ECON 232 Chapter 10 Study Quiz
 
 
 
 
1. Suppose that the level of GDP increased by $100 billion in an economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by:
A. $100 billion.
B. $50 billion.
C. $500 billion.
D. $5 billion.

 
2. If the marginal propensity to consume in an economy is 0.8, net exports are zero, and government spending is $33 billion at each level of real GDP, the slope of the economy's aggregate expenditures schedule will be:
A. .8.
B. .2.
C. 5.
D. .125.

 
3. If APC = .6 and MPC = .7, the immediate impact of an increase in personal taxes of $20 will be to:
A. have no effect on consumption.
B. decrease consumption by $14.
C. decrease consumption by $12.
D. increase consumption by $14.

 
4. In the last half of the 1990s, Japan's economy experienced:
A. a recessionary gap.
B. an investment boom.
C. an inflationary gap.
D. rapid inflation.

 
5. (Advanced analysis) Assume the saving schedule for a private closed economy is S = -20 + 0.2Y , where S is saving and Y is gross domestic product. The multiplier for this economy:
A. is 3.
B. is 4.
C. is 5.
D. cannot be determined from the information given.

 
6. If the United States wants to increase its net exports, it might take steps to:
A. increase its GDP.
B. reduce existing tariffs and import quotas.
C. decrease the dollar price of foreign currencies.
D. increase the dollar price of foreign currencies.

 
7.
(Advanced analysis) Answer the next question(s) on the basis of the following information for a private open economy. The letters Y , C, Ig, X , and M stand for GDP, consumption, gross investment, exports, and imports respectively. Figures are in billions of dollars.

C = 26 + .75Y
Ig = 60
X = 24
M = 10
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The equilibrium level of GDP for the above open economy is:
A. $390.
B. $375.
C. $320.
D. $400.


 
8. If government increases lump-sum taxes by $20 billion and the economy's MPC is .6, then the:
A. consumption schedule will shift upward by $12 billion.
B. consumption schedule will shift downward by $12 billion.
C. equilibrium GDP will increase by $40 billion.
D. equilibrium GDP will decrease by $40 billion.

 
9.
The following information is for a closed economy:

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Refer to the above information. The introduction of $80 billion of government spending has:
A. lowered the multiplier from 2.5 to 2.0.
B. increased the multiplier from 2.5 to 3.0.
C. increased the multiplier from 2.0 to 2.5.
D. had no effect on the size of the multiplier.


 
10.
Answer the next question(s) on the basis of the following table:

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Refer to the above table. If an additional lump-sum tax of $20 were imposed, we would expect:
A. equilibrium GDP to fall by $30.
B. equilibrium GDP to fall by $20.
C. equilibrium GDP to fall by $50.
D. equilibrium GDP to rise by $24.


 
11. Viewed through the aggregate expenditures model, Japan's recession in the late 1990s resulted mainly from:
A. a fall in the average propensity to save.
B. insufficient (planned) investment relative to saving.
C. reduced government spending.
D. increased taxes.

 
12. Suppose that unintended increases in inventories are occurring in a mixed closed economy. We can surmise that:
A. Ig + T > Sa + G.
B. T + G > Sa + Ig.
C. T + Sa > Ig + G.
D. T + Sa < Ig + G.

 
13. If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause:
A. a rightward shift in the investment-demand schedule.
B. an $8 billion downshift in the consumption schedule.
C. a $4 billion upshift in the consumption schedule.
D. a $12 billion downshift in the consumption schedule.

 
14. If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to:
A. increase by $30 billion.
B. increase by $45 billion.
C. decrease by $35 billion.
D. increase by $50 billion.

 
15. Suppose that a mixed open economy is producing at its equilibrium level of income and that net exports are zero. If at the equilibrium income level the public sector's budget shows a surplus:
A. Ca + Ig + Xn + G must exceed GDP.
B. planned investment must exceed saving.
C. a recessionary gap must exist.
D. saving must exceed planned investment.

 
16. (Advanced analysis) Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y , where C is consumption and Y is gross domestic product. The multiplier for this economy:
A. is 3.
B. is 4.
C. is 5.
D. cannot be determined from the information given.

 
17. ln moving from a private closed to a mixed closed economy in the aggregate expenditures model, taxes:
A. must be added to gross investment.
B. must be added to saving.
C. must be added to consumption and gross investment.
D. have no impact upon the equilibrium GDP.

 
18.
(Advanced analysis) Answer the next question(s) on the basis of the following information for a private open economy:

C = 40 + .8Y
_
Ig = Ig = 40
_
X = X = 20
_
M = M = 30
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Refer to the above information. In equilibrium the level of saving is:
A. $20.
B. $30.
C. $40.
D. $50.


 
19.
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Refer to the above diagram for a private closed economy. The multiplier is:
A. GF/DE.
B. GF/GB.
C. FE/GF.
D. AB/GF.


 
20.
The following schedule contains data for a private closed economy. All figures are in billions. Use these data in answering the next question(s).

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Refer to the above data. If a lump-sum tax of $20 is imposed, the consumption schedule will become:

Answer:


 
21.

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Refer to the above table. If the full-employment real GDP in the economy shown is $100 the:
A. inflationary gap is $30.
B. inflationary gap is $10.
C. recessionary gap is $20.
D. recessionary gap is $10.


 
22.

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Refer to the above table. The economy shown is a:
A. private economy.
B. private open economy.
C. mixed closed economy.
D. mixed open economy.


 
23.

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Refer to the above table. In the economy shown, an increase in net exports of $10 would:
A. increase real GDP by $10.
B. increase real GDP by $30.
C. decrease real GDP by $10.
D. decrease real GDP by $30.


 
24. The multiplier is:
A. 1/MPC.
B. 1/(1 + MPC).
C. 1/MPS.
D. 1/(1 - MPS).

 
25. Exports are added to, and imports are subtracted from, aggregate expenditures in moving from a closed to an open economy.
A. True
B. False

 
26.
Answer the next question(s) on the basis of the following table that illustrates the multiplier process in a private closed economy:

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Refer to the above table. The multiplier in this economy is:
A. 2.
B. 4.
C. 5.
D. 10.


 
27.
Answer the next question(s) on the basis of the following information for a private closed economy:

R-9 REF10049

Refer to the above information. In this economy a 3 percentage point decrease in the interest rate will:
A. increase equilibrium GDP by $200.
B. increase equilibrium GDP by $50.
C. increase equilibrium GDP by $100.
D. decrease equilibrium GDP by $50.


 
28.
R-10 F10077

Refer to the above diagram. If net exports are Xn2, the GDP in the open economy will exceed GDP in the closed economy by:
A. AB.
B. AD.
C. FG.
D. BD.


 
29. When the level of domestic output is $500 billion, the level of aggregate expenditures:
A. may be greater than, less than, or equal to $500 billion.
B. must be greater than $500 billion, because investment will occur.
C. must be less than $500 billion, because saving will occur.
D. must also be $500 billion.

 
30. If net exports decline from zero to some negative amount, the aggregate expenditures schedule would:
A. shift upward.
B. shift downward.
C. not move (net exports do not affect aggregate expenditures).
D. become steeper.

 

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