Question 1

Which of the following does not occur when real GDP rises above potential GDP?

Accepted Answer

A)  The unemployment rate falls below the natural unemployment rate.
B)  The capacity utilization rate increases.
C)  Firms increase their prices.
D)  The unemployment rate rises above the natural unemployment rate.
E)  Demand increases.F) A) and E)
G) All of the above

Question 2

The 2008-09 recession proved to be mild and very short-lived.

Accepted Answer

A) True 
 B)False

Question 3

The forward-looking model implies that the Keynesian multiplier is greater for a temporary tax cut than a permanent tax cut.

Accepted Answer

A) True 
 B)False

Question 4

Why are most economists skeptical about the real business cycle theory of economic fluctuations?

Accepted Answer

They are skeptical because the...

Question 5

Exhibit 23-6 
-According to Exhibit 23-6, line abd shows the path of potential GDP. Suppose that the Year 2 spending balance has the economy at point b where real GDP equals potential GDP. Which of the following would cause the economy to be at point c in Year 3?

Accepted Answer

A)  There is an increase in wealth.
B)  Firms decrease their optimism about the state of the economy.
C)  The marginal propensity to consume decreases.
D)  The quantity of imports increases.
E)  The government increases taxes.F) C) and D)
G) C) and E)

Question 6

Which of the following statements is true?

Accepted Answer

A)  A change in income has no effect on consumption, but a change in consumption will cause income to change.
B)  A change in income will affect consumption, but a change in consumption will not affect income.
C)  A change in income has no effect on consumption, and a change in consumption has no effect on income.
D)  A change in income causes consumption to change, and a change in consumption will cause income to change.
E)  None of theseF) D) and E)
G) A) and C)

Question 7

The Keynesian multiplier will be higher if

Accepted Answer

A)  the marginal propensity to consume is larger.
B)  the marginal propensity to import is larger.
C)  real GDP is higher.
D)  the expenditure line is higher.
E)  the liquidity constraint is greater.F) All of the above
G) A) and D)

Question 8

The economy's long-term growth trend for GDP is known as real GDP and is determined by the available supply of capital, labor, and technology.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is false?

Accepted Answer

A)  The assumption that income is the only influence on consumption is a simplifying assumption.
B)  Assuming consumption spending responds to income will improve a forecast.
C)  The assumption that only consumption spending responds to income is a simplifying assumption.
D)  Consumption responds to changes in other factors besides income.
E)  The assumption that investment and net exports do not respond to changes in income is based on evidence from the U.S.economy.F) B) and E)
G) B) and D)

Question 10

In the United States, consumption is by far the largest component of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 11

To forecast real GDP, economic forecasters divide aggregate demand into its four key components: private sector, public sector, investment sector, and foreign sector.

Accepted Answer

A) True 
 B)False

Question 12

If government expenditures decrease, the expenditure line will

Accepted Answer

A)  shift up in a parallel direction.
B)  stay constant.
C)  shift down in a parallel direction.
D)  pivot down to the right.
E)  pivot up to the left.F) A) and E)
G) A) and D)

Question 13

Which of the following will cause an upward shift of the expenditure line?

Accepted Answer

A)  A decrease in wealth
B)  A decrease in government purchases
C)  A decrease in taxes
D)  An increase in imports
E)  An increase in savingF) C) and D)
G) B) and E)

Question 14

Between December 2007 and June 2009,

Accepted Answer

A)  the United States economy was in recession and millions of jobs were lost.
B)  the United States economy moved upward and millions of jobs were created.
C)  the United States economy grew, but not many jobs were created.
D)  the United States economy moved downward, but still many jobs were created.
E)  the United States economy remained stationary.F) A) and B)
G) All of the above

Question 15

The slope of the consumption function is equal to

Accepted Answer

A)  the nominal interest rate.
B)  the real interest rate.
C)  the marginal propensity to consume.
D)  the relative price of consumption.
E)  the marginal propensity to save.F) None of the above
G) A) and B)

Question 16

When examining consumption behavior at the household level, it does not make a difference whether real household income or disposable income is used.

Accepted Answer

A) True 
 B)False

Question 17

The marginal propensity to consume is best defined as the change in consumption expenditure caused by a one-unit increase in income.

Accepted Answer

A) True 
 B)False

Question 18

What is meant by a conditional forecast, and what is it used for?

Accepted Answer

A conditional forecast is used to predic...

Question 19

Spending balance exists if

Accepted Answer

A)  the economy is at potential GDP.
B)  income and spending are the same, and we are on the expenditure line.
C)  income and spending are the same.
D)  income and spending are the same, we are on the expenditure line, and we are at potential GDP.
E)  All of theseF) All of the above
G) A) and C)

Question 20

Define the marginal propensity to consume. Graphically, how is the marginal propensity to consume shown?

Accepted Answer

The MPC measures the change in consumpti...

Exam 23: The Nature and Causes of Economic Fluctuations

Which of the following will cause an upward shift of the expenditure line?

Correct AnswerverifiedShow Answer

In the United States, consumption is by far the largest component of aggregate demand.

Correct AnswerverifiedShow Answer

The slope of the consumption function is equal to

Correct AnswerverifiedShow Answer

The 2008-09 recession proved to be mild and very short-lived.

Correct AnswerverifiedShow Answer

Why are most economists skeptical about the real business cycle theory of economic fluctuations?

Correct AnswerverifiedThey are skeptical because the...View AnswerShow Answer

The marginal propensity to consume is best defined as the change in consumption expenditure caused by a one-unit increase in income.

Correct AnswerverifiedShow Answer

Between December 2007 and June 2009,

Correct AnswerverifiedShow Answer

The forward-looking model implies that the Keynesian multiplier is greater for a temporary tax cut than a permanent tax cut.

Correct AnswerverifiedShow Answer

The Keynesian multiplier will be higher if

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

What is meant by a conditional forecast, and what is it used for?

Correct AnswerverifiedA conditional forecast is used to predic...View AnswerShow Answer

Spending balance exists if

Correct AnswerverifiedShow Answer

When examining consumption behavior at the household level, it does not make a difference whether real household income or disposable income is used.

Correct AnswerverifiedShow Answer

If government expenditures decrease, the expenditure line will

Correct AnswerverifiedShow Answer

To forecast real GDP, economic forecasters divide aggregate demand into its four key components: private sector, public sector, investment sector, and foreign sector.

Correct AnswerverifiedShow Answer

Exhibit 23-6 -According to Exhibit 23-6, line abd shows the path of potential GDP. Suppose that the Year 2 spending balance has the economy at point b where real GDP equals potential GDP. Which of the following would cause the economy to be at point c in Year 3?

Correct AnswerverifiedShow Answer

Which of the following does not occur when real GDP rises above potential GDP?

Correct AnswerverifiedShow Answer

The economy's long-term growth trend for GDP is known as real GDP and is determined by the available supply of capital, labor, and technology.

Correct AnswerverifiedShow Answer

Define the marginal propensity to consume. Graphically, how is the marginal propensity to consume shown?

Correct AnswerverifiedThe MPC measures the change in consumpti...View AnswerShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

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They are skeptical because the...
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Correct Answer
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Correct Answer
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A conditional forecast is used to predic...
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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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The MPC measures the change in consumpti...
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Correct Answer
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