Econ chapter 25

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Consumption, investment, government spending, exports, and imports are:

A. all complementary elements of a market-orientated economy.
B. some of the opposing elements found in a market-orientated economy.
C. all components of aggregate demand.
D. some of the building blocks of Keynesian analysis.

C

If markets throughout the global economy all have flexible and continually adjusting prices, then:

A. all market-oriented economies will implement coordinated wage reductions.
B. each economy will always head for its natural rate of unemployment.
C. each economy must shift in aggregate demand and create additional employment.
D. all changes in prices and wages will create additional employment.

B

Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects.

A. pricing strategy
B. macro-economic model
C. set of menu costs
D. policy prescription

D

Aggregate demand is more likely to _________________ than aggregate supply in the short run.

A. shift substantially
B. remain unchanged
C. decrease substantially
D. increase slightly

A

The equilibrium quantity of labor and the equilibrium wage level decrease when:

A. labor supply shifts to the right, if wages are flexible.
B. labor demand shifts to the right, if wages are flexible.
C. labor demand shifts to the left, if wages are flexible.
D. labor supply shifts to the left, if wages are flexible.

C

The equilibrium quantity of labor and the equilibrium wage increase when:

A. labor supply shifts to the right, if wages are flexible.
B. labor demand shifts to the right, if wages are flexible.
C. labor demand shifts to the left, if wages are flexible.
D. labor supply shifts to the left, if wages are flexible.

B

The equilibrium quantity of labor increases and the equilibrium wage decreases when:

A. labor demand shifts to the left, if wages are flexible.
B. labor supply shifts to the left, if wages are flexible.
C. labor demand shifts to the right, if wages are flexible.
D. labor supply shifts to the right, if wages are flexible,

D

The equilibrium quantity of labor decreases and the equilibrium wage increases when:

A. labor supply shifts to the left, if wages are flexible.
B. labor demand shifts to the left, if wages are flexible.
C. labor demand shifts to the right, if wages are flexible.
D. labor supply shifts to the right, if wages are flexible,

A

____________________ will not cause a shift of the AS curve in a Keynesian framework.

A. Prices of inputs
B. Changes in input prices
C. Changes in output prices
D. Changes in inputs

C

According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.

A. decrease; interest rates
B. an increase; domestic investment
C. a decrease; a major trading partner’s economy
D. a decrease; a major trading partner’s export prices

B

According to the Keynesian framework, ________________________ may cause a recession, but not inflation.

A. a major trading partner’s economic slowdown
B. a decrease in interest rates
C. an increase in domestic investment
D. a decrease in a major trading partners export prices

A

According to the Keynesian framework, which of the following may help a country reduce inflation, but will not help that country to get out of a recession?

A. increased spending by the government on health care
B. an increase in taxes on business investments
C. an increase in military spending
D. a decrease in the tax rate on consumer income

D

According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation?

A. an increase in military spending
B. a decrease in military spending
C. increase in spending by the government on health care
D. decrease in spending by government on health care

B

According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession.

A. increased spending by the government on health care
B. increased taxes on business investments
C. decreased military spending
D. increased consumer tax rate

A

The Keynesian economic framework is based on an assumption that:

A. an increase in government spending will cause the aggregate demand curve to shift to the left.
B. prices and wages are sticky and do not adjust rapidly.
C. an increase in government spending will cause the aggregate demand curve to shift to the left.
D. people can afford a high level of government services.

B

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.

A. sticky wage and price
B. sticky wage
C. Keynesian
D. coordination

D

In macroeconomics, what name is given to the costs of changing prices that businesses must consider?

A. opportunity costs
B. internal costs
C. menu costs
D. customer costs

C

If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result?

A. excess supply
B. natural rate of unemployment
C. coordinated wage reductions
D. depression

A

When an economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in:

A. mechanical devices.
B. specialized services.
C. computer or other technologies.
D. tangible and/or intangible capital.

D

The onset of a trade deficit is most likely supported by a country’s:

A. existing trade surplus.
B. strong economic growth.
C. reduction in the balance of trade.
D. increased consumption function.

B

According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the:

A. neoclassical expenditure-output model.
B. Keynesian cross diagram.
C. Keynesian Phillips curve tradeoff.
D. Keynesian Inflation trade-off model.

C

When the consumption function ordinates MPT 0.2, MPS 0.3, MPI 0.5, and MPC 0.7 are plotted on a graph, what will their values reflect?

A. flatter consumption function due to low marginal propensity to tax
B. steeper consumption function due to low marginal propensity to save
C. flatter consumption function due to high marginal propensity to invest
D. steeper consumption function due to high marginal propensity to consume

D

In macroeconomics, a _________________ is used to show the relationship between output and the input price level.

A. Phillips curve
B. microeconomic model
C. expenditure-output model
D. Keynesian framework

A

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

A. is producing at its potential GDP.
B. is producing at a point where output is more than potential GDP.
C. is producing at a point where output is less than potential GDP.
D. is producing at its equilibrium point.

C

If a Phillip curve shows that unemployment is low and inflation is high in the economy, then that economy:

A. is producing at its potential GDP.
B. is producing at a point where output is more than potential GDP.
C. is producing at a point where output is less than potential GDP.
D. is producing at its equilibrium point.

B

The sum of all the income received for contributing resources to GDP is called ___________________.

A. national income (Y)
B. national revenue (Y)
C. marginal income (X)
D. marginal revenue (X)

A

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

A. expenditure-output
B. inflationary gap
C. recessionary gap
D. national income (Y)

C

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

A. expenditure-output
B. inflationary gap
C. recessionary gap
D. national income (Y)

C

Suppose that out of the original 100 increase in government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what value would be recycled in the fourth round of this cycle?

A. 3.59
B. 9.89
C. 3.37
D. 5.23

A

Suppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?

A. 141.70
B. 147.48
C. 147.62
D. 144.41

B

Suppose that out of the original 100 increase in government spending, 60 will be recycled back into purchases of domestically produced goods and services. Following this multiplier effect, what value will be recycled in the next round in the cycle?

A. 42
B. 3.6
C. 16.66
D. 36

D

When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by?

A. 100
B. 300
C. 500
D. 900

C

The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?

A. 50
B. 100
C. 200
D. 750

D

Which of the following is a distinguishing characteristic of a Keynesian cross diagram?

A. real GDP on the horizontal axis
B. a flat line
C. 45-degree line
D. several different Phillips curves

C

Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period?

A. interest rates
B. exchange rates
C. foreign income
D. MPS

B

Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?

A. bigger leakages
B. smaller leakages
C. increased trade
D. decreased trade

A

37. Refer to the graph shown below. At point B: A. economic growth it low or even negative.
B. output is expanding.
C. unemployment is very low.
D. businesses may raise prices.

A

38. Refer to the graph shown below. This graph illustrates a:
A. Keneyesian Curve.
B. Neoclassical Curve.
C. Phillips Curve.
D. Labor Demand Curve.

C

39. Refer to the graph shown below. At point A:
A. economic growth is declining.
B. the economy has full employment.
C. inflation tends to be declining.
D. wages can be lowered due to worker surplus.

B

40. Refer to the graph shown below. Point C in the graph represents:
A. the level Keynesian macroeconomic policy strives for.
B. a moderate growth level in the economy.
C. a moderate level of unemployment in the economy.
D. moderate inflation and all of the above.

D

41. The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. What does consumption equal when income equals 600?

a. 104
b. 324
c. 374
d. 540

C

42. The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. What is the equilibrium level of national income for this economy?

a. Y=200
b. Y=300
c. Y=400
d. Y=500

B

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