Question 1

Why do classical economists believe that expansionary fiscal policies have no impact and are not needed during a recession?

Accepted Answer

Classical economists do not believe in t...

Question 2

A government leader who believes that wages and prices are flexible, savings helps an economy, and the long run should be the time period of focus holds a _____ perspective on economic policy.

Accepted Answer

A)   Keynesian
B)   supply-side
C)   classical
D)   monetaristE) A) and B)
F) None of the above

Question 3

In the aggregate expenditures model, the level of expenditures that exists when income is zero is called _____ spending.

Accepted Answer

A)   autonomous
B)   zero-base
C)   neutral
D)   equilibriumE) None of the above
F) A) and D)

Question 4

According to the aggregate expenditures model, what happens initially when there is a sudden, unexpected drop in consumer spending?

Accepted Answer

A)   Aggregate expenditures immediately fall by the amount of the drop in consumer spending.
B)   The equilibrium level of output immediately rises.
C)   The equilibrium level of output immediately falls.
D)   Aggregate expenditures hold steady at first due to a matching increase in unplanned inventory investment.E) None of the above
F) A) and D)

Question 5

When the aggregate supply and aggregate demand model is drawn to represent the Keynesian perspective, the short-run aggregate supply curve is:

Accepted Answer

A)   horizontal until it reaches the natural rate of output and then becomes vertical.
B)   vertical until it reaches the natural rate of output and then becomes horizontal.
C)   upward sloping when there is unemployment and downward sloping when at full employment.
D)   downward sloping when there is unemployment and upward sloping when at full employment.E) A) and B)
F) A) and C)

Question 6

An economy is at a real GDP level of $600 billion. Autonomous planned expenditures rise by $20 billion. If the MPC = .75, what will the new real GDP level be after the full potential multiplier effect occurs?

Accepted Answer

A)   $680 billion
B)   $700 billion
C)   $520 billion
D)   $480 billionE) A) and B)
F) C) and D)

Question 7

When there is positive unplanned investment, firms typically respond by:

Accepted Answer

A)   increasing production to meet the unfulfilled demand.
B)   reducing production to allow inventories to return to the desired level.
C)   increasing production to allow the economy to reach full employment.
D)   reducing production to prevent inflation from increasing.E) B) and D)
F) A) and D)

Question 8

If the MPS = .1, what is the full potential expenditure multiplier?

Accepted Answer

A)   10
B)   9
C)   .9
D)   5E) B) and C)
F) A) and C)

Question 9

Summarize five key differences in assumptions between the classical economists and Keynes that led him to develop his theories.

Accepted Answer

There are five key differences between t...

Question 10

Econia's real GDP is $700 billion. Full-employment real GDP is $900 billion. The MPC = .75. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Accepted Answer

A)   Decrease government purchases by $150 billion.
B)   Decrease taxes by $150 billion.
C)   Increase government purchases by $50 billion.
D)   Increase taxes by $50 billion.E) A) and D)
F) B) and C)

Question 11

How do firms typically respond to a sudden drop in consumer purchases?

Accepted Answer

A)   Unplanned investment rises, and then output falls.
B)   Both investment and output fall.
C)   Planned investment falls, and then unplanned investment rises.
D)   Output falls, and then investment falls.E) B) and D)
F) A) and C)

Question 12

(Figure: KSRAS)  The figure shows the Keynesian short-run aggregate supply (KSRAS)  curve and fiscal policy. What would cause the shift shown in the figure?

Accepted Answer

A)   expansionary monetary policy
B)   higher oil prices
C)   expansionary fiscal policy
D)   contractionary fiscal policyE) A) and C)
F) None of the above

Question 13

(Figure: Aggregate Expenditure Model 0)  The figure shows a recession in the aggregate expenditure model. The full employment level of output is assumed to be $4,000. At lower levels of output, the economy is in a recession. Equilibrium in the aggregate expenditure model may occur below full employment. In Keynes's view, because the economy is at equilibrium at _____, it will remain _____ absent corrective policy measures.

Accepted Answer

A)   $3000; below full employment
B)   $4000; at full employment
C)   $3000; at full employment
D)   $4000; below full employmentE) A) and B)
F) B) and D)

Question 14

When income is $600 million, consumption spending is $500 million. When income is $800 million, consumption spending is $660 million. What is the marginal propensity to consume?

Accepted Answer

A)   80
B)   20
C)   .8
D)   .5E) None of the above
F) A) and B)

Question 15

Which of the following is NOT an assumption of the classical model in economics?

Accepted Answer

A)   Markets are responsive.
B)   The economy self-corrects.
C)   Wages and prices are flexible.
D)   The short run is the most important time period.E) C) and D)
F) A) and B)

Question 16

According to the aggregate expenditures model, when an economy is in equilibrium at an output level that has high levels of unemployment:

Accepted Answer

A)   there is no reason to expect that the unemployment will disappear in the short run.
B)   the unemployment will disappear as soon as the economy self-corrects.
C)   the equilibrium is at a point to the right of the natural rate of output.
D)   the price level will soon rise.E) C) and D)
F) A) and B)

Question 17

Econia's real GDP is $600 billion. Full-employment real GDP is $900 billion. The MPC = .8. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Accepted Answer

A)   Increase government purchases by $50 billion.
B)   Increase government purchases by $60 billion.
C)   Decrease government purchases by $80 billion.
D)   Decrease government purchases by $240 billion.E) B) and C)
F) C) and D)

Question 18

How did China's fiscal stimulus policies compare to those in the United States during the Great Recession?

Accepted Answer

A)   China used a monetary policy stimulus, and the U.S. used a fiscal policy stimulus.
B)   China's stimulus was the same percentage of GDP as the U.S. stimulus.
C)   China's stimulus was a smaller percentage of GDP than the U.S. stimulus.
D)   China's stimulus was a larger percentage of GDP than the U.S. stimulus.E) A) and D)
F) All of the above

Question 19

A government announces that it will increase government purchases by $20 billion. If the MPC = .8, what impact will this have on the equilibrium level of real GDP after the full potential expenditure multiplier effect is felt?

Accepted Answer

A)   It will decrease by $80 billion.
B)   It will increase by $100 billion.
C)   It will increase by $25 billion.
D)   It will decrease by $25 billion.E) A) and C)
F) A) and D)

Question 20

Keynes assumed that the price level is _____ when the economy has slack, and that the time period of focus is the:

Accepted Answer

A)   fixed; short run.
B)   variable; long run.
C)   fixed; long run.
D)   variable; short run.E) All of the above
F) C) and D)

Exam 29: The Aggregate Expenditure Model

Keynes assumed that the price level is _____ when the economy has slack, and that the time period of focus is the:

Correct Answer
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Correct Answer
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According to the aggregate expenditures model, what happens initially when there is a sudden, unexpected drop in consumer spending?

Correct Answer
verified

According to the aggregate expenditures model, when an economy is in equilibrium at an output level that has high levels of unemployment:

Correct Answer
verified

If the MPS = .1, what is the full potential expenditure multiplier?

Correct Answer
verified

A government announces that it will increase government purchases by $20 billion. If the MPC = .8, what impact will this have on the equilibrium level of real GDP after the full potential expenditure multiplier effect is felt?

Correct Answer
verified

When there is positive unplanned investment, firms typically respond by:

Correct Answer
verified

How do firms typically respond to a sudden drop in consumer purchases?

Correct Answer
verified

An economy is at a real GDP level of $600 billion. Autonomous planned expenditures rise by $20 billion. If the MPC = .75, what will the new real GDP level be after the full potential multiplier effect occurs?

Correct Answer
verified

Which of the following is NOT an assumption of the classical model in economics?

Correct Answer
verified

Econia's real GDP is $600 billion. Full-employment real GDP is $900 billion. The MPC = .8. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Correct Answer
verified

When the aggregate supply and aggregate demand model is drawn to represent the Keynesian perspective, the short-run aggregate supply curve is:

Correct Answer
verified

When income is $600 million, consumption spending is $500 million. When income is $800 million, consumption spending is $660 million. What is the marginal propensity to consume?

Correct Answer
verified

Econia's real GDP is $700 billion. Full-employment real GDP is $900 billion. The MPC = .75. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Correct Answer
verified

(Figure: KSRAS) The figure shows the Keynesian short-run aggregate supply (KSRAS) curve and fiscal policy. What would cause the shift shown in the figure?

Correct Answer
verified

Why do classical economists believe that expansionary fiscal policies have no impact and are not needed during a recession?

Correct Answer
verified
Classical economists do not believe in t...
View Answer

A government leader who believes that wages and prices are flexible, savings helps an economy, and the long run should be the time period of focus holds a _____ perspective on economic policy.

Correct Answer
verified

Summarize five key differences in assumptions between the classical economists and Keynes that led him to develop his theories.

Correct Answer
verified
There are five key differences between t...
View Answer

How did China's fiscal stimulus policies compare to those in the United States during the Great Recession?

Correct Answer
verified

In the aggregate expenditures model, the level of expenditures that exists when income is zero is called _____ spending.

Correct Answer
verified

Exam 29: The Aggregate Expenditure Model

Keynes assumed that the price level is _____ when the economy has slack, and that the time period of focus is the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the aggregate expenditures model, what happens initially when there is a sudden, unexpected drop in consumer spending?

Correct AnswerverifiedShow Answer

According to the aggregate expenditures model, when an economy is in equilibrium at an output level that has high levels of unemployment:

Correct AnswerverifiedShow Answer

If the MPS = .1, what is the full potential expenditure multiplier?

Correct AnswerverifiedShow Answer

A government announces that it will increase government purchases by $20 billion. If the MPC = .8, what impact will this have on the equilibrium level of real GDP after the full potential expenditure multiplier effect is felt?

Correct AnswerverifiedShow Answer

When there is positive unplanned investment, firms typically respond by:

Correct AnswerverifiedShow Answer

How do firms typically respond to a sudden drop in consumer purchases?

Correct AnswerverifiedShow Answer

An economy is at a real GDP level of $600 billion. Autonomous planned expenditures rise by $20 billion. If the MPC = .75, what will the new real GDP level be after the full potential multiplier effect occurs?

Correct AnswerverifiedShow Answer

Which of the following is NOT an assumption of the classical model in economics?

Correct AnswerverifiedShow Answer

Econia's real GDP is $600 billion. Full-employment real GDP is $900 billion. The MPC = .8. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Correct AnswerverifiedShow Answer

When the aggregate supply and aggregate demand model is drawn to represent the Keynesian perspective, the short-run aggregate supply curve is:

Correct AnswerverifiedShow Answer

When income is $600 million, consumption spending is $500 million. When income is $800 million, consumption spending is $660 million. What is the marginal propensity to consume?

Correct AnswerverifiedShow Answer

Econia's real GDP is $700 billion. Full-employment real GDP is $900 billion. The MPC = .75. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Correct AnswerverifiedShow Answer

(Figure: KSRAS) The figure shows the Keynesian short-run aggregate supply (KSRAS) curve and fiscal policy. What would cause the shift shown in the figure?

Correct AnswerverifiedShow Answer

Why do classical economists believe that expansionary fiscal policies have no impact and are not needed during a recession?

Correct AnswerverifiedClassical economists do not believe in t...View AnswerShow Answer

A government leader who believes that wages and prices are flexible, savings helps an economy, and the long run should be the time period of focus holds a _____ perspective on economic policy.

Correct AnswerverifiedShow Answer

Summarize five key differences in assumptions between the classical economists and Keynes that led him to develop his theories.

Correct AnswerverifiedThere are five key differences between t...View AnswerShow Answer

How did China's fiscal stimulus policies compare to those in the United States during the Great Recession?

Correct AnswerverifiedShow Answer

In the aggregate expenditures model, the level of expenditures that exists when income is zero is called _____ spending.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Classical economists do not believe in t...
View Answer

Correct Answer
verified

Correct Answer
verified
There are five key differences between t...
View Answer

Correct Answer
verified

Correct Answer
verified