Question 1

Suppose most European economies are in a  recession. How would you expect this to affect the European demand for American goods? What happens to net exports? Sketch a diagram that illustrates how this change in net exports affects real GDP in the United States.

Accepted Answer

The recession in Europe result...

Question 2

Suppose the consumption function equaled C = 2 + .7. If taxes and government purchases each decreased by $10 billion, the expenditure line would

Accepted Answer

A)   shift down by $20 billion.
B)   shift up by $7 billion.
C)   shift up by $20 billion.
D)   shift down by $3 billion.
E)   not change.F) B) and C)
G) A) and D)

Question 3

Proponents of real business cycle theories argue that economic fluctuations are a response to changes in

Accepted Answer

A)   money velocity.
B)   the money supply.
C)   potential GDP.
D)   real GDP.
E)   aggregate demand.F) A) and B)
G) B) and D)

Question 4

The economy's long-term growth trend for GDP is known as real GDP and is determined by the available supply of capital, labor, and technology.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements best describes what is meant by a spending balance?

Accepted Answer

A)   People's consumption is described by the consumption function.
B)   Consumption and spending are the same, and people's consumption is described by the consumption function.
C)   Income and output are the same.
D)   Consumption and income are the same, and people's consumption is described by the consumption function.
E)   Income and spending are the same, and people's consumption is described by the consumption function.F) B) and E)
G) A) and B)

Question 6

The slope of the expenditure line is

Accepted Answer

A)   greater than the slope of the 45-degree line.
B)   equal to 1.
C)   equal to the MPC.
D)   the same as the slope of the 45-degree line.
E)   equal to one-MPC.F) A) and D)
G) All of the above

Question 7

The study of economic fluctuations is

Accepted Answer

A)   more important than the study of long-run economic growth.
B)   not necessary to understanding economics.
C)   as important as the study of long-run economic growth.
D)   less important than the study of long-run economic growth.
E)   overrated, because economic fluctuations don't affect many people.F) A) and B)
G) C) and D)

Question 8

In normal times, when the economy is in neither a recession nor a boom, manufacturing capacity utilization is at 100 percent.

Accepted Answer

A) True 
 B)False

Question 9

Potential GDP represents what firms would want to produce in "normal times," when the economy is in neither a recession nor a boom.

Accepted Answer

A) True 
 B)False

Question 10

Over the period from 1982 to 2007, economic fluctuations

Accepted Answer

A)   have become more severe than in the past.
B)   have occurred more often than in the past.
C)   have not changed in severity when compared to past economic fluctuations.
D)   have become less severe than in the past.
E)   have occurred just as often as in the past.F) A) and B)
G) None of the above

Question 11

-	According to Exhibit 23-6, line abd shows the path of potential GDP. In Year 2, suppose the expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in Year 3, the economy is at point e, then

Accepted Answer

A)  	the expenditure line has shifted up the 45-degree line to a point where real GDP equals potential GDP in Year 3.
B)  	the expenditure line has shifted up the 45-degree line, but the level of income is less than the amount corresponding to real GDP.
C)  	the expenditure line has shifted down the 45-degree line.
D)  	the expenditure line has shifted up the 45-degree line more than it would have if real GDP equaled potential GDP in Year 3.
E)  	potential GDP has declined, and we've moved to a new point of spending balance.F) All of the above
G) A) and D)

Question 12

When spending equals income, people consume according to the consumption function.

Accepted Answer

A) True 
 B)False

Question 13

A recession in other countries has no effect on forecasted growth in this country.

Accepted Answer

A) True 
 B)False

Question 14

If capacity utilization is 95 percent,

Accepted Answer

A)   the unemployment rate will be below the natural rate of unemployment.
B)   the unemployment rate will equal the natural unemployment rate.
C)   real GDP equals potential GDP.
D)   workers will be laid off.
E)   real GDP is below potential GDP.F) A) and B)
G) A) and C)

Question 15

In the 1970s, Keynes's theory was criticized because it

Accepted Answer

A)   did not discuss the role of aggregate demand.
B)   ignored fiscal policy.
C)   overly stressed a laissez-faire economy.
D)   did not deal with inflation.
E)   was too preoccupied with economic growth.F) A) and B)
G) A) and E)

Question 16

Real GDP and real disposable income behave in similar ways.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the economy is booming and many firms begin to experience an increase in the demand for their goods and services. 
(A)Suppose the firms do not know whether the change is temporary or permanent. How will they adjust price and output?
(B)Suppose the firms determine that the change is permanent. How will they adjust price and output?
(C)Explain the relationship between imperfect information and economic fluctuations based on your answers to (A) and (B) above.

Accepted Answer

(A)They will increase output first and d...

Question 18

What is meant by a conditional forecast, and what is it used for?

Accepted Answer

A conditional forecast is used to predic...

Question 19

The expenditure line

Accepted Answer

A)   is steeper than the 45-degree line.
B)   slopes upward because consumption depends positively on income.
C)   slopes upward because the MPC is less than 1.
D)   slopes upward because consumption and investment depend positively on income.
E)   shows the relationship between consumption spending and income.F) A) and E)
G) A) and D)

Question 20

If the marginal propensity to consume declines, then

Accepted Answer

A)   for any given change in income, there will be a smaller change in saving.
B)   nothing will happen to the consumption function.
C)   for any given change in income, there will be a larger change in consumption.
D)   for any given change in consumption, there will be a smaller change in income.
E)   for any given change in income, there will be a smaller change in consumption.F) B) and D)
G) None of the above

Exam 11: The Nature and Causes of Economic Fluctuations

The economy's long-term growth trend for GDP is known as real GDP and is determined by the available supply of capital, labor, and technology.

Correct Answer
verified

Suppose most European economies are in a recession. How would you expect this to affect the European demand for American goods? What happens to net exports? Sketch a diagram that illustrates how this change in net exports affects real GDP in the United States.

Correct Answer
verified
The recession in Europe result...
View Answer

In the 1970s, Keynes's theory was criticized because it

Correct Answer
verified

A recession in other countries has no effect on forecasted growth in this country.

Correct Answer
verified

If capacity utilization is 95 percent,

Correct Answer
verified

If the marginal propensity to consume declines, then

Correct Answer
verified

When spending equals income, people consume according to the consumption function.

Correct Answer
verified

Correct Answer
verified
(A)They will increase output first and d...
View Answer

Proponents of real business cycle theories argue that economic fluctuations are a response to changes in

Correct Answer
verified

Which of the following statements best describes what is meant by a spending balance?

Correct Answer
verified

Real GDP and real disposable income behave in similar ways.

Correct Answer
verified

The expenditure line

Correct Answer
verified

Potential GDP represents what firms would want to produce in "normal times," when the economy is in neither a recession nor a boom.

Correct Answer
verified

In normal times, when the economy is in neither a recession nor a boom, manufacturing capacity utilization is at 100 percent.

Correct Answer
verified

The slope of the expenditure line is

Correct Answer
verified

Suppose the consumption function equaled C = 2 + .7. If taxes and government purchases each decreased by $10 billion, the expenditure line would

Correct Answer
verified

What is meant by a conditional forecast, and what is it used for?

Correct Answer
verified
A conditional forecast is used to predic...
View Answer

Over the period from 1982 to 2007, economic fluctuations

Correct Answer
verified

- According to Exhibit 23-6, line abd shows the path of potential GDP. In Year 2, suppose the expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in Year 3, the economy is at point e, then

Correct Answer
verified

The study of economic fluctuations is

Correct Answer
verified

Exam 11: The Nature and Causes of Economic Fluctuations

The economy's long-term growth trend for GDP is known as real GDP and is determined by the available supply of capital, labor, and technology.

Correct AnswerverifiedShow Answer

Suppose most European economies are in a recession. How would you expect this to affect the European demand for American goods? What happens to net exports? Sketch a diagram that illustrates how this change in net exports affects real GDP in the United States.

Correct AnswerverifiedThe recession in Europe result...View AnswerShow Answer

In the 1970s, Keynes's theory was criticized because it

Correct AnswerverifiedShow Answer

A recession in other countries has no effect on forecasted growth in this country.

Correct AnswerverifiedShow Answer

If capacity utilization is 95 percent,

Correct AnswerverifiedShow Answer

If the marginal propensity to consume declines, then

Correct AnswerverifiedShow Answer

When spending equals income, people consume according to the consumption function.

Correct AnswerverifiedShow Answer

Correct Answerverified(A)They will increase output first and d...View AnswerShow Answer

Proponents of real business cycle theories argue that economic fluctuations are a response to changes in

Correct AnswerverifiedShow Answer

Which of the following statements best describes what is meant by a spending balance?

Correct AnswerverifiedShow Answer

Real GDP and real disposable income behave in similar ways.

Correct AnswerverifiedShow Answer

The expenditure line

Correct AnswerverifiedShow Answer

Potential GDP represents what firms would want to produce in "normal times," when the economy is in neither a recession nor a boom.

Correct AnswerverifiedShow Answer

In normal times, when the economy is in neither a recession nor a boom, manufacturing capacity utilization is at 100 percent.

Correct AnswerverifiedShow Answer

The slope of the expenditure line is

Correct AnswerverifiedShow Answer

Suppose the consumption function equaled C = 2 + .7. If taxes and government purchases each decreased by $10 billion, the expenditure line would

Correct AnswerverifiedShow Answer

What is meant by a conditional forecast, and what is it used for?

Correct AnswerverifiedA conditional forecast is used to predic...View AnswerShow Answer

Over the period from 1982 to 2007, economic fluctuations

Correct AnswerverifiedShow Answer

- According to Exhibit 23-6, line abd shows the path of potential GDP. In Year 2, suppose the expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in Year 3, the economy is at point e, then

Correct AnswerverifiedShow Answer

The study of economic fluctuations is

Correct AnswerverifiedShow Answer

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verified

Correct Answer
verified
The recession in Europe result...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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(A)They will increase output first and d...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A conditional forecast is used to predic...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified