Question

1. Equilibrium GDP can operate at, below, or above full employment GDP.

True/False

2. Imports have the same effect on the current size of GDP as

A) exports

B) investment

C) consumption

D) savings

3. With an MPC of 0.75, a $10 billion decrease in taxes will decrease equilibrium GDP by $30 billion.

True/False

4. If equilibrium GDP exceeds full employment GDP, a recessionary gap exists.

True/False

5. The economy below would be characterized as a

domestic output	AE, closed economy	government
200	230	20
250	270	20
300	310	20
350	350	20
400	390	20
450	430	20
500	470	20

A) private closed economy

B) private open economy

C) closed mixed economy

D) open mixed economy

6. If all forms of spending below are integrated into the economy, equilibrium GDP is

domestic output	AE, closed economy	government
200	230	20
250	270	20
300	310	20
350	350	20
400	390	20
450	430	20
500	470	20

A) 300

B) 350

C)400

D)450

7. If the below economy was closed to international trade, the equilibrium GDP is

domestic output	AE, closed economy	exports	imports
200	230	30	20
250	270	30	20
300	310	30	20
350	350	30	20
400	390	30	20
450	430	30	20
500	470	30	20

A) $300

B) $350

C) $400

D) $450

8. Refer to the below table. The spending multiplier in this economy would be

domestic output	AE, closed economy	exports	imports
200	230	30	20
250	270	30	20
300	310	30	20
350	350	30	20
400	390	30	20
450	430	30	20
500	470	30	20

A) 2

B) 3

C) 4

D) 5

9. Refer to the below table. For the open economy, the equilibrium GDP is

domestic output	AE, closed economy	exports	imports
200	230	30	20
250	270	30	20
300	310	30	20
350	350	30	20
400	390	30	20
450	430	30	20
500	470	30	20

A) $300

B) $350

C) $400

D) $450

10. If net exports decline from zero to some negative amount, the aggregate expenditures schedule would

A) shift upward

B) shift downward
C) not move, as net exports do not affect aggregate expenditures
D) become steeper

11. If the spending multiplier in an economy is 5, a $20 billion decrease in taxes will

A) increase gdp by $80 billion

B) increase gdp by $100 billion
C) decrease gdp by $80 billion
D) decrease gdp by $100 billion

12. The tax multiplier for the below economy would be

domestic output	AE, closed economy	government
200	230	20
250	270	20
300	310	20
350	350	20
400	390	20
450	430	20
500	470	20

A) -2
B) -3

C) -4
D) -5

13. If the economy is operating at a point above the equilibrium point, then

A) AE is greater than GDP

B) GDP is greater than AE
C) The economy is at a sustainable full employment level
D) Business inventories have been depleted

14. Which of the following is NOT true in the Keynesian aggregate expenditures model?

A) Price level is held constant

B) There is a direct relationship between aggregate expenditures and GDP
C) The wealth effect has no bearing on the aggregate expenditures model

D) All changes in spending are autonomous and do not change the MPC

15. Other things equal, of a change in the tastes of American consumers causes them to purchase more foreign goods at each level of US GDP

A) Unemployment will decrease domestically

B) US GDP will fall
C) Inflation will occur domestically
D) US real GDP will rise

Answer 1

1. True

Equilibrium GDP can be higher, lower or at the full employment level of GDP.

2. D) savings

Imports are subtracted from the GDP. Similarly, savings are excluded for the estimation of gross domestic product.

3. Change in GDP = - MPC x Change in taxes / (1 - MPC)

= - 0.75 x - 10 billion / (1 - 0.75) = 0.75 x 10 billion / 0.25 = 30 billion

Decrease in taxes increases equilibrium GDP by $ 30 billion.

Statement is; False

4. False, when GDP is greater than full employment GDP then there is inflationary gap.