Multiple Choice (2 points each) Identify the choice that best completes the stat
ID: 1186849 • Letter: M
Question
Multiple Choice (2 points each)
Identify the choice that best completes the statement or answers the question.
____ 16. Government purchases, under the expenditure approach to GDP accounting, do not include:
a.
state government purchases of plumbing services.
b.
Social Security benefit payments to retirees.
c.
the salaries of military officers.
d.
federal government purchases of computers.
____ 17. GDP equals $8 trillion. If consumption equals $5.5 trillion, investment equals $500 billion, and government spending equals $1.5 trillion, then:
a.
exports exceed imports by $500 billion.
b.
imports exceed exports by $500 billion.
c.
net exports equal zero.
d.
exports exceed imports by $1 trillion.
e.
imports exceed exports by $1 trillion.
____ 18. If some non-price level determinant causes total spending to increase, then the effect on aggregate demand will be a:
a.
movement upward along the curve.
b.
movement downward along the curve.
c.
shift to the left.
d.
shift to the right.
____ 19. An increase in the U.S. price level will:
a.
increase U.S. exports.
b.
increase U.S. imports.
c.
increase RGDP demanded in the United States.
d.
both a. and c.
e.
both b. and c.
____ 20. If both imports and exports rose,
a.
AD would fall.
b.
AD would rise.
c.
AD would be unaffected.
d.
AD would rise if exports rose more than imports.
e.
AD would fall if exports rose more than imports.
____ 21. Short-run aggregate supply:
a.
is a fixed volume of output.
b.
reflects how much RGDP suppliers are willing and able to produce at different price levels.
c.
shifts only when the LRAS shifts.
d.
is not affected at all by the price level.
e.
Both a. and d. characterize short-run aggregate supply.
____ 22. When the price of cotton has risen 12 percent, the misperception effect could lead cotton producers to increase their output when they otherwise would not, if overall prices:
a.
have been stable
b.
have risen 4 percent.
c.
have risen 12 percent.
d.
have risen 20 percent.
e.
have risen either 12 percent or 20 percent.
____ 23. For an economy in equilibrium, the Keynesian model suggests that the plot of aggregate expenditure against RGDP:
a.
is a vertical line.
b.
has slope lesser than 1.
c.
has slope equal to 1.
d.
is a horizontal line.
____ 24. Which of the following observations concerning the Keynesian model is not true?
a.
It is helpful in explaining the events that unfolded in the 1930s.
b.
It is less useful in explaining today's economy.
c.
It explains the stagflation of the 1970s.
d.
It does not incorporate possible shifts in the aggregate supply curve.
____ 25. If autonomous expenditures increased by $10 billion, what is the change in aggregate demand at a given price level if the MPC to consume is 0.8?
a.
increase by $50 billion
b.
increase by $100 billion
c.
decrease by $100 billion
d.
decrease by $10 billion
e.
No change in aggregate demand
____ 26. If investment decreases by $20 billion and the MPC = 0.8, the resulting decrease in the consumption component of AD is:
a.
$16 billion.
b.
$4 billion.
c.
$100 billion.
d.
$80 billion.
____ 27. If the marginal propensity to consume is 0.8, the marginal propensity to save is:
a.
0.8
b.
0.4
c.
0.2
d.
0.3
e.
Data insufficient
____ 28. If government policy makers were worried about the inflationary potential of the economy, which of the following would not be a correct fiscal policy change?
a.
Increase consumption taxes.
b.
Increase government purchases of goods and services.
c.
Reduce transfer payments.
d.
Increase the budget deficit.
____ 29. A decrease in government purchases or an increase in taxes, other things being equal, will tend to:
a.
increase interest rates and decrease investment as a result.
b.
increase interest rates and increase investment as a result.
c.
decrease interest rates and decrease investment as a result.
d.
decrease interest rates and increase investment as a result.
____ 30. The primary benefit of the automatic stabilizers is:
a.
they provide public assistance through legislative decision making.
b.
they require no new legislative action, so there is no legislative lag before these tools respond to fluctuations in the business cycle.
c.
they require legislative action, so there is a lag in response to these tools to fluctuations in the business cycle, and there is time to identify the spillover effects.
d.
none of the above.
____ 31. Which of the following is true about time lags and fiscal policy?
a.
Changes in federal taxes can be implemented easily by the President without the approval of Congress.
b.
Changes in fiscal policy that involves changes in government spending on public works projects do not involve significant time lags.
c.
Once an appropriate fiscal policy has been determined it can be implemented quickly.
d.
The lag time between when a fiscal policy is needed and when it is actually implemented is considerable.
e.
None of the above.
a.
state government purchases of plumbing services.
b.
Social Security benefit payments to retirees.
c.
the salaries of military officers.
d.
federal government purchases of computers.
Explanation / Answer
First 4 questions are answered below.
16.
Correct option: (A)
Reason: Government purchases only takes into account purchase expenditure by Federal government
17.
Correct option: (A)
Reason:
Y = C+I+G+NX
8 = 5.5+0.5+1.5+NX
NX = 0.5 trillion or $500 billion
18.
Correct option: (D)
Reason: A non-price determinant shifts AD curve to right if spending increases
19.
Correct option: (B)
Reason: As domestic prices increase, people will substitute domestic goods with foreign goods, thereby increasing imports.
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