Enter your answer to each of the questions in the blank to the left of the question. Be sure to use lowercase letters only!
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1. The multiplier model is a macroeconomic theory that:
a. explains that inflation multiplied by GDP will equal personal disposable income.
b. relies on the idea that each dollar change in exogenous expenditures leads to a more than a dollar change in GDP.
c. both a and b.
d. neither a nor b.
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2. The intersection of the saving and investment schedules is:
a. inflation.
b. equilibrium GDP.
c. the equilibrium level of unemployment.
d. none of the above.
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3. An economy is in equilbrium where:
a. planned saving and investment are equal.
b. planned spending and planned output are equal.
c. both a and b.
d. neither a nor b.
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4. A difference between planned output and planned spending will result in:
a. a change in output.
b. inflation.
c. unemployment.
d. the multiplier.
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5. GDP will neither expand nor contract when:
a. firms' sales will be just enough to justify continuing their current level of aggregate output.
b. planned spending equals the actual level of output.
c. both a and b.
d. neither a nor b.
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6. The number by which the change in investment must be multiplied in order to determine the resulting change in total output is called:
a. inflation.
b. the GDP deflator.
c. the multiplier.
d. none of the above.
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7. Which of the following is not correct:
a. Change in output = (1/MPS) x change in investment.
b. Change in output = (1/1-MPC) x change in investment.
c. Change in output = (1/1-MPS) x change in investment.
d. b and c
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8. When there are unemployed resources in the economy, increases in investment or other spending will result in _______.
a. higher levels of output and employment with only small increases in the price level.
b. higher levels of output, lower levels of employment, and higher price levels.
c. lower levels of output, lower levels of employment, and higher price levels.
d. no significant increases in output or employment, but higher price levels.
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9. When the economy is at full employment, higher spending will result in _______.
a. higher levels of output and employment with only small increases in the price level.
b. higher levels of output, lower levels of employment, and higher price levels.
c. lower levels of output, lower levels of employment, and higher price levels.
d. no significant increases in output or employment, but higher price levels.
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10. If investment and government purchases remain the same, a reduction in consumption spending will:
a. increase GDP and employment.
b. increase GDP, but reduce employment.
c. increase employment, but reduce GDP.
d. reduce employment and GDP.
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11. In the multiplier model, higher taxes without an increase in government spending will:
a. increase GDP and employment.
b. increase GDP, but reduce employment.
c. increase employment, but reduce GDP.
d. reduce employment and GDP.
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12. The increase in GDP that is causes by a one dollar increase in government purchases and services is called:
a. the money multiplier.
b. the GDP multiplier.
c. the government expenditure multiplier.
d. none of the above.
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13. If government spending increases,
a. GDP will increase by the amount that government spending increases.
b. GDP will increase by the expenditure multiplier times the amount by which government spending increases.
c. GDP will decrease by the amount that government spending increases.
d. GDP will decrease by the expenditure multiplier times the amount by which government spending increases.
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14. The tax multiplier equals:
a. (1-MPC) x GDP.
b. MPC x expenditure multiplier.
c. (1-MPS) x expenditure multiplier.
d. both b and c
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