In macroeconomics, equilibrium is defined as the point at which:
A) the economy attains the highest level of GDP.
B) there is no unemployment in the economy.
C) people�s plans match the reality.
D) people adjust their behavior to match plans with reality.
E) there is no inflation in the economy.
The equilibrium level of income will rise when:
A) planned consumption spending is less than real GDP.
B) taxes exceed saving.
C) supply exceeds demand.
D) planned inventory investment is negative.
E) aggregate expenditures exceed real GDP.
If aggregate expenditures are less than real GDP, then:
A) both inventories and real GDP will decline.
B) inventories will decline but real GDP will increase.
C) inventories will increase and real GDP will decline.
D) both inventories and real GDP will increase.
E) inventories will increase but real GDP will remain unchanged.
At the equilibrium level of income, which of the following is true?
A) Unplanned inventory changes are positive
B) Firms are unable to produce the desired rate of output
C) Autonomous consumption spending is equal to induced consumption spending
D) Aggregate expenditures equal real GDP
E) Unplanned investment spending is positive
Assume we are at an income level where the C+I+G+X (consumption+investment+government spending+net exports) function lies above the 45-degree line. We can conclude that at this income level:
A) unplanned inventories are likely to accumulate.
B) the economy is in equilibrium.
C) households will save more money than they spend.
D) aggregate expenditures are less than output.
E) there will be pressure to expand production.
Which of the following can be considered an injection that can offset leakages in an economy and help it attain equilibrium?
C) Aid to foreign countries
Assume that an economy is in equilibrium with a budget deficit of $130 billion, positive net exports of $453 billion, and a saving level of $1,550 billion. If taxes are zero, then planned investment spending must be equal to:
A) $1,550 billion.
B) $130 billion.
C) $1,873 billion.
D) $1,227 billion.
E) $967 billion.
Savings are good for a family. If all families increase savings, the economy is better off. This fallacy of composition is called:
A) the paradox of time.
B) the paradox of dissaving.
C) the paradox of thrift.
D) the paradox of value.
E) the paradox of choice.
If Saving+Tax+Import > Investment+Government spending+Export, then _____ must fall to establish macroeconomic equilibrium.
A) net exports
B) gross exports
C) nominal GDP
D) real GDP
E) government spending
Suppose in an economy, investment = $40, saving = $50, government spending+export = $100 and taxes+imports = $110. Then for this economy, total leakages exceed total injections by:
Suppose an economy operates at a real GDP level of $855, where saving = $400; investment = $95; government spending = $365; taxes = $130; imports = $210; exports = $170. Which of the following statements is true in the light of the given information?
A) Aggregate expenditures will fall, because total injections exceed total leakages by $110.
B) Real GDP will increase, because total injections are less than $855.
C) The economy will be in equilibrium, because leakages equal injections.
D) Real GDP will fall, because total leakages exceed total injections by $110.
E) Inventories will rise, because planned saving exceeds planned investment.
Suppose an economy has a government budget surplus of $100, net exports of -$400, and a planned investment level of $1,000. For this economy to be in equilibrium, saving must equal:
Ceteris paribus, a downward shift in the net exports function will cause:
A) equilibrium real GDP to decrease.
B) equilibrium real GDP to increase.
C) savings to decrease.
D) net exports to increase.
E) government budget deficit to decline.
The percentage of a change in income that is spent domestically is:
A) the sum of the MPC and the MPI.
B) the sum of the MPC and the MPS.
C) the difference between the MPC and the MPI.
D) the difference between the MPC and the MPI.
E) the sum of the MPS and the MPI.
The spending multiplier measures the change in equilibrium income that results from a change in:
B) planned investment.
D) net exports.
E) autonomous expenditures.
At each round of the multiplier process, increases in income:
A) leak out of the expenditures stream in the form of investment and taxes.
B) leak out of the expenditures stream in the form of saving and imports.
C) are matched by a smaller increase in expenditures.
D) result in even greater increases in expenditures due to investment and exports.
E) result in no change in total expenditures.
Assume that the marginal propensity to consume equals 0.75 and the marginal propensity to import equals 0.10. By how much does spending on domestic goods increase if income increases by $300?
Assume that an increase of $300 in exports leads to an increase of $750 in equilibrium income. If the marginal propensity to import equals 1/10, the marginal propensity to save must be _____.
If MPS is equal to 0.15 and MPI is equal to 0.10, an initial change in expenditures of $19,000 would result in a total change in income equal to _____.
What is the value of the spending multiplier when MPC = 0.85 and MPI = 0.3?
Consider an economy that is in equilibrium with real GDP = $5,000, MPS = 1/4 and MPI = 1/5. What will be the new equilibrium level of income if planned investment spending increases by $500?
If equilibrium income is $500 billion, MPC = 0.8, MPI = 0.2 and autonomous government spending increases by $20 billion, the new equilibrium income will be _____.
A) $600 billion.
B) $550 billion.
C) $525 billion.
D) $520 billion.
E) $500 billion.
In an economy that has no foreign trade, if real GDP declines by $160 million following a decline in investment spending of $40 million, then the marginal propensity to consume must be equal to _____.
In a closed economy that does not have international trade, the spending multiplier equals _____.
If an economy consumes 75 percent of any increase in real GDP and spends 10 percent of this increased income on imports, then a decline in government spending by $60 million will result in a total reduction in equilibrium income of:
A) $171.43 million.
B) $123.47 million.
C) $151.63 million.
D) $73.47 million.
E) $71.43 million.
Suppose equilibrium income decreases by $600 as a result of a change in government spending. If the multiplier is 3, what is the change in government spending?
A) Government sending will decrease by $1,800
B) Government sending will decrease by $600
C) Government sending will decrease by $200
D) Government sending will increase by $400
E) Government sending will increase by $1,200
Consider a closed economy described by AE (aggregate expenditures) = 800,000 + 0.75Y Assume that this economy is initially in equilibrium. But now the government implements a program to improve highways that will cost $1 million. This implies that equilibrium real GDP will:
A) decrease by $1 million.
B) decrease by $4 million.
C) increase by $1 million.
D) increase by $4 million.
E) decrease by $800,000.
If the spending multiplier equals 5 and equilibrium income is $2 billion below potential GDP, then _____ to reach the potential real GDP level.
A) total spending needs to increase by $0.1 billion
B) real GDP needs to increase by $1.2 billion
C) total spending needs to decrease by $6 billion
D) real GDP needs to decrease by $12 billion
E) total spending needs to increase by $0.4 billion
Assume that a GDP gap can be closed by a $200 initial change in planned spending. The MPS is 0.3 and the MPI equals 0.1. If the economy is currently in equilibrium with an income level of $600, potential GDP equals:
Assume that potential GDP is $200 billion and the multiplier equals 5. The recessionary gap is $10 billion. What is the actual level of equilibrium income?
A) $200 billion
B) $150 billion
C) $100 billion
D) $80 billion
E) $50 billion
If a country�s imports are very important in determining the volume of exports from its trading partners, then:
A) the simple spending multiplier understates the true value of the multiplier.
B) the spending multiplier will equal 1/marginal propensity to import.
C) the simple spending multiplier is an accurate measure of the multiplier effect.
D) the simple spending multiplier will equal 1/MPC
E) the spending multiplier will equal 1/marginal propensity to save.
The spending multiplier equals 1/marginal propensity to save if an economy:
A) has a trade surplus.
B) is open to international trade.
C) produces and consumes only domestic goods and services.
D) has a higher level of saving than consumption.
E) reduces its investment expenditures to zero.
Foreign repercussions of changes in domestic spending may cause:
A) the GDP gap to be larger than the recessionary gap.
B) the equilibrium income to increase by an amount equal to the change in net exports.
C) the actual spending multiplier to be larger than the reciprocal of the marginal propensity to save plus the marginal propensity to import.
D) equilibrium income to rise by a smaller amount than evidenced by the multiplier effect of autonomous spending increases.
E) real GDP to be larger than potential GDP.
Suppose only 7 percent of Turkey�s products go to the United States. Hence, an increase in U.S. imports from Turkey:
A) would have no significant effect on Turkey�s domestic income.
B) would significantly increase Turkey�s domestic income.
C) would significantly decrease Turkey�s domestic income.
D) would significantly increase U.S. domestic income.
E) would significantly decrease U.S. domestic income.
If 81 percent of Canada�s exports go to the United States, a recession in the United States would probably:
A) lead to an economic boom in Canada.
B) have no impact on Canada�s economy.
C) increase imports from Canada.
D) decrease Canada�s domestic real GDP.
E) increase Canada�s domestic real GDP.
Assume that the multiplier effect for Mexico is 0.85 when U.S. government spending increases. Therefore, a $20 billion decrease in U.S. government spending results in:
A) a $23.5 billion increase in Mexican real GDP.
B) a $133.3 billion decrease in Mexican real GDP.
C) a $3 billion decrease in Mexican real GDP.
D) a $17 billion decrease in Mexican real GDP.
E) a $23.5 billion decrease in Mexican real GDP.
The multiplier effect of a change in foreign autonomous expenditures in the U.S.:
A) is zero because the U.S. is a closed economy.
B) is large because the United States imports a significant amount of foreign goods and services.
C) is large because the United States exports domestic products to every part of the world.
D) is small because the U.S. economy is too large to be significantly affected by foreign aggregate expenditures.
E) is small because U.S. foreign trade is not large enough to be counted as part of domestic GDP.
Suppose the marginal propensity to consume is 0.63, the marginal propensity to import equals 0.08, and personal income taxes amount to 9 percent. The spending multiplier for this economy is equal to _____.
The Keynesian aggregate expenditures model assumes that:
A) production does not adjust to changes in aggregate expenditures.
B) aggregate supply is autonomous.
C) prices do not decrease when aggregate demand decreases.
D) aggregate supply determines the equilibrium level of real GDP.
E) prices are positively related to aggregate demand.
A rise in the price level that reduces the real wealth of people who hold financial assets is an illustration of the:
A) interest rate effect.
B) monetary theory.
C) supply-side theory.
D) wealth effect.
E) trade effect
The interest rate effect states that an increase in the price level will cause:
A) a decline in the interest rate.
B) a decrease in investment and aggregate expenditures.
C) an increase in the equilibrium level of income.
D) a decrease in the supply of financial assets.
E) an increase in real wealth.
If equilibrium in the economy is merely a function of aggregate demand, the aggregate supply curve must be:
C) in the Keynesian region.
E) at the full-capacity level.
When the purchasing power of money declines:
A) demand for money increases and interest rates fall.
B) the supply of bonds increases and interest rates fall.
C) demand for money increases and interest rates rise.
D) the supply of bonds decreases and interest rates rise.
E) demand for money decreases and interest rates rise.
Which of the following will not increase aggregate expenditures?
A) A decrease in domestic prices
B) A decrease in the interest rate
C) An increase in real wealth
D) An increase in income taxes
E) An increase in autonomous net exports