22. \"The extent to which the economy slows depends, in part, on inventories. Bu

Question

22. "The extent to which the economy slows depends, in part, on inventories. Businesses added $10.8
billion to their stockpiles in the fourth quarter. It's unclear whether that buildup was voluntary
(planned) or involuntary (unplanned)." If the buildup was involuntary we can expect
A. higher prices B. layoffs C. increased output
D. higher employment E. Inventories must fall in the near future in order to get back to equilibrium

Use the following table to answer questions 23 - 24:
Table 1. For each level of output are shown the resulting levels of the elements of aggregate demand.
Output Consumption Investment Government Spending Net Exports Tax Receipts
100 90 20 25 5 15
140 120 20 25 5 15
180 150 20 25 5 15
240 180 20 25 5 15
280 210 20 25 5 15
320 240 20 25 5 15

23. Based on this table, what is measured (i.e., planned and unplanned) investment spending by firms
when output is 140?
A. 50 B. - 30 C. 10 D. -10 E. None of these.

24. Suppose, starting at a Keynesian Equilibrium, we increase Government Spending by 80 units. How
much will dispose income change after the first 2 rounds of the multiplier process?
A. 125 units B. 110 units
C. 140 units D. It would not change. We are at full employment at a Keynesian Equilibrium.

25. Suppose, starting at a Keynesian Equilibrium, we increase Government Spending by 80 units. How
much will saving change after the first 2 rounds of the multiplier process?
A. 80 units B. 35 units C. 15 units D. 25 units E. 0

26. "Some claim that the fact that both deficits and unemployment have increased together since 1979
proves that fiscal stimulus doesn't work. It's true that our jobless rate rose from 1979 to 1984 while the
federal deficit doubled as a percentage of GDP. But the inference about the ineffectiveness of fiscal
stimulus is nevertheless wrong, because ......" Complete the argument about to be developed here
A. the deficits were caused by the recession
B. the government has been using policy to combat inflation
C. the unemployment was due to decreases in the P-rate
D. the unemployment was due to a fall in NRU (natural rate of unemployment)

27. "What cannot be done, various reformers in the U.S. notwithstanding, is to impose on any
government the obligation to balance its budget annually. Consider the consequences. If it did work, it
would introduce a major destabilizing element." Requiring a balanced budget would be destabilizing
because a movement towards recession would
A. increase unemployment, prompting a decrease in tax rates or an increase in government spending, both of
which would create inflation
B. increase unemployment, prompting an increase in tax rates or a decrease in government spending, both of
which would create inflation
C. decrease tax receipts causing a budget surplus, requiring an increase in government spending or a decrease in
tax rates, both of which would make the recession worse
D. decrease tax receipts causing a budget deficit, requiring an increase in tax rates or a decrease in government
spending both of which would make the recession worse

28. "The U.S. Department of Commerce has estimated that if U.S. manufacturers use metric measures,
their increased ability to compete on world markets should increase exports by about $600 million and
thus benefit the U.S. economy by between $1.2 billion and $1.8 billion." These numbers suggest that
A. the multiplier is between 2 and 3
B. imports should increase by between $1.2 and $1.8 billion
C. exports are unlike other kinds of spending in terms of their multiplier impact
D. it takes between $1.2 and $1.8 billion increase in income to generate a $600 million increase in exports

29. Suppose the multiplier is 3, the marginal tax rate is 20%, and the marginal propensity to consume out of
disposable income is 0.8. If government spending increases by $10b, then national saving
A. decreases by $1b or less B. increases by $1b or less
C. increases by more than $1b but not more than $2b D. increases by more than $2b


30. Suppose national saving is $150b, the government deficit is $30b and gross investment is $175b.
Foreign financing is
A. $20b or less B. more than $20b but not more than $30b
C. more than $30b but not more than $50b D. more than $50b

Explanation / Answer

A C A B B D A D A

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