Question 1

Provisions in the law that imply automatic increases in government spending or decreases in taxes when real output declines are called:

Accepted Answer

A)   autonomous stabilizers.
B)   automatic stabilizers.
C)   the marginal propensity to consume.
D)   the income-expenditure multiplier.E) A) and B)
F) A) and C)

Question 2

Changes in government purchases affect planned spending _____, and changes in taxes and/or transfers affect planned spending _______.

Accepted Answer

A)   directly; directly
B)   directly; indirectly
C)   directly; not at all
D)   indirectly; indirectlyE) A) and B)
F) A) and C)

Question 3

The portion of planned aggregate expenditure that is independent of output is called ______ expenditure.

Accepted Answer

A)   potential
B)   planned
C)   actual
D)   autonomousE) None of the above
F) B) and C)

Question 4

An economic recession in Japan ______ the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n)  ______ output gap in the East Asian countries.

Accepted Answer

A)   reduces; expansionary
B)   increases; expansionary
C)   reduces; recessionary
D)   increases; recessionaryE) A) and C)
F) A) and B)

Question 5

In the basic Keynesian model, an increase in transfer payments:

Accepted Answer

A)   reduces short-run equilibrium output.
B)   increases short-run equilibrium output.
C)   reduces potential output.
D)   increases potential output.E) B) and C)
F) B) and D)

Question 6

If short-run equilibrium output equals 50,000 and potential output (Y*)  equals 45,000, then this economy has a(n)  ______ gap that can be closed by _________.

Accepted Answer

A)   expansionary; decreasing taxes
B)   expansionary; increasing transfer payments
C)   expansionary; decreasing government purchases
D)   recessionary; increasing government purchasesE) A) and C)
F) A) and B)

Question 7

If firms sell more output than expected, planned investment:

Accepted Answer

A)   is greater than actual investment.
B)   is less than actual investment.
C)   equals actual investment.
D)   equals zero.E) A) and B)
F) None of the above

Question 8

The basic Keynesian model is built on the key assumption that:

Accepted Answer

A)   menu costs are not significant.
B)   firms meet the demand for their products at preset prices.
C)   firms price their products so as to see a preset quantity of output.
D)   prices are prevented from changing frequently by government regulations.E) A) and C)
F) A) and B)

Question 9

If planned aggregate expenditure (PAE)  in an economy equals 3,000 + 0.75Y and potential output (Y*)  equals 12,000, then this economy has:

Accepted Answer

A)   an expansionary gap.
B)   a recessionary gap.
C)   no output gap.
D)   no autonomous expenditure.E) B) and C)
F) A) and D)

Question 10

Expansionary policies are government stabilization policy actions intended to increase:

Accepted Answer

A)   population.
B)   unemployment.
C)   average labor productivity.
D)   planned spending.E) A) and B)
F) A) and C)

Question 11

The effect of a one-unit increase in autonomous expenditure on short-run equilibrium output is called:

Accepted Answer

A)   the marginal propensity to consume.
B)   average labor productivity.
C)   Okun's law.
D)   the income-expenditure multiplier.E) A) and B)
F) A) and C)

Question 12

An economic expansion in the U.S. ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n)  ______ output gap in Mexico.

Accepted Answer

A)   reduces; expansionary
B)   increases; expansionary
C)   reduces; recessionary
D)   increases; recessionaryE) B) and C)
F) A) and D)

Question 13

Automatic stabilizers are provisions in the law that imply automatic ______ in government spending or ______ in taxes when real output declines.

Accepted Answer

A)   increases; increases
B)   increases; decreases
C)   no change; no change
D)   decreases; decreasesE) A) and B)
F) None of the above

Question 14

In the basic Keynesian model, a decline in autonomous spending:

Accepted Answer

A)   reduces short-run equilibrium output.
B)   increases short-run equilibrium output.
C)   reduces potential output.
D)   increases potential output.E) C) and D)
F) A) and B)

Question 15

All of the following would be included in planned aggregate expenditure EXCEPT:

Accepted Answer

A)   purchases of services provided by government employees.
B)   planned changes in inventories.
C)   sales of domestically produced goods to foreigners.
D)   social security payments.E) B) and D)
F) All of the above

Question 16

Planned investment may differ from actual investment because of:

Accepted Answer

A)   changes in government purchases and net exports.
B)   the marginal propensity to consume.
C)   unplanned changes in inventories.
D)   fluctuations in preset prices.E) A) and B)
F) A) and C)

Question 17

When actual investment is greater than planned investment:

Accepted Answer

A)   firms sold less output than expected.
B)   firms sold more output than expected.
C)   the quantity of output sold is the amount the firm expected to sell.
D)   the economy produces short-run equilibrium output.E) A) and B)
F) A) and C)

Question 18

A fiscal policy action to close an expansionary gap is to:

Accepted Answer

A)   decrease taxes.
B)   increase transfer payments.
C)   decrease government purchases.
D)   increase the marginal propensity to consume.E) None of the above
F) All of the above

Question 19

If planned aggregate expenditure (PAE)  in an economy equals 1,000 + 0.9Y and potential output (Y*)  equals 9,000, then this economy has:

Accepted Answer

A)   an expansionary gap.
B)   a recessionary gap.
C)   no output gap.
D)   no autonomous expenditure.E) All of the above
F) A) and D)

Question 20

A fiscal policy action to close a recessionary gap is to:

Accepted Answer

A)   increase taxes.
B)   increase transfer payments.
C)   decrease government purchases.
D)   decrease the marginal propensity to consume.E) A) and D)
F) All of the above

Exam 11: Financial Markets and International Capital Flows

If planned aggregate expenditure (PAE) in an economy equals 3,000 + 0.75Y and potential output (Y*) equals 12,000, then this economy has:

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If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.9Y and potential output (Y*) equals 9,000, then this economy has:

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Changes in government purchases affect planned spending _____, and changes in taxes and/or transfers affect planned spending _______.

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In the basic Keynesian model, an increase in transfer payments:

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An economic expansion in the U.S. ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) ______ output gap in Mexico.

Correct AnswerverifiedShow Answer

The effect of a one-unit increase in autonomous expenditure on short-run equilibrium output is called:

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Planned investment may differ from actual investment because of:

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If firms sell more output than expected, planned investment:

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The portion of planned aggregate expenditure that is independent of output is called ______ expenditure.

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A fiscal policy action to close an expansionary gap is to:

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The basic Keynesian model is built on the key assumption that:

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Expansionary policies are government stabilization policy actions intended to increase:

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In the basic Keynesian model, a decline in autonomous spending:

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Automatic stabilizers are provisions in the law that imply automatic ______ in government spending or ______ in taxes when real output declines.

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When actual investment is greater than planned investment:

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If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a(n) ______ gap that can be closed by _________.

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All of the following would be included in planned aggregate expenditure EXCEPT:

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Provisions in the law that imply automatic increases in government spending or decreases in taxes when real output declines are called:

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A fiscal policy action to close a recessionary gap is to:

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An economic recession in Japan ______ the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n) ______ output gap in the East Asian countries.

Correct AnswerverifiedShow Answer

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Changes in government purchases affect planned spending _, and changes in taxes and/or transfers affect planned spending ___.

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An economic expansion in the U.S. the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) output gap in Mexico.

Correct Answer
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Automatic stabilizers are provisions in the law that imply automatic in government spending or in taxes when real output declines.

Correct Answer
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Correct Answer
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If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a(n) gap that can be closed by ___.

Correct Answer
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An economic recession in Japan the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n) output gap in the East Asian countries.

Correct Answer
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