Equilibrium GDP on the demand side occurs when total spending
equals total production, and inventories are zero.
equals total production, and firms are unable to adjust inventories.
exceeds total production, and inventories are rising.
equals total production, and inventories remain at desired levels.
is less than total production, and inventories are falling.
The expenditure schedule will shift upward when
net exports decrease.
net exports increase.
total imports increase.
total exports decrease.
If total spending exceeds total output, then
inventory levels will rise.
inventory levels will remain constant.
inventory levels will fall.
output will eventually decrease.
The aggregate demand curve
is perfectly vertical.
is perfectly horizontal.
In the income-expenditure model, at equilibrium GDP
either unemployment or inflation may occur.
inflation can occur but unemployment cannot.
unemployment can occur but inflation cannot.
both unemployment and inflation are impossible.
John Maynard Keynes concluded that investment spending is determined by
psychological perceptions about the economy.
All of the above are correct.
Government stabilization policy
cannot influence investment spending
can stimulate aggregate demand and thereby induce businesses to invest, but the amount is
not totally predictable.
can stimulate aggregate demand, but investment spending will not be affected.
can stimulate aggregate demand, but only in the long run.
Given the slope of the aggregate demand curve, real GDP demanded will decrease when
real income rises.
real income falls.
the price level falls.
the price level rises.
A level of GDP cannot be at equilibrium when aggregate demand exceeds output because firms will notice that
inventory stocks are building up.
inventory stocks are being depleted.
their profits are negative.
many of their workers have little to do.
45° line diagrams show how
investment varies with income.
expenditures vary with income.
investment spending rises when GDP rises.
GDP is affected by government purchases.
Writing during the Great Depression, Keynes naturally focused on problems of
At the equilibrium level of income it must be true that total
income equals total spending.
product equals total output.
output equals total inventory.
income equals total saving.
When equilibrium real GDP falls short of potential GDP, there is a(n)
In the circular flow diagram saving
is a leakage and investment is an injection.
and investment are both injections.
is an injection and investment is a leakage.
and investment are both leakages.
In the 2007-2009 period, the expenditure level in the United States intersected the 45-degree line below potential GDP, causing
a growing trade deficit.
a government budget surplus.
A rising price level should shift the expenditure schedule
upward and decrease equilibrium real GDP .
downward and increase equilibrium real GDP .
downward and decrease equilibrium real GDP .
upward and increase equilibrium real GDP .
When businesses are cutting back production, then it probably true that
total spending is greater than total output.
total output is greater than total income.
total spending is less than total output.
inventory levels are decreasing.
Each C + I + G + (X − IM) expenditure schedule is drawn assuming a specific
The federal government could stimulate investment spending by
A) phasing out the depreciation allowance on corporate income taxes.
B) enacting an investment tax credit.
C) reinstating the windfall profits tax.
D) reducing the tax rate on capital gains.
E) Both b and d are correct.
If the price level rises, the effect on the expenditure schedule and equilibrium real GDP is to
shift the expenditure schedule upward and decrease equilibrium real GDP.
Stagflation" refers to the unwelcome combination of
inflation and rising prices.
deflation and unemployment.
inflation and unemployment.
inflation and expansion.
To calculate a firm's per unit of output profit, it is necessary to subtract
price from cost per unit.
price from resource costs.
cost per unit from product price.
cost per unit from cost of resources.
Increases in the availability of natural resources will affect the aggregate supply curve such that it
shifts inward and becomes flatter.
In contrast to changes in government spending, tax changes affect spending
in the same proportion.
by a greater amount.
How does a tax cut affect the expenditure schedule?
It causes movement to the left along the schedule.
It causes the schedule to shift upward.
It causes movement to the right along the schedule.
It causes the schedule to shift downward.
How will a cut in a fixed tax affect the consumption schedule?
It will shift downward.
It will shift upward.
It will become flatter.
It will become steeper.
In 2009, President Obama and Congress stimulated aggregate demand by
increasing taxes and government spending.
decreasing taxes and government spending.
increasing taxes and decreasing government spending.
decreasing taxes and increasing government spending.
For conservatives, the United States needs
an expanded public sector to protect consumers.
a smaller public sector and less regulation.
a larger tax rate and more government spending.
more public goods and services, such as national health care.
The slope of the aggregate supply curve increases as output increases because
the cost of resource-use increases as potential is reached.
consumers are willing to pay more as output expands.
firms substitute capital for labor as prices increase.
firms substitute capital for labor as capacity is reached.
"Fiscal Policy" is the federal government's plan for
international trade, designed to balance exports and imports.
spending and taxes, designed to influence the level of aggregate demand.
manipulating the money supply and the control of interest rates.
If the price level in Figure below were 120,
there would be excess goods on the market.
firms would have to raise their prices.
inventories would be disappearing.
aggregate quantity demanded would exceed aggregate quantity supplied.
When government spending is added to the basic macroeconomic model, the multiplier for G would
be higher than the multiplier for autonomous spending.
be lower than the multiplier for autonomous spending.
be equal to the multiplier for autonomous spending.
have no relationship to the autonomous spending multiplier.
An increase in wages will cause the aggregate supply curve to
If wealthy U.S. consumers save most of their tax cut, this means that, compared to government spending changes,
tax changes would have a higher multiplier effect.
tax changes would have a weaker multiplier effect.
government spending would have a weaker multiplier effect.
U.S. consumers would spend all of their tax cut.
The existence of an inflationary gap or an recessionary gap depends on the
aggregate supply only.
aggregate demand and aggregate supply schedules.
In 2009, the U.S. economy was experiencing a(n)
balance of trade deficit.
To eliminate an inflationary gap, the aggregate demand curve should
If resource prices are fixed and the selling price rises, then
profits will decrease.
profits will increase.
profits will remain constant.
both profits and output will decrease.
Economists generally assume that there is a short-run trade-off between
output and employment.
inflation and employment.
inflation and unemployment.
output and growth.
The slope of the aggregate supply curve is
The president has influence on Federal Reserve policy because
he can veto any Fed policy.
he appoints the board members and the chair.
he can fire the chair.
he can replace board members at any time.
If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?
It will give the bank new reserves.
It will write the bank a check.
It will transfer cash to the bank's vault.
It will take reserves from another bank.
Technically, the Federal Reserve district banks are corporations whose stockholders are the
state governments in each district.
citizens of the United States.
Departments of Treasury and Commerce.
The Federal Open Market Committee meets
once a month.
eight times a year.
four times a year.
Agraria sends wheat to Cyberia in exchange for computers and technology goods. This is an example of
The principal difference between income and money is that income is a ____ and money is a ____.
The Federal Open Market Committee consists of
the president and the Board of Governors.
Congresspeople, Senators, and the Board of Governors.
the Secretary of the Treasury and the Board of Governors.
the Board of Governors and five district bank presidents.
The immediate impetus for the establishment of the Federal Reserve System came from
severe outbreaks of inflation in the early 1900s.
four severe banking panics between 1873 and 1907.
the discovery of gold in Alaska.
the desire to copy the founding of the Bank of England.
Nowadays, most observers believe that monetary policy
is less important than fiscal policy.
is more important than fiscal policy.
and fiscal policy are equally important.
and fiscal policy are both unimportant.
The central bank of the United States is known as the
Internal Revenue Service.
Federal Reserve System.
Federal Deposit Insurance Corporation.
Department of Commerce.
Agraria uses bushels of wheat to quote prices. In this case, bushels of wheat act as a
medium of exchange.
store of value.
unit of account.
One advantage of a money system compared to a barter system is that
barter never works.
money creates the need for banks.
money is more efficient.
everyone has money.
Critics of Fed independence argue that
monetary policy and fiscal policy are necessarily inconsistent.
political control ensures low rates of inflation.
monetary policy run by specialists is inherently inflationary.
unelected officials are undemocratic.
Fiat money is money
backed by land.
backed by gold or silver.
that can be converted to gold or silver.
because a government says it is.
Which of the following is included in M1?
money market deposit accounts
money market mutual funds
certificates of deposit
None of the above are included.
Fiat money is
always backed by gold or silver.
useful in buying Italian cars.
only backed by government decree.
not as liquid as precious metals.
Barter is a system of
trade without the use of money.
trading one good for another.
the double coincidence of wants.
All of the above are correct.
People are often heard saying, "She makes good money." An economic interpretation of this statement would be that
she has an honest job.
she makes money that is not counterfeit.
she has a high income.
there is little inflation.
The primary feature of money is that it serves as
a medium of exchange.
If depositors become worried about the safety of their deposit accounts, they may trigger a
fiscal policy crisis.
required reserve increase.