Chapter: Demand-Side Equilibrium: Unemployment or Inflation?
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1. In the figure below, at $2,000 billion real GDP,
a. spending exceeds total output and inventories will fall.
b. inventories are rising.
c. aggregate demand equals aggregate supply.
d. spending falls short of output and inventories will rise.
2. If the U.S. economy is experiencing falling price levels,
a. the expenditure schedule will shift downward.
b. the expenditure schedule will shift upward.
c. the slope of the expenditure schedule increases.
d. the slope of the expenditure schedule decreases.
3. Inventory reductions are a signal indicating that
a. the economy is close to disaster.
b. the Dow Jones Industrial Average will fall.
c. manufacturers need to increase production.
d. All of the above are true.
4. In a simple economy (no government), the vertical distance between the consumption function and the expenditure schedule measures
a. undesired inventory depletion.
b. desired inventory expenditures.
c. undesired investment.
d. unintended investment.
5. According to Baumol and Blinder, from the demand side a decrease in the price level causes aggregate expenditures to
a. fall, resulting in a lower level of equilibrium income.
b. fall, resulting in a higher level of equilibrium income.
c. rise, resulting in a higher level of equilibrium income.
d. rise, resulting in a lower level of equilibrium income.
6. When aggregate demand exceeds current production
a. both output and the price level are in equilibrium.
b. output is not in equilibrium, but the price level is.
c. prices are not in equilibrium, but output is.
d. neither output nor the price level is in equilibrium.
7. In the basic 45-degree line model, what is the effect of an increase in the price level?
a. There will be movement to the left on the expenditure line.
b. There will be movement to the right on the expenditure line.
c. The expenditure line will shift downward.
d. The expenditure line will shift upward.
8. In the figure below if the economy is in a recessionary gap, what must happen to reach potential GDP?
a. The expenditure level must fall and/or the price level must rise.
b. The expenditure level must rise and/or the price level must fall.
c. The expenditure level must rise and/or the price level must rise.
d. The expenditure level must fall and /or the price level must fall.
9. Why, in a modern market economy, might the economy fail to reach full employment automatically?
a. Investment, an injection, will necessarily increase spending and lead to inflation.
b. Saving, a leakage, will necessarily decrease spending and lead to recession.
c. Saving and investment will be automatically coordinated by the financial system
d. Savers and investors are different groups, and there decisions might not be coordinated.
10. Modern Keynesian macroeconomic theory sees the problem of recessions resulting from
a. political gridlock.
b. low interest rates.
c. budget deficits.
d. coordination failures.
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