion of planned aggregate expenditure that:

Accepted Answer

A)  equals aggregate output.
B)  equals planned spending.
C)  equals induced expenditure.
D)  is independent of output.E) A) and B)
F) A) and C)

Question 13

Refer to the figure below.  Based on the Keynesian cross diagram, short-run equilibrium output equals:

Accepted Answer

A)  3,000.
B)  3,250.
C)  4,000.
D)  4,750.E) B) and C)
F) A) and D)

Question 14

Data on output and planned aggregate expenditure in Macroland are given below.  Based on these data, the short-run equilibrium level of output is:

Accepted Answer

A)  2,000.
B)  3,200.
C)  4,100.
D)  5,000.E) B) and C)
F) A) and D)

Question 15

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

Accepted Answer

A)  for government to finance deficit spending.
B)  to fight inflation.
C)  for businesses and consumers to borrow money.
D)  to shift the PAE line downwarD.After the housing bubble burst, many loans went bad and banks and other lenders reduced availability of loans.E) A) and C)
F) None of the above

Question 16

In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:

Accepted Answer

A)  increased by $10 billion.
B)  decreased by $10 billion.
C)  increased by more than $10 billion.
D)  decreased by less than $10 billion.E) A) and B)
F) A) and C)

Question 17

The vertical intercept of the consumption function equals ______ and the slope equals _____.

Accepted Answer

A)  the mpc; autonomous consumption
B)  autonomous consumption; the mpc
C)  the unplanned component of consumption; the planned component of consumption
D)  the planned component of consumption; the unplanned component of consumptionE) A) and D)
F) B) and C)

Question 18

A decrease in stock prices alters the consumption function by:

Accepted Answer

A)  increasing the slope.
B)  decreasing the slope.
C)  increasing the vertical intercept.
D)  decreasing the vertical intercept.E) A) and B)
F) None of the above

Question 19

For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n) :

Accepted Answer

A)  expansionary output gap.
B)  recessionary output gap.
C)  increase in potential output.
D)  decrease in potential output.E) A) and C)
F) B) and D)

Question 20

Changes in taxes and transfers affect planned spending:

Accepted Answer

A)  only when there is an expansionary gap.
B)  autonomously.
C)  directly, by changing induced expenditures.
D)  indirectly, by changing disposable income and, consequently, consumption.E) All of the above
F) None of the above

Exam 11: Spending, Output, and Fiscal Policy

The slope of the consumption function:

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Data on output and planned aggregate expenditure in Macroland are given below. Based on these data, the short-run equilibrium level of output is:

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In the Keynesian model, a $5 billion decrease in autonomous planned investment leads to ______ in short-run equilibrium output.

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Refer to the figure below. Based on the Keynesian cross diagram, short-run equilibrium output equals:

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In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40.Autonomous expenditure equals:

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In the Keynesian cross diagram, the 45-degree line represents the short-run equilibrium condition that:

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In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:

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In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned aggregate spending by $20 billion at any output level, government spending must be increased by ______ or net taxes must be decreased by _____.

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Changes in taxes and transfers affect planned spending:

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An economic expansion in the United States ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) ______ output gap in Mexico.

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The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

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Refer to the figure below. Based on the figure, when PAE = 400 + 0.5Y, short-run equilibrium output equals:

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In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20.Autonomous expenditure equals:

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In the Keynesian model, consumption depends on:

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Autonomous expenditure is the portion of planned aggregate expenditure that:

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The vertical intercept of the consumption function equals ______ and the slope equals _____.

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A decrease in stock prices alters the consumption function by:

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For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n) :

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Refer to the figure below. Based on the Keynesian cross diagram, at short-run equilibrium output,

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Menu costs are the costs of:

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In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned aggregate spending by $20 billion at any output level, government spending must be increased by __ or net taxes must be decreased by _.

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An economic expansion in the United States the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) output gap in Mexico.

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The vertical intercept of the consumption function equals __ and the slope equals _.

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