Chapter 10

1.
R-1 10a

If investment is $60, the equilibrium level of real GDP will be
A.$320
B.$360
C.$400
D.$440



2.
R-1 10a

If investment were to increase by $5, the equilibrium real GDP would increase by
A.$5.00
B.$7.14
C.$15.00
D.$16.67



3. If the value of the marginal propensity to consume is 0.6 and real GDP falls by $25, this was caused by a decrease in the aggregate expenditures schedule of
A.$10.00
B.$15.00
C.$16.67
D.$20.00


4. If the marginal propensity to consume is 0.67 and if both planned gross investment and the saving schedule increase by $25, real GDP will
A.increase by $75
B.not change
C.decrease by $75
D.increase by $25


5. If in an economy a $150 billion increase in investment spending creates $150 billion of new income in the first round of the multiplier process and $105 billion in the second round, the multiplier and the marginal propensity to consume will be, respectively
A.5.00 and 0.80
B.4.00 and 0.75
C.3.33 and 0.70
D.2.50 and 0.40


6.
The following table for a private, closed economy. All figures are in billions of dollars.
R-2 10b

If the real rate of interest is 4%, then the equilibrium level of GDP will be
A.$300 billion
B.$400 billion
C.$500 billion
D.$600 billion



7.
The following table for a private, closed economy. All figures are in billions of dollars.
R-2 10b

An increase in the interest rate by 4% will
A.increase the equilibrium level of GDP by $200 billion
B.decrease the equilibrium level of GDP by $200 billion
C.decrease the equilibrium level of GDP by $100 billion
D.increase the equilibrium level of GDP by $100 billion



8.
The following table for a private, closed economy. All figures are in billions of dollars.
R-2 10b

The multiplier for this economy is
A.2.00
B.2.50
C.3.00
D.3.33



9.
R-3 10c

The equilibrium real GDP is
A.$960
B.$980
C.$1,000
D.$1,020



10.
R-3 10c

If net exports are increased by $4 billion at each level of GDP, the equilibrium real GDP would be
A.$960
B.$980
C.$1,000
D.$1,020



11.
R-3 10c

If the marginal propensity to save in this economy is 0.2, a $10 increase in its net exports would increase its equilibrium real GDP by
A.$40
B.$50
C.$100
D.$200



12. Other things remaining constant, which of the following would increase an economy's real GDP and employment?
A.the imposition of tariffs on goods imported from abroad
B.a decrease in the level of national income among the trading partners for this economy
C.a depreciation of the dollar relative to foreign currencies
D.an increase in the exchange rate for foreign currencies


13. An increase in the real GDP of an economy will, other things remaining constant,
A.increase its imports and the real GDPs in other economies
B.increase its imports and decrease the real GDPs in other economies
C.decrease its imports and increase the real GDPs in other economies
D.decrease its imports and the real GDPs in other economies


14. The economy is operating at the full-employment level of output. A depreciation of the dollar will most likely result in
A.a decrease in exports
B.an increase in imports
C.a decrease in real GDP
D.an increase in the price level


15.
Consumption schedule. Investment figures are for planned investment.
R-4 10d

If taxes were zero, government purchases of goods and services $10, investment $6, and net exports zero, equilibrium real GDP would be
A.$310
B.$320
C.$330
D.$340



16.
Consumption schedule. Investment figures are for planned investment.
R-4 10d

If taxes were $5, government purchases of goods and services $10, investment $6, and net exports zero, equilibrium real GDP would be
A.$300
B.$310
C.$320
D.$330



17.
Consumption schedule. Investment figures are for planned investment.
R-4 10d

Assume investment is $42, taxes are $40, net exports are zero, and government purchases of goods and services zero. If the full-employment level of real GDP is $340, the gap can be eliminated by reducing taxes by
A.$8
B.$10
C.$13
D.$40



18.
Consumption schedule. Investment figures are for planned investment.
R-4 10d

Assume that investment is zero, taxes are zero, net exports are zero, and the government purchases of goods and services are $20. If the full-employment level of real GDP is $330, the gap can be eliminated by decreasing government expenditures by
A.$4
B.$5
C.$10
D.$20



19. If the marginal propensity to consume is 0.67 and both taxes and government purchases of goods and services increase by $25, real GDP will
A.fall by $25
B.rise by $25
C.fall by $75
D.rise by $75


20. Which of the following policies would do the most to reduce inflation?
A.increase taxes by $5 billion
B.reduce government purchases of goods and services by $5 billion
C.increase taxes and government expenditures by $5 billion
D.reduce both taxes and government purchases by $5 billion


21. If MPS is 0.10, a simultaneous increase in both taxes and government spending of $30 billion will
A.reduce consumption by $27 billion, increase government spending by $27 billion, and increase GDP by $30 billion
B.reduce consumption by $27 billion, increase government spending by $30 billion, and increase GDP by $27 billion
C.reduce consumption by $24 billion, increase government spending by $30 billion, and increase GDP by $30 billion
D.reduce consumption by $24 billion, increase government spending by $24 billion, and increase GDP by $24 billion


22.
R-5 10e

The size of the multiplier associated with changes in government spending in this economy is approximately
A.0.29
B.1.50
C.2.50
D.3.50



23.
R-5 10e

If this were an open economy without a government sector, the level of GDP would be
A.$100
B.$170
C.$240
D.$310



24.
R-5 10e

In this diagram it is assumed that investment, net exports, and government expenditures
A.vary inversely with GDP
B.vary directly with GDP
C.are independent of GDP
D.are all negative



25. If the MPC in an economy is 0.75, government could eliminate a recessionary gap of $50 billion by decreasing taxes by
A.$33.3 billion
B.$50 billion
C.$66.7 billion
D.$80 billion


26. In which of the following situations for an open mixed economy will the level of GDP contract?
A.when Ca + S + M is less than Ig + X + T
B.when Ig + M + T is less than C + X + S
C.when Sa + M + T is less than Ig + X + G
D.when Ig + X + G is less than Sa + M + T


27. If the economy's full-employment real GDP is $1200 and its equilibrium real GDP is $1100, there is a recessionary gap of
A.$100
B.$100 divided by the multiplier
C.$100 multiplied by the multiplier
D.$100 times the reciprocal of the marginal propensity to consume


28. To eliminate an inflationary gap of $50 in an economy in which the marginal propensity to save is 0.1, it will be necessary to
A.decrease the aggregate expenditures schedule by $50
B.decrease the aggregate expenditures schedule by $5
C.increase the aggregate expenditures schedule by $50
D.increase the aggregate expenditures schedule by $5


29. Which of the following contributed to the decline in investment spending that led to the Great Depression?
A.a decrease in the business capacity during the 1920s
B.an increase in business indebtedness during the 1920s
C.a decrease in net exports during the 1930s
D.an increase in the money supply during the 1930s


30. One of the deficiencies of the aggregate expenditures model is that it
A.fails to account for demand-pull inflation
B.gives more weight to cost-push then demand-pull inflation
C.explains recessionary gaps but not inflationary gaps
D.has no way of measuring the rate of inflation



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