Chapter Ten Quiz - Della PDF

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1 Chapter Ten Quiz 1. Which of the following can eliminate a recessionary GDP gap, ceteris paribus? A. An increase in consumption expenditure B. An increase in saving C. A decrease in government spending D. A decrease in investment 2. If consumers spend 90 cents out of every extra dollar received, the A. MPC is 0.90 B. Multiplier is 0.90 C. Multiplier is 9 D. MPS is 0.90 3. According to Keynes, if injections equal leakages A. The economy will always stabilize at full employment B. Microeconomic instability will persist C. Macroeconomic equilibrium will occur D. Macroeconomic equilibrium will not occur 4. When the economy is at equilibrium A. Leakages equal aggregate demand B. Leakages equal injections C. Inventories must equal zero D. There are no leakages 5. Because the aggregate supply curve rises more steeply as the economy approaches full employment, A. It becomes easier to reach full employment B. Aggregate demand shifts to the left C. The recessionary GDP gap becomes larger D. Inflation tends to accelerate 6. The value of the multiplier will be larger, the A. Larger the slope of the savings function B. Smaller the APC C. Smaller the slope of the savings function D. Smaller the APS 7. A decrease in sales expectations may shift the AD curve to the A. Left, causing more undesired investment B. Right, causing more undesired investment C. Right, causing less undesired investment D. Left, causing less undesired investment

2 8. To illustrate the ultimate impact of the multiplier process when investment spending falls, we should A. Shift the AD curve rightward once B. Shift the AD curve leftward twice, once for the autonomous change and second for the multiplier effect C. Shift the AD curve leftward and then rightward D. Shift the AD curve leftward and then shift the AS curve leftward 9. Assuming an upward-sloping aggregate supply curve, when aggregate demand decreases, unemployment A. Increases, and the price level decreases B. Decreases, and the price level decreases C. Increases, and the price level increases D. Decreases, and the price level increases 10. One In the News article titles “Everything Is On Sale and That’s Not Good” suggests that deflation A. Results in higher interest rates that further slow the economy B. Harms sellers only, but not buyers since they get better deals without worries of job losses C. Harms the economy because bankruptcies decrease D. Harms economic growth due to lower profits, more layoffs, and less spending that crease a self-reinforcing cycle 11. Actual investment equals A. Desired investment plus planned investment B. Desired investment plus undesired investment C. Planned investment minus undesired investment D. Desired investment minus undesired investment 12. A demand-pull inflation problem can best be solved by A. A reduction in aggregate supply B. An increase in aggregate demand C. A reduction in desired spending D. An increase in production of goods and services 13. Injections include all of the following except A. Saving B. Government spending C. Exports D. Investment

3 14. Table 10.1

Suppose lower interest rates suddenly lead to an injection of $325 additional investment spending into the economy and the marginal propensity to consume is 0.80. Complete Table 10.1 by calculating the spending cycles as the increased investment spending works its way through the economy. A. $260 B. $1,625 C. $65 D. $325 15. In the short run, if AD increases, the unemployment rate will A. Fall, and the price level will rise B. Rise, and the price level will rise C. Fall, and the price level will fall D. Rise, and the price level will fall...