# Econ: Ch. 11

18 Questions | Total Attempts: 300

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Economics. Chapter 11.

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Questions and Answers
• 1.
Which of the following statements is entirely correct? The income-expenditure model is useful for understanding:
• A.

Economic fluctuations in the very short-run when prices do not change very much.

• B.

The economy in the long run, when prices are highly volatile.

• C.

Economic fluctuations in the very short-run when prices are highly volatile.

• D.

The economy in the long run, when prices are highly stable.

• 2.
Refer to the figure below. Which level of output results in depletion of inventories?
• A.

Y*.

• B.

Y1.

• C.

Y2.

• D.

There isn’t sufficient information to answer the question.

• 3.
Consider the consumption function C = Ca + bY. Which part of this function describes the amount of consumption that is dependent on income?
• A.

Ca.

• B.

B.

• C.

BY.

• D.

Ca + bY.

• 4.
Refer to the figure below. Which graph best describes the impact of an increase in autonomous consumption?
• A.

The graph on the left.

• B.

The graph on the right.

• C.

Both graphs.

• D.

Neither graph.

• 5.
Which of the following formulas correctly illustrates equilibrium output?
• A.

1 – MPC * (C + I)

• B.

(Ca + I)/(1 – MPC)

• C.

C + I

• D.

Ca + MPC – 1/I

• 6.
When output is determined by demand and the economy is in equilibrium, which of the following is true?
• A.

C = I.

• B.

S = I.

• C.

Y = C

• D.

All of the above.

• 7.
Refer to the figure below. The graph demonstrates the increase in investment from I0 to I1, which is:
• A.

Equal to the corresponding change in output.

• B.

Greater than the corresponding change in output.

• C.

Less than the corresponding change in output.

• D.

Either greater than or less than but not equal to the corresponding change in output.

• 8.
Refer to the graph below. Which of the graphs best depicts the impact of an increase in taxes?
• A.

The graph on the left.

• B.

The graph on the right.

• C.

Both graphs.

• D.

Neither graph.

• 9.
Which of the following is correct? The simple income-expenditure model illustrates that:
• A.

An increase in government spending will increase total planned expenditures for goods and services.

• B.

Cutting taxes will increase the after-tax income of consumers and will also lead to an increase in planned expenditures for goods and services.

• C.

Policymakers need to take into account the multipliers for government spending and taxes as they develop their policies.

• D.

All of the above.

• 10.
Only one statement below is entirely correct. Which one? The result of automatic stabilizers when the economy is in an expansion is to:
• A.

Collect less taxes and pay out less transfer payments, decreasing consumer spending.

• B.

Collect more taxes and pay out less transfer payments, decreasing consumer spending.

• C.

Collect less taxes and pay out more transfer payments, increasing consumer spending.

• D.

Collect more taxes and pays out more transfer payments, decreasing consumer spending.

• 11.
The economy will be more stable when:
• A.

Consumers base their decisions on permanent rather than temporary changes in income.

• B.

Firms and consumers know that the federal government will often be taking actions to stabilize the economy.

• C.

Firms make better forecasts of demand.

• D.

All of the above.

• 12.
To obtain the MPC for spending on domestic goods, we must:
• A.

Add the marginal propensity to import to the MPC.

• B.

Subtract the marginal propensity to import from the MPC.

• C.

Multiply the marginal propensity to import by the MPC.

• D.

Divide the marginal propensity to import by the MPC.

• 13.
Refer to the figure below. Which graph best depicts the impact of an increase in the marginal propensity to import?
• A.

The graph on the left.

• B.

The graph on the right.

• C.

Both graphs.

• D.

Neither graph.

• 14.
Refer to the figure below. Which of the following is associated with the move from y0 to y1?
• A.

An upward shift of the planned expenditure function.

• B.

A downward shift of the planned expenditure function.

• C.

No change in the planned expenditure function.

• D.

A lower level of consumption and/or investment spending.

• 15.
Refer to the graph below. Which move illustrates a rise in government spending in this graph, all other things equal?
• A.

A move from A to B.

• B.

A move from A to C.

• C.

A move from B to A.

• D.

A move from C to A.

• 16.
Refer to the figure below. Which of the following could have caused the simultaneous shift of aggregate planned expenditure and aggregate demand?
• A.

An increase in the aggregate price level.

• B.

An increase in planned expenditures due to increased stock prices.

• C.

An increase in taxes.

• D.

A change in the value of the multiplier.

• 17.
Consumption is 800 + .9Y while investment is 500. The equilibrium level of output is:
• A.

1,170

• B.

8,000

• C.

3,250

• D.

13,000

• 18.
Equilibrium output is \$5200 billion while full employment or potential GDP is \$5000 billion. If the MPC is .8 what must the government do to it’s purchases to get the economy to full employment?
• A.

Lower government purchases by \$200 billion.

• B.

Raise government purchases by \$40 billion.

• C.

Lower government purchases by \$40 billion.

• D.

Raise government purchases by \$200 billion.