Question 1

Refer to the accompanying figure.  Based on the figure, and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending decreases by 1,000, then the new short-run equilibrium output (Y ) is equal to:

Accepted Answer

A)  24,000.
B)  16,000.
C)  14,000.
D)  22,000.E) A) and B)
F) All of the above

Question 2

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 9,000, then government purchases must ________ to eliminate any output gap.

Accepted Answer

A)  increase by 100
B)  decrease by 100
C)  increase by 1,000
D)  decrease by 1,000E) B) and D)
F) B) and C)

Question 3

In the Keynesian cross diagram, the 45-degree line represents the short-run equilibrium condition that:

Accepted Answer

A)  Y = PAE.
B)  PAE = C + I ᵖ ⁺ ᴳ ⁺ ᴺˣ.
C)  I ≠ I ᵖ.
D)  Y* = Y.E) A) and B)
F) A) and C)

Question 4

In the short-run Keynesian model, to close a recessionary gap of $1 billion dollars government purchases must be:

Accepted Answer

A)  increased by $1 billion.
B)  decreased by $1 billion.
C)  increased by more than $1 billion.
D)  increased by less than $1 billion.E) B) and D)
F) None of the above

Question 5

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Induced expenditure equals:

Accepted Answer

A)  0.20Y.
B)  990 + 0.20Y.
C)  0.80Y.
D)  900 + 0.80Y.E) A) and B)
F) A) and C)

Question 6

Firms do not change prices frequently because:

Accepted Answer

A)  there are legal prohibitions against doing so.
B)  it is easier to change the quantity of capital used in production.
C)  it is costly to do so.
D)  customers will refuse to patronize firms that change prices frequently.E) A) and B)
F) None of the above

Question 7

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) None of the above

Question 8

Refer to the accompanying figure.  Based on the Keynesian cross diagram, if output equals 5,000, planned aggregate expenditure is ________ output, and firms will ________ production in response.

Accepted Answer

A)  less than; decrease
B)  greater than; decrease
C)  equal to; not change
D)  less than; increaseE) A) and D)
F) All of the above

Question 9

When real output decreases, planned aggregate expenditures decrease because:

Accepted Answer

A)  autonomous expenditures increase.
B)  autonomous expenditures decrease.
C)  induced expenditures increase.
D)  induced expenditures decrease.E) A) and B)
F) A) and C)

Question 10

The two parts of the Keynesian consumption function are consumption that depends on ________ and consumption that depends on ________.

Accepted Answer

A)  disposable income; factors other than disposable income
B)  planned spending; unplanned spending
C)  real income; nominal income
D)  money; wealthE) All of the above
F) C) and D)

Question 11

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, taxes must be:

Accepted Answer

A)  increased by $1 billion.
B)  decreased by $1 billion.
C)  increased by $1.33 billion.
D)  decreased by $1.33 billion.E) B) and D)
F) None of the above

Question 12

When actual investment is greater than planned investment:

Accepted Answer

A)  firms have sold less output than expected.
B)  firms have sold more output than expected.
C)  the quantity of output sold is the amount the firm expected to sell.
D)  the economy produces the short-run equilibrium output.E) B) and C)
F) None of the above

Question 13

In the Keynesian model, a $5 billion decrease in autonomous planned investment leads to ________ in short-run equilibrium output.

Accepted Answer

A)  a $5 billion increase
B)  a greater than $5 billion decrease
C)  no change.
D)  a $5 billion decreaseE) B) and C)
F) None of the above

Question 14

Induced expenditure is the portion of planned aggregate expenditure that:

Accepted Answer

A)  equals aggregate output.
B)  equals planned spending.
C)  equals autonomous expenditure.
D)  depends on output.E) A) and B)
F) None of the above

Question 15

In the short run, with predetermined prices, when output is less than planned aggregate expenditure:

Accepted Answer

A)  potential output is greater than short run equilibrium output.
B)  potential output is less than short run equilibrium output.
C)  planned investment is less than actual investment.
D)  planned investment is greater than actual investment.E) C) and D)
F) A) and B)

Question 16

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The slope of the expenditure line is:

Accepted Answer

A)  0.20.
B)  0.80.
C)  0.90.
D)  0.99.E) C) and D)
F) All of the above

Question 17

Refer to the accompanying figure.  Based on the figure and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending increases by 1,000, then the new short-run equilibrium output (Y) is equal to:

Accepted Answer

A)  24,000.
B)  6,000.
C)  14,000.
D)  16,000.E) A) and B)
F) All of the above

Question 18

If firms sell less 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) C) and D)

Question 19

In the basic Keynesian model, a decrease in government purchases:

Accepted Answer

A)  reduces short-run equilibrium output.
B)  increases short-run equilibrium output.
C)  reduces potential output.
D)  increases potential output.E) None of the above
F) B) and D)

Question 20

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Autonomous expenditure equals:

Accepted Answer

A)  990.
B)  940.
C)  900.
D)  890.E) B) and D)
F) C) and D)

Exam 25: Spending and Output in the Short Run

In the basic Keynesian model, a decrease in government purchases:

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In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, taxes must be:

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In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Induced expenditure equals:

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In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Autonomous expenditure equals:

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In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The slope of the expenditure line is:

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In the Keynesian model, a $5 billion decrease in autonomous planned investment leads to ________ in short-run equilibrium output.

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In the short-run Keynesian model, to close a recessionary gap of $1 billion dollars government purchases must be:

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Induced expenditure is the portion of planned aggregate expenditure that:

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Refer to the accompanying figure. Based on the Keynesian cross diagram, if output equals 5,000, planned aggregate expenditure is ________ output, and firms will ________ production in response.

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If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 9,000, then government purchases must ________ to eliminate any output gap.

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When actual investment is greater than planned investment:

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In the short run, with predetermined prices, when output is less than planned aggregate expenditure:

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In the Keynesian cross diagram, the 45-degree line represents the short-run equilibrium condition that:

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Firms do not change prices frequently because:

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When real output decreases, planned aggregate expenditures decrease because:

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Refer to the accompanying figure. Based on the figure and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending increases by 1,000, then the new short-run equilibrium output (Y) is equal to:

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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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If firms sell less output than expected, planned investment:

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Refer to the accompanying figure. Based on the figure, and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending decreases by 1,000, then the new short-run equilibrium output (Y ) is equal to:

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The two parts of the Keynesian consumption function are consumption that depends on ________ and consumption that depends on ________.

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Refer to the accompanying figure. Based on the Keynesian cross diagram, if output equals 5,000, planned aggregate expenditure is output, and firms will production in response.

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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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The two parts of the Keynesian consumption function are consumption that depends on and consumption that depends on .

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