Q&A Hero

Q: A decrease in unplanned inventory investment for the entire economy equals the excess of A) output over aggregate supply. B) output over aggregate demand. C) aggregate supply over output. D) aggregate demand over output.

Q: An increase in unplanned inventory investment for the entire economy equals the excess of A) output over aggregate supply. B) output over aggregate demand. C) aggregate supply over output. D) aggregate demand over output.

Q: In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________, firms will continue to lower production, and output will continue to fall. A) below; negative B) above; negative C) below; positive D) above; positive

Q: In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________, firms will continue to raise production, and output will continue to rise. A) below; negative B) above; negative C) below; positive D) above; positive

Q: In the Keynesian framework, as long as output is below the equilibrium level, unplanned inventory investment will remain negative, firms will continue to ________ production, and output will continue to ________. A) lower; fall B) lower; rise C) raise; fall D) raise; rise

Q: In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain negative and firms will continue to ________ production. A) below; lower B) above; lower C) below; raise D) above; raise

Q: In the Keynesian framework, as long as output is above the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to ________ production. A) negative; lower B) negative; raise C) positive; lower D) positive; raise

Q: In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain positive and firms will continue to ________ production. A) below; lower B) above; lower C) below; raise D) above; raise

Q: In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to lower production. A) below; negative B) above; negative C) below; positive D) above; positive

Q: In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to raise production. A) below; negative B) above; negative C) below; positive D) above; positive

Q: In the Keynesian framework, as long as output is below the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to ________ production. A) negative; lower B) negative; raise C) positive; lower D) positive; raise

Q: If unplanned investment is negative, firms will ________ production and output will ________. A) cut; rise B) cut; fall C) increase; rise D) increase; fall

Q: If unplanned investment is positive, firms will ________ production and output will ________. A) cut; rise B) cut; fall C) increase; rise D) increase; fall

Q: Aggregate demand in an economy with no government or foreign trade is A) consumer expenditure plus actual investment. B) consumer expenditure plus planned investment. C) consumer expenditure plus inventory investment. D) consumer expenditure plus fixed investment.

Q: Planned investment spending is higher A) when real interest rate is higher. B) during financial frictions. C) when businesses are optimistic. D) all of the above. E) A and C.

Q: Factors that influenced planned investment spending include: A) real interest rates. B) financial frictions. C) emotional waves of optimism and pessimism. D) all of the above. E) A and C.

Q: Keynes mentioned two factors that influenced planned investment spending: A) interest rates and disposable income. B) interest rates and business expectations about the future. C) disposable income and business expectations about the future. D) interest rates and business expectations about inflation.

Q: A difference between inventory investment and fixed investment is that A) fixed investment is never unplanned. B) fixed investment is never planned. C) inventory investment is never unplanned. D) unplanned inventory investment is always zero.

Q: A fall in inventories is synonymous with ________ investment. A) negative fixed B) positive fixed C) positive inventory D) negative inventory

Q: There are two types of investment: ________ investmentthe spending by business firms on equipment and structures, and planned spending on residential housesand ________ investmentspending by business firms on additional holdings of raw materials, parts, and finished goods. A) planned; gross B) planned; inventory C) fixed; gross D) fixed; inventory

Q: Planned investment spending, a component of aggregate demand, is equal to A) fixed investment plus actual inventory investment. B) fixed investment plus unplanned inventory investment. C) fixed investment. D) fixed investment plus planned inventory investment.

Q: Economists define investment as the purchase of A) a new physical asset such as a new machine or a new house. B) any physical asset, whether new or not, used by business to increase production. C) any physical asset used by business to increase production and the repurchase of common stock. D) business spending on capital and household spending on durable goods.

Q: Everything else held constant, if consumption expenditure falls by 160 when disposable income falls by 200, the mpc is A) 0. B) 0.2. C) 0.4. D) 0.8.

Q: Everything else held constant, if disposable income increases by 200 and consumption expenditure increases by 150, the mpc is A) 0. B) 0.15. C) 0.5. D) 0.75.

Q: Everything else held constant, if consumption expenditure increases by 65 for a 100 increase in disposable income, the mpc is A) 0. B) 0.5. C) 0.65. D) 1.

Q: Everything else held constant, if total consumption increases from $600 to $800 because of an increase of disposable income of $400, then the mpc is equal to A) 0.2. B) 0.4. C) 0.5. D) 0.6.

Q: Assume that disposable income equals $1000 and the mpc equals 0.6. If total consumption equal $800, then autonomous consumption is equal to A) $0. B) $200. C) $800. D) $1000.

Q: Assume that autonomous consumption equals $200 and disposable income equals $1000. If total consumption equal $800, then the mpc equals A) 0.2. B) 0.6. C) 0.8. D) 1.0.

Q: Assume that autonomous consumption equals $200 and that the mpc equals 0.8. If disposable income equals $1000, then total consumption equals A) $80. B) $200. C) $800. D) $1000.

Q: In the Keynesian model of income determination, consumer expenditure includes spending by A) consumers on personal computers. B) businesses on personal computers. C) governments on personal computers. D) foreigners on domestic personal computers.

Q: Keynes reasoned that consumer expenditure is most closely related to A) the level of interest rates. B) the price level. C) disposable income. D) the marginal tax rate.

Q: Under Keynesian analysis, aggregate demand can be written as A) Yad = C + I + G + NX. B) Yad = C + I + G - NX. C) Yad = C - I - G - NX. D) Yad = C + I - G - NX.

Q: In the simple Keynesian model, equilibrium aggregate output is determined by A) aggregate demand. B) aggregate supply. C) the national demand for labor. D) the price level.

Q: Keynes was especially concerned with explaining the ________ level of output and employment during the ________. A) low; 1920s B) low; 1930s C) high; 1920s D) high; 1930s

Q: Keynes was especially concerned with explaining the A) recession of 1920-21. B) low levels of output and employment during the Great Depression. C) strong economic growth of the 1920s. D) high unemployment in Great Britain during the 1920s.

Q: Keynes was especially interested in explaining movements of ________ because he wanted to explain why the Great Depression had occurred and how government policy could be used to increase ________ in a similar economic situation. A) aggregate output; wages B) aggregate output; employment C) wage rates; wages D) wage rates; employment

Q: Keynes's motivation in developing the aggregate output determination model stemmed from his concern with explaining A) the hyperinflations of the 1920s. B) why the Great Depression occurred. C) the high unemployment in Great Britain before World War I. D) the high unemployment in Great Britain after World War II.

Q: His analysis started with the recognition that the total quantity demanded of an economy's output was the sum of four types of spending: consumer expenditure, planned investment spending, government spending, and net exports. A) John Maynard Keynes B) Sir John Hicks C) Milton Friedman D) Paul A. Samuelson

Q: 20.1 Planned Expenditure and Aggregate Demand

Q: Which of the following does not shift the IS curve? A) An increase in autonomous consumption. B) An increase in government spending. C) A decline in government spending. D) A fall in the interest rate.

Q: An appreciation of the U.S. dollar makes foreign goods cheaper relative to American goods, resulting in a ________ in net exports in the U.S. and a ________ shift of the IS curve in the U.S., everything else held constant. A) fall; leftward B) rise; leftward C) fall; rightward D) rise; rightward

Q: A depreciation of the U.S. dollar makes American goods cheaper relative to foreign goods, resulting in a ________ in net exports in the U.S. and a ________ shift of the IS curve in the U.S., everything else held constant. A) fall; leftward B) rise; leftward C) fall; rightward D) rise; rightward

Q: A shift in tastes toward foreign goods ________ net exports in the U.S. and causes the IS curve to shift to the ________ in the U.S., everything else held constant. A) decreases; right B) decreases; left C) increases; right D) increases; left

Q: A shift in tastes toward American goods ________ net exports in the U.S. and causes the IS curve to shift to the ________ in the U.S., everything else held constant. A) decreases; right B) decreases; left C) increases; right D) increases; left

Q: Everything else held constant, a shift in tastes in the U.S. towards American goods will ________ net exports in the U.S. and cause the quantity of aggregate output demanded to ________ in Mexico. A) decrease; rise B) decrease; fall C) increase; rise D) increase; fall

Q: A shift in tastes toward American goods ________ net exports in the U.S. and causes the quantity of aggregate output demanded to ________ in the U.S., everything else held constant. A) decreases; rise B) decreases; fall C) increases; rise D) increases; fall

Q: Everything else held constant, a shift in tastes in the U.S. toward Mexican goods will ________ net exports in the U.S. and cause the quantity of aggregate output demanded to ________ in Mexico. A) decrease; rise B) decrease; fall C) increase; rise D) increase; fall

Q: A shift in tastes toward foreign goods ________ net exports in the U.S. and causes the quantity of aggregate output demanded to ________ in the U.S., everything else held constant. A) decreases; rise B) decreases; fall C) increases; rise D) increases; fall

Q: An autonomous appreciation of the U.S. dollar makes American goods ________ expensive relative to foreign goods which ________ net exports in the U.S. A) less; decreases B) less; increases C) more; decreases D) more; increases

Q: An autonomous depreciation of the U.S. dollar makes American goods ________ relative to foreign goods and results in a ________ in U.S. net exports, everything else held constant. A) cheaper; decline B) cheaper; rise C) more expensive; decline D) more expensive; rise

Q: If young business professionals in America suddenly decide that driving German-made cars is an important status symbol, net exports will tend to ________ causing aggregate demand to ________, everything else held constant. A) fall; fall B) fall; rise C) rise; fall D) rise; rise

Q: If American college students decide that drinking Mexican-brewed beer helps one get noticed, net exports will tend to fall, causing aggregate demand to ________ and the ________ curve to shift to the left, everything else held constant. A) fall; LM B) fall; IS C) rise; LM D) rise; IS

Q: A tax cut ________ disposable income, ________ consumption expenditure, and shifts the IS curve to the ________, everything else held constant. A) increases; increases; right B) increases; decreases; right C) decreases; increases; left D) decreases; decreases; left

Q: A tax increase ________ disposable income, ________ consumption expenditure, and shifts the IS curve to the ________, everything else held constant. A) increases; increases; right B) increases; decreases; left C) decreases; increases; left D) decreases; decreases; left

Q: A decline in taxes ________ consumer expenditure and shifts the ________ curve to the ________, everything else held constant. A) raises; LM; right B) lowers; IS; left C) raises; IS; right D) lowers; LM; left

Q: The IS curve shifts to the left when A) taxes increase. B) government spending increases. C) the money supply increases. D) autonomous planned investment spending increases.

Q: A reduction in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant. A) rise; LM; right B) fall; IS; left C) fall; LM; left D) rise; IS; right

Q: An increase in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant. A) rise; LM; right B) rise; IS; right C) fall; IS; left D) fall; LM; left

Q: A decrease in autonomous planned investment spending, other things equal, shifts the ________ curve to the ________. A) IS; right B) IS; left C) LM; left D) LM; right

Q: In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant. A) rise; left B) rise; right C) fall; left D) fall; right

Q: In the Keynesian cross diagram, a decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant. A) rise; left B) rise; right C) fall; left D) fall; right

Q: In the Keynesian cross diagram, a decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to fall, and the IS curve to shift to the ________, everything else held constant. A) up; left B) up; right C) down; left D) down; right

Q: In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant. A) up; left B) up; right C) down; left D) down; right

Q: In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant. A) up; rise B) up; fall C) down; rise D) down; fall

Q: In the Keynesian cross diagram, a decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant. A) up; rise B) up; fall C) down; rise D) down; fall

Q: A decline in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant. A) rise; LM; right B) rise; IS; right C) fall; IS; left D) fall; LM; left

Q: A rise in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant. A) rise; LM; right B) rise; IS; right C) fall; IS; left D) fall; LM; left

Q: Everything else held constant, changes in the interest rate affect planned investment spending and hence the equilibrium level of output, but this change in investment spending A) merely causes a movement along the IS curve and not a shift. B) is crowded out by higher taxes. C) is crowded out by higher government spending. D) is crowded out by lower consumer expenditures.

Q: A decrease in autonomous consumer expenditure causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant. A) rise; LM; right B) rise; IS; right C) fall; IS; left D) fall; LM; left

Q: An increase in autonomous consumer expenditure causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant. A) rise; LM; right B) rise; IS; right C) fall; LM; left D) fall; IS; left

Q: In the Keynesian cross diagram, an increase in autonomous consumer expenditure causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant. A) rise; left B) rise; right C) fall; left D) fall; right

Q: In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant. A) rise; left B) rise; right C) fall; left D) fall; right

Q: In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to fall, and the IS curve to shift to the ________, everything else held constant. A) up; left B) up; right C) down; left D) down; right

Q: In the Keynesian cross diagram, an increase in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant. A) up; left B) up; right C) down; left D) down; right

Q: In the Keynesian cross diagram, an increase in autonomous consumer expenditure causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant. A) up; rise B) up; fall C) down; rise D) down; fall

Q: In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant. A) up; rise B) up; fall C) down; rise D) down; fall

Q: Other things equal, a decrease in autonomous consumption shifts the ________ curve to the ________. A) IS; right B) IS; left C) LM; left D) LM; right

Q: The Federal Reserve increases interest rates when it wants to reduce aggregate demand to fight inflation. How do increases in the interest rate reduce aggregate demand?

Q: Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess ________ of goods which will cause aggregate output to rise. A) right; supply B) right; demand C) left; supply D) left; demand

Q: Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess ________ of goods which will cause aggregate output to fall. A) right; supply B) right; demand C) left; supply D) left; demand