Macro/Midterm 2 Name
Example Choose the best answer.
GOOD LUCK!

 
 
 
 
1. _________ are economists who generally oppose government intervention in the economy.
A. Classical economists
B. Keynesian economists
C. Friedmanite economists
D. Marxian economists

 
2. Which of the following statements would a laissez-faire economist agree with most? 
A. government policies do not affect economic activity.
B. government can implement policy proposals that can positively impact the economy.
C. most government policies would probably make things worse.
D. government intervention in the market is necessary for a smoothly operating economy.

 
3. Before the Great Depression the popular view of government was ________, and after the Depression, the popular view of government was _______.
A. laissez-faire, activist.
B. activist, laissez-faire.
C. activist, still activist.
D. laissez-faire, still laissez-faire.

 
4. According to laissez-faire economists during the Depression, to eliminate unemployment one must:
A. eliminate labor unions and government policies that hold real wages too high.
B. strengthen unions and government regulations to ensure full employment by making it difficult for businesses to fire workers.
C. increase real wages so that people are encouraged to work.
D. lower taxes.

 
5. Which of the following will occur according to Say's Law?
A. Aggregate demand may fall short of aggregate supply if the price level is too high.
B. Aggregate supply may fall short of aggregate demand if the price level is too low.
C. Aggregate demand will automatically adjust to match aggregate supply.
D. Aggregate supply will automatically adjust to match aggregate demand.

 
6. Thomas Malthus argued that Say's Law did not necessarily hold true because of:
A. saving.
B. active government intervention.
C. flexible interest rates.
D. flexible prices.

 
7. Classical economists believed that:
A. there is no guarantee that every dollar saved will be lent and spent.
B. when people save, they lend to others who, in turn, spend.
C. people do not save significant amounts of money.
D. the government will always borrow any amount made available by the household sector.

 
8. According to the quantity theory of money, inflation is caused by:
A. increases in velocity.
B. increases in real GDP.
C. increases in velocity in excess of increases in real GDP.
D. increases in the money supply in excess of increases in real GDP.

 
9. According to the Classical quantity theory of money, ____________ are relatively constant while ________ vary.
A. the price level and real output, the money supply and the velocity of money
B. the velocity of money and real output, the money supply and the price level
C. the money supply and the velocity of money, real output and the price level
D. the velocity of money, real output, the money supply and the price level

 
10. That level of income an economy is technically capable of producing without generating accelerating inflation is known as:
A. potential income.
B. equilibrium income.
C. capacity output.
D. NAIRU.

 
11. Keynes believed equilibrium income __________ an economy's potential income.
A. could be above, below, or at
B. always equaled
C. always was below
D. always was above

 
12.
R-1 Figure 10-7

Refer to the graph above. The AD and AS curves would be correctly placed on which set of axes?
A. A
B. B
C. C
D. D


 
13. Which of the following would shift the aggregate demand curve to the left?
A. A decrease in foreign income.
B. A decrease in the interest rate.
C. A higher future expected price level.
D. An increase in foreign income.

 
14. The aggregate supply curve shows:
A. how a change in the price level will change the quantity of output supplied.
B. how a change in the quantity of output demanded will change the quantity of output supplied.
C. how a change in the price level will change the quantity of output demanded.
D. how a change in the quantity of output supplied will change the quantity of output demanded.

 
15. Long-run supply:
A. is the level of supply that is consistent with an economy's potential income.
B. is the minimum amount of output that can be produced given the institutional structure of the economy.
C. is the amount of output that would be produced if every single citizen was fully employed.
D. is the amount of output that is produced at the point where short-run aggregate demand and short-run aggregate supply intersect.

 
16. An autonomous shift is a shift that occurs because of
A. the multiplier effects of initial changes.
B. a change outside the model.
C. a change in income only.
D. a change in production only.

 
17. What is the dominant mechanism in the aggregate production/ aggregate expenditures model?
A. Interest rate adjustment mechanism.
B. Price level adjustment mechanism.
C. Income adjustment mechanism.
D. Deficit adjustment mechanism.

 
18. What is the basis of the dynamics of the aggregate production/ aggregate expenditures model?
A. How labor responds to changes in the real wage.
B. How producers respond to changes in the relative price of goods they supply.
C. How aggregate expenditures respond to changes in the price level.
D. How expenditures and production respond to each other.

 
19. Which of the following accurately describes an aggregate production curve?
A. A straight line that goes through the origin with slope equal to the mpe.
B. A straight line begins at the level of autonomous expenditures with a slope of -1.
C. A straight line begins at the level of autonomous expenditures with a slope of 1.
D. A straight line goes through the origin with a slope of 1.

 
20. At all points on the 45 degree line in the AE/AP model:
A. income equals production.
B. income exceeds production.
C. production is greater than income.
D. production exceeds income.

 
21.
R-2 Figure 11-5

In the graph above, point A represents
A. real income of $6,000 an real output of $6,000.
B. real income of $6,000 an real output of $8,000.
C. real income of $8,000 an real output of $8,000.
D. an unknown level of real income since you don't know the price level.


 
22. When income is equal to zero, expenditures are equal to:
A. induced expenditures.
B. aggregate expenditures.
C. autonomous expenditures.
D. endogenous expenditures.

 
23. In the expenditures equation AE = $800 + 0.9Y:
A. induced expenditures is zero.
B. induced expenditures is $800.
C. autonomous expenditures is 90 percent of income.
D. autonomous expenditures is $800.

 
24. The marginal propensity to consume (mpc) measures:
A. how much of a given income will be consumed.
B. what percentage of total income will go to saving.
C. how much expenditures will occur at equilibrium income.
D. how much consumption will change when disposable income changes.

 
25. For levels of income to the right of the point where expenditures intersects the aggregate production line:
A. inventories are falling.
B. income exceeds expenditures.
C. inventories are not changing.
D. expenditures equals income.

 
26. For levels of income to the left of the point where expenditures intersects the aggregate production line:
A. planned spending exceeds planned output.
B. planned production exceeds planned expenditures.
C. expenditures are negative.
D. expenditures equals income.

 
27. The level of income where the expenditures line intersects the 45-degree line is:
A. the point of maximum returns to investment.
B. the break-even level of consumption.
C. where inventories are zero.
D. equilibrium real GDP.

 
28.
R-3 Figure 11-14

Refer to the graph above. If income equals $2000 billion, expenditures equals:
A. $3,000 billion.
B. $2,000 billion.
C. $2,900 billion.
D. $ 200 billion.


 
29. In the simple Keynesian model, you are told that AE = 3,000 + 0.75 (Y ). Equilibrium income will be:
A. $32,000.
B. $20,000.
C. $12,000.
D. $ 8,000.

 
30. If the mpc is 0.8 and autonomous expenditures are $4000, total equilibrium expenditures in the economy is:
A. $2,500.
B. $4,000.
C. $10,000.
D. $20,000.

 
31. Given AE = $1000 + .8Y, when income equals $5000, autonomous expenditures will be:
A. $ 500.
B. $1000.
C. $4800.
D. $5800.

 
32. The amount by which autonomous expenditures must be multiplied to find equilibrium income is:
A. [ 1 / mpc ].
B. [ 1 / 1 - mpc].
C. [ 1 / mpc ] X AP.
D. [ 1 / 1 - mps] X AE.

 
33. The smaller the marginal propensity to consume,
A. the greater the multiplier.
B. the smaller the multiplier.
C. the multiplier does not change.
D. the less we know about the multiplier.

 
34. The multiplier is smaller, other things equal, when:
A. the mpc is larger.
B. the mpc is smaller.
C. the mpe is larger.
D. the less we know about the mpm.

 
35. In the Keynesian model, equilibrium income is the multiplier times:
A. aggregate production.
B. net foreign trade.
C. the sum of all autonomous expenditures.
D. the sum of all endogenous expenditures.

 
36. Which of the following will shift the AE curve up? 
A. A rise in interest rates.
B. A decline in consumer confidence.
C. A technological innovation.
D. An increase in production.

 
37. Consumer pessimism will:
A. pivot the AE curve up.
B. pivot the AE curve down.
C. shift the AE curve up.
D. shift the AE curve down.

 
38. In a simple Keynesian model, the economy is currently experiencing a recessionary GDP gap of $400 billion. The marginal propensity to consume is 0.8. Assuming no government or international sector, full employment can be achieved if annual planned investment increases by:
A. $80 billion.
B. $100 billion.
C. $300 billion.
D. $400 billion.

 
39. If the marginal propensity to consume is .9 and a decline in household wealth reduces autonomous expenditures by $25 billion, equilibrium real GDP will:
A. increase by $250 billion.
B. increase by $100 billion.
C. decrease by $250 billion.
D. decrease by $100 billion.

 
40. To cool down an overheating economy the U.S. government decides to decrease income by 1000. If the mps is 0.2. The government should decrease its spending by:
A. 200.
B. 500.
C. 800.
D. 1000.

 
41. In the Keynesian model:
A. the income adjustment process works quickly and has a powerful effect.
B. the price level adjustment works quickly and has a powerful effect.
C. the income adjustment process does not work at all.
D. price level adjustments are theoretically impossible.

 
42.
R-4 Figure 11-19

Equilibrium real income given the graph above of the AP/AE model is
A. 200
B. 400
C. 800
D. 1200


 
43. In the Keynesian model, a small change in autonomous expenditure causes a large change in equilibrium income because:
A. as saving levels increase, a greater pool of loanable funds is available for investment spending by businesses.
B. increases in income cause a succession of spending rounds by many businesses and individuals.
C. increases in income cause tax revenues to increase, thereby stimulating increases in government spending levels.
D. businesses emulate the spending decisions of their competitors.

 
44. The fiscal policy tools include:
A. government regulation and user fees.
B. changes in the money supply and the interest rate.
C. government spending and taxation policy.
D. government taxation and regulation.

 
45. In the Keynesian model, all of the following policies would have a positive effect on aggregate spending except: 
A. increased transfer payments to individuals and businesses.
B. decreases in federal taxes on corporations.
C. increased government taxes.
D. increased government expenditures on goods and services.

 
46. A cut in welfare spending is an example of:
A. an expansionary monetary policy.
B. a contractionary monetary policy.
C. an expansionary fiscal policy.
D. a contractionary fiscal policy.

 
47. A recessionary gap is when:
A. equilibrium income is below potential income.
B. equilibrium income is above potential income.
C. equilibrium income equals potential income.
D. equilibrium income is below autonomous expenditure.

 
48. An inflationary gap occurs when:
A. equilibrium income is below potential income.
B. equilibrium income is above potential income.
C. equilibrium income equals potential income.
D. equilibrium income is below autonomous expenditure.

 
49. Crowding out is associated with:
A. higher interest rates and lower business investment
B. lower interest rates and lower business investment
C. higher interest rates and higher business investment
D. lower interest rates and higher business investment

 
50. Automatic stabilizers:
A. tend to smooth out the business cycle.
B. tend to augment the business cycle.
C. are independent of the business cycle.
D. are government expenditures during recessions.

 

This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.

macro2s03
Macro/Midterm 2 Name
Example Choose the best answer.
GOOD LUCK!

 
 
 
 
1. _________ are economists who generally oppose government intervention in the economy.
A. Classical economists
B. Keynesian economists
C. Friedmanite economists
D. Marxian economists

 
2. Which of the following statements would a laissez-faire economist agree with most? 
A. government policies do not affect economic activity.
B. government can implement policy proposals that can positively impact the economy.
C. most government policies would probably make things worse.
D. government intervention in the market is necessary for a smoothly operating economy.

 
3. Before the Great Depression the popular view of government was ________, and after the Depression, the popular view of government was _______.
A. laissez-faire, activist.
B. activist, laissez-faire.
C. activist, still activist.
D. laissez-faire, still laissez-faire.

 
4. According to laissez-faire economists during the Depression, to eliminate unemployment one must:
A. eliminate labor unions and government policies that hold real wages too high.
B. strengthen unions and government regulations to ensure full employment by making it difficult for businesses to fire workers.
C. increase real wages so that people are encouraged to work.
D. lower taxes.

 
5. Which of the following will occur according to Say's Law?
A. Aggregate demand may fall short of aggregate supply if the price level is too high.
B. Aggregate supply may fall short of aggregate demand if the price level is too low.
C. Aggregate demand will automatically adjust to match aggregate supply.
D. Aggregate supply will automatically adjust to match aggregate demand.

 
6. Thomas Malthus argued that Say's Law did not necessarily hold true because of:
A. saving.
B. active government intervention.
C. flexible interest rates.
D. flexible prices.

 
7. Classical economists believed that:
A. there is no guarantee that every dollar saved will be lent and spent.
B. when people save, they lend to others who, in turn, spend.
C. people do not save significant amounts of money.
D. the government will always borrow any amount made available by the household sector.

 
8. According to the quantity theory of money, inflation is caused by:
A. increases in velocity.
B. increases in real GDP.
C. increases in velocity in excess of increases in real GDP.
D. increases in the money supply in excess of increases in real GDP.

 
9. According to the Classical quantity theory of money, ____________ are relatively constant while ________ vary.
A. the price level and real output, the money supply and the velocity of money
B. the velocity of money and real output, the money supply and the price level
C. the money supply and the velocity of money, real output and the price level
D. the velocity of money, real output, the money supply and the price level

 
10. That level of income an economy is technically capable of producing without generating accelerating inflation is known as:
A. potential income.
B. equilibrium income.
C. capacity output.
D. NAIRU.

 
11. Keynes believed equilibrium income __________ an economy's potential income.
A. could be above, below, or at
B. always equaled
C. always was below
D. always was above

 
12.
R-1 Figure 10-7

Refer to the graph above. The AD and AS curves would be correctly placed on which set of axes?
A. A
B. B
C. C
D. D


 
13. Which of the following would shift the aggregate demand curve to the left?
A. A decrease in foreign income.
B. A decrease in the interest rate.
C. A higher future expected price level.
D. An increase in foreign income.

 
14. The aggregate supply curve shows:
A. how a change in the price level will change the quantity of output supplied.
B. how a change in the quantity of output demanded will change the quantity of output supplied.
C. how a change in the price level will change the quantity of output demanded.
D. how a change in the quantity of output supplied will change the quantity of output demanded.

 
15. Long-run supply:
A. is the level of supply that is consistent with an economy's potential income.
B. is the minimum amount of output that can be produced given the institutional structure of the economy.
C. is the amount of output that would be produced if every single citizen was fully employed.
D. is the amount of output that is produced at the point where short-run aggregate demand and short-run aggregate supply intersect.

 
16. An autonomous shift is a shift that occurs because of
A. the multiplier effects of initial changes.
B. a change outside the model.
C. a change in income only.
D. a change in production only.

 
17. What is the dominant mechanism in the aggregate production/ aggregate expenditures model?
A. Interest rate adjustment mechanism.
B. Price level adjustment mechanism.
C. Income adjustment mechanism.
D. Deficit adjustment mechanism.

 
18. What is the basis of the dynamics of the aggregate production/ aggregate expenditures model?
A. How labor responds to changes in the real wage.
B. How producers respond to changes in the relative price of goods they supply.
C. How aggregate expenditures respond to changes in the price level.
D. How expenditures and production respond to each other.

 
19. Which of the following accurately describes an aggregate production curve?
A. A straight line that goes through the origin with slope equal to the mpe.
B. A straight line begins at the level of autonomous expenditures with a slope of -1.
C. A straight line begins at the level of autonomous expenditures with a slope of 1.
D. A straight line goes through the origin with a slope of 1.

 
20. At all points on the 45 degree line in the AE/AP model:
A. income equals production.
B. income exceeds production.
C. production is greater than income.
D. production exceeds income.

 
21.
R-2 Figure 11-5

In the graph above, point A represents
A. real income of $6,000 an real output of $6,000.
B. real income of $6,000 an real output of $8,000.
C. real income of $8,000 an real output of $8,000.
D. an unknown level of real income since you don't know the price level.


 
22. When income is equal to zero, expenditures are equal to:
A. induced expenditures.
B. aggregate expenditures.
C. autonomous expenditures.
D. endogenous expenditures.

 
23. In the expenditures equation AE = $800 + 0.9Y:
A. induced expenditures is zero.
B. induced expenditures is $800.
C. autonomous expenditures is 90 percent of income.
D. autonomous expenditures is $800.

 
24. The marginal propensity to consume (mpc) measures:
A. how much of a given income will be consumed.
B. what percentage of total income will go to saving.
C. how much expenditures will occur at equilibrium income.
D. how much consumption will change when disposable income changes.

 
25. For levels of income to the right of the point where expenditures intersects the aggregate production line:
A. inventories are falling.
B. income exceeds expenditures.
C. inventories are not changing.
D. expenditures equals income.

 
26. For levels of income to the left of the point where expenditures intersects the aggregate production line:
A. planned spending exceeds planned output.
B. planned production exceeds planned expenditures.
C. expenditures are negative.
D. expenditures equals income.

 
27. The level of income where the expenditures line intersects the 45-degree line is:
A. the point of maximum returns to investment.
B. the break-even level of consumption.
C. where inventories are zero.
D. equilibrium real GDP.

 
28.
R-3 Figure 11-14

Refer to the graph above. If income equals $2000 billion, expenditures equals:
A. $3,000 billion.
B. $2,000 billion.
C. $2,900 billion.
D. $ 200 billion.


 
29. In the simple Keynesian model, you are told that AE = 3,000 + 0.75 (Y ). Equilibrium income will be:
A. $32,000.
B. $20,000.
C. $12,000.
D. $ 8,000.

 
30. If the mpc is 0.8 and autonomous expenditures are $4000, total equilibrium expenditures in the economy is:
A. $2,500.
B. $4,000.
C. $10,000.
D. $20,000.

 
31. Given AE = $1000 + .8Y, when income equals $5000, autonomous expenditures will be:
A. $ 500.
B. $1000.
C. $4800.
D. $5800.

 
32. The amount by which autonomous expenditures must be multiplied to find equilibrium income is:
A. [ 1 / mpc ].
B. [ 1 / 1 - mpc].
C. [ 1 / mpc ] X AP.
D. [ 1 / 1 - mps] X AE.

 
33. The smaller the marginal propensity to consume,
A. the greater the multiplier.
B. the smaller the multiplier.
C. the multiplier does not change.
D. the less we know about the multiplier.

 
34. The multiplier is smaller, other things equal, when:
A. the mpc is larger.
B. the mpc is smaller.
C. the mpe is larger.
D. the less we know about the mpm.

 
35. In the Keynesian model, equilibrium income is the multiplier times:
A. aggregate production.
B. net foreign trade.
C. the sum of all autonomous expenditures.
D. the sum of all endogenous expenditures.

 
36. Which of the following will shift the AE curve up? 
A. A rise in interest rates.
B. A decline in consumer confidence.
C. A technological innovation.
D. An increase in production.

 
37. Consumer pessimism will:
A. pivot the AE curve up.
B. pivot the AE curve down.
C. shift the AE curve up.
D. shift the AE curve down.

 
38. In a simple Keynesian model, the economy is currently experiencing a recessionary GDP gap of $400 billion. The marginal propensity to consume is 0.8. Assuming no government or international sector, full employment can be achieved if annual planned investment increases by:
A. $80 billion.
B. $100 billion.
C. $300 billion.
D. $400 billion.

 
39. If the marginal propensity to consume is .9 and a decline in household wealth reduces autonomous expenditures by $25 billion, equilibrium real GDP will:
A. increase by $250 billion.
B. increase by $100 billion.
C. decrease by $250 billion.
D. decrease by $100 billion.

 
40. To cool down an overheating economy the U.S. government decides to decrease income by 1000. If the mps is 0.2. The government should decrease its spending by:
A. 200.
B. 500.
C. 800.
D. 1000.

 
41. In the Keynesian model:
A. the income adjustment process works quickly and has a powerful effect.
B. the price level adjustment works quickly and has a powerful effect.
C. the income adjustment process does not work at all.
D. price level adjustments are theoretically impossible.

 
42.
R-4 Figure 11-19

Equilibrium real income given the graph above of the AP/AE model is
A. 200
B. 400
C. 800
D. 1200


 
43. In the Keynesian model, a small change in autonomous expenditure causes a large change in equilibrium income because:
A. as saving levels increase, a greater pool of loanable funds is available for investment spending by businesses.
B. increases in income cause a succession of spending rounds by many businesses and individuals.
C. increases in income cause tax revenues to increase, thereby stimulating increases in government spending levels.
D. businesses emulate the spending decisions of their competitors.

 
44. The fiscal policy tools include:
A. government regulation and user fees.
B. changes in the money supply and the interest rate.
C. government spending and taxation policy.
D. government taxation and regulation.

 
45. In the Keynesian model, all of the following policies would have a positive effect on aggregate spending except: 
A. increased transfer payments to individuals and businesses.
B. decreases in federal taxes on corporations.
C. increased government taxes.
D. increased government expenditures on goods and services.

 
46. A cut in welfare spending is an example of:
A. an expansionary monetary policy.
B. a contractionary monetary policy.
C. an expansionary fiscal policy.
D. a contractionary fiscal policy.

 
47. A recessionary gap is when:
A. equilibrium income is below potential income.
B. equilibrium income is above potential income.
C. equilibrium income equals potential income.
D. equilibrium income is below autonomous expenditure.

 
48. An inflationary gap occurs when:
A. equilibrium income is below potential income.
B. equilibrium income is above potential income.
C. equilibrium income equals potential income.
D. equilibrium income is below autonomous expenditure.

 
49. Crowding out is associated with:
A. higher interest rates and lower business investment
B. lower interest rates and lower business investment
C. higher interest rates and higher business investment
D. lower interest rates and higher business investment

 
50. Automatic stabilizers:
A. tend to smooth out the business cycle.
B. tend to augment the business cycle.
C. are independent of the business cycle.
D. are government expenditures during recessions.

 

This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.

macro2s03
Macro/Midterm 2 Name
Example Choose the best answer.
GOOD LUCK!

 
 
 
 
1. _________ are economists who generally oppose government intervention in the economy.
A. Classical economists
B. Keynesian economists
C. Friedmanite economists
D. Marxian economists

 
2. Which of the following statements would a laissez-faire economist agree with most? 
A. government policies do not affect economic activity.
B. government can implement policy proposals that can positively impact the economy.
C. most government policies would probably make things worse.
D. government intervention in the market is necessary for a smoothly operating economy.

 
3. Before the Great Depression the popular view of government was ________, and after the Depression, the popular view of government was _______.
A. laissez-faire, activist.
B. activist, laissez-faire.
C. activist, still activist.
D. laissez-faire, still laissez-faire.

 
4. According to laissez-faire economists during the Depression, to eliminate unemployment one must:
A. eliminate labor unions and government policies that hold real wages too high.
B. strengthen unions and government regulations to ensure full employment by making it difficult for businesses to fire workers.
C. increase real wages so that people are encouraged to work.
D. lower taxes.

 
5. Which of the following will occur according to Say's Law?
A. Aggregate demand may fall short of aggregate supply if the price level is too high.
B. Aggregate supply may fall short of aggregate demand if the price level is too low.
C. Aggregate demand will automatically adjust to match aggregate supply.
D. Aggregate supply will automatically adjust to match aggregate demand.

 
6. Thomas Malthus argued that Say's Law did not necessarily hold true because of:
A. saving.
B. active government intervention.
C. flexible interest rates.
D. flexible prices.

 
7. Classical economists believed that:
A. there is no guarantee that every dollar saved will be lent and spent.
B. when people save, they lend to others who, in turn, spend.
C. people do not save significant amounts of money.
D. the government will always borrow any amount made available by the household sector.

 
8. According to the quantity theory of money, inflation is caused by:
A. increases in velocity.
B. increases in real GDP.
C. increases in velocity in excess of increases in real GDP.
D. increases in the money supply in excess of increases in real GDP.

 
9. According to the Classical quantity theory of money, ____________ are relatively constant while ________ vary.
A. the price level and real output, the money supply and the velocity of money
B. the velocity of money and real output, the money supply and the price level
C. the money supply and the velocity of money, real output and the price level
D. the velocity of money, real output, the money supply and the price level

 
10. That level of income an economy is technically capable of producing without generating accelerating inflation is known as:
A. potential income.
B. equilibrium income.
C. capacity output.
D. NAIRU.

 
11. Keynes believed equilibrium income __________ an economy's potential income.
A. could be above, below, or at
B. always equaled
C. always was below
D. always was above

 
12.
R-1 Figure 10-7

Refer to the graph above. The AD and AS curves would be correctly placed on which set of axes?
A. A
B. B
C. C
D. D


 
13. Which of the following would shift the aggregate demand curve to the left?
A. A decrease in foreign income.
B. A decrease in the interest rate.
C. A higher future expected price level.
D. An increase in foreign income.

 
14. The aggregate supply curve shows:
A. how a change in the price level will change the quantity of output supplied.
B. how a change in the quantity of output demanded will change the quantity of output supplied.
C. how a change in the price level will change the quantity of output demanded.
D. how a change in the quantity of output supplied will change the quantity of output demanded.

 
15. Long-run supply:
A. is the level of supply that is consistent with an economy's potential income.
B. is the minimum amount of output that can be produced given the institutional structure of the economy.
C. is the amount of output that would be produced if every single citizen was fully employed.
D. is the amount of output that is produced at the point where short-run aggregate demand and short-run aggregate supply intersect.

 
16. An autonomous shift is a shift that occurs because of
A. the multiplier effects of initial changes.
B. a change outside the model.
C. a change in income only.
D. a change in production only.

 
17. What is the dominant mechanism in the aggregate production/ aggregate expenditures model?
A. Interest rate adjustment mechanism.
B. Price level adjustment mechanism.
C. Income adjustment mechanism.
D. Deficit adjustment mechanism.

 
18. What is the basis of the dynamics of the aggregate production/ aggregate expenditures model?
A. How labor responds to changes in the real wage.
B. How producers respond to changes in the relative price of goods they supply.
C. How aggregate expenditures respond to changes in the price level.
D. How expenditures and production respond to each other.

 
19. Which of the following accurately describes an aggregate production curve?
A. A straight line that goes through the origin with slope equal to the mpe.
B. A straight line begins at the level of autonomous expenditures with a slope of -1.
C. A straight line begins at the level of autonomous expenditures with a slope of 1.
D. A straight line goes through the origin with a slope of 1.

 
20. At all points on the 45 degree line in the AE/AP model:
A. income equals production.
B. income exceeds production.
C. production is greater than income.
D. production exceeds income.

 
21.
R-2 Figure 11-5

In the graph above, point A represents
A. real income of $6,000 an real output of $6,000.
B. real income of $6,000 an real output of $8,000.
C. real income of $8,000 an real output of $8,000.
D. an unknown level of real income since you don't know the price level.


 
22. When income is equal to zero, expenditures are equal to:
A. induced expenditures.
B. aggregate expenditures.
C. autonomous expenditures.
D. endogenous expenditures.

 
23. In the expenditures equation AE = $800 + 0.9Y:
A. induced expenditures is zero.
B. induced expenditures is $800.
C. autonomous expenditures is 90 percent of income.
D. autonomous expenditures is $800.

 
24. The marginal propensity to consume (mpc) measures:
A. how much of a given income will be consumed.
B. what percentage of total income will go to saving.
C. how much expenditures will occur at equilibrium income.
D. how much consumption will change when disposable income changes.

 
25. For levels of income to the right of the point where expenditures intersects the aggregate production line:
A. inventories are falling.
B. income exceeds expenditures.
C. inventories are not changing.
D. expenditures equals income.

 
26. For levels of income to the left of the point where expenditures intersects the aggregate production line:
A. planned spending exceeds planned output.
B. planned production exceeds planned expenditures.
C. expenditures are negative.
D. expenditures equals income.

 
27. The level of income where the expenditures line intersects the 45-degree line is:
A. the point of maximum returns to investment.
B. the break-even level of consumption.
C. where inventories are zero.
D. equilibrium real GDP.

 
28.
R-3 Figure 11-14

Refer to the graph above. If income equals $2000 billion, expenditures equals:
A. $3,000 billion.
B. $2,000 billion.
C. $2,900 billion.
D. $ 200 billion.


 
29. In the simple Keynesian model, you are told that AE = 3,000 + 0.75 (Y ). Equilibrium income will be:
A. $32,000.
B. $20,000.
C. $12,000.
D. $ 8,000.

 
30. If the mpc is 0.8 and autonomous expenditures are $4000, total equilibrium expenditures in the economy is:
A. $2,500.
B. $4,000.
C. $10,000.
D. $20,000.

 
31. Given AE = $1000 + .8Y, when income equals $5000, autonomous expenditures will be:
A. $ 500.
B. $1000.
C. $4800.
D. $5800.

 
32. The amount by which autonomous expenditures must be multiplied to find equilibrium income is:
A. [ 1 / mpc ].
B. [ 1 / 1 - mpc].
C. [ 1 / mpc ] X AP.
D. [ 1 / 1 - mps] X AE.

 
33. The smaller the marginal propensity to consume,
A. the greater the multiplier.
B. the smaller the multiplier.
C. the multiplier does not change.
D. the less we know about the multiplier.

 
34. The multiplier is smaller, other things equal, when:
A. the mpc is larger.
B. the mpc is smaller.
C. the mpe is larger.
D. the less we know about the mpm.

 
35. In the Keynesian model, equilibrium income is the multiplier times:
A. aggregate production.
B. net foreign trade.
C. the sum of all autonomous expenditures.
D. the sum of all endogenous expenditures.

 
36. Which of the following will shift the AE curve up? 
A. A rise in interest rates.
B. A decline in consumer confidence.
C. A technological innovation.
D. An increase in production.

 
37. Consumer pessimism will:
A. pivot the AE curve up.
B. pivot the AE curve down.
C. shift the AE curve up.
D. shift the AE curve down.

 
38. In a simple Keynesian model, the economy is currently experiencing a recessionary GDP gap of $400 billion. The marginal propensity to consume is 0.8. Assuming no government or international sector, full employment can be achieved if annual planned investment increases by:
A. $80 billion.
B. $100 billion.
C. $300 billion.
D. $400 billion.

 
39. If the marginal propensity to consume is .9 and a decline in household wealth reduces autonomous expenditures by $25 billion, equilibrium real GDP will:
A. increase by $250 billion.
B. increase by $100 billion.
C. decrease by $250 billion.
D. decrease by $100 billion.

 
40. To cool down an overheating economy the U.S. government decides to decrease income by 1000. If the mps is 0.2. The government should decrease its spending by:
A. 200.
B. 500.
C. 800.
D. 1000.

 
41. In the Keynesian model:
A. the income adjustment process works quickly and has a powerful effect.
B. the price level adjustment works quickly and has a powerful effect.
C. the income adjustment process does not work at all.
D. price level adjustments are theoretically impossible.

 
42.
R-4 Figure 11-19

Equilibrium real income given the graph above of the AP/AE model is
A. 200
B. 400
C. 800
D. 1200


 
43. In the Keynesian model, a small change in autonomous expenditure causes a large change in equilibrium income because:
A. as saving levels increase, a greater pool of loanable funds is available for investment spending by businesses.
B. increases in income cause a succession of spending rounds by many businesses and individuals.
C. increases in income cause tax revenues to increase, thereby stimulating increases in government spending levels.
D. businesses emulate the spending decisions of their competitors.

 
44. The fiscal policy tools include:
A. government regulation and user fees.
B. changes in the money supply and the interest rate.
C. government spending and taxation policy.
D. government taxation and regulation.

 
45. In the Keynesian model, all of the following policies would have a positive effect on aggregate spending except: 
A. increased transfer payments to individuals and businesses.
B. decreases in federal taxes on corporations.
C. increased government taxes.
D. increased government expenditures on goods and services.

 
46. A cut in welfare spending is an example of:
A. an expansionary monetary policy.
B. a contractionary monetary policy.
C. an expansionary fiscal policy.
D. a contractionary fiscal policy.

 
47. A recessionary gap is when:
A. equilibrium income is below potential income.
B. equilibrium income is above potential income.
C. equilibrium income equals potential income.
D. equilibrium income is below autonomous expenditure.

 
48. An inflationary gap occurs when:
A. equilibrium income is below potential income.
B. equilibrium income is above potential income.
C. equilibrium income equals potential income.
D. equilibrium income is below autonomous expenditure.

 
49. Crowding out is associated with:
A. higher interest rates and lower business investment
B. lower interest rates and lower business investment
C. higher interest rates and higher business investment
D. lower interest rates and higher business investment

 
50. Automatic stabilizers:
A. tend to smooth out the business cycle.
B. tend to augment the business cycle.
C. are independent of the business cycle.
D. are government expenditures during recessions.

 

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