Econ: Ch. 11

18 Questions | Total Attempts: 300

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Econ: Ch. 11

Economics. Chapter 11.


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.