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Econ 4020 Dr. Alston Quiz #2 Gordon, Chap. 3 Spring, 2006
1) In equilibrium, with exports equal to imports it must be the case that
A) leakages equal injections.
B) saving plus taxes equal government expenditures plus investment.
C) total expenditures equal GDP.
D) All of these.
Figure 3-2
2) Employing the information in Figure 3-2, when real disposable income is 1000, savings from
households would be ____________ and the marginal propensity to save would be
____________.
A) 300; .1
B) 100; .2
C) 100; .1
D) 500; .2
3) When an economy is not in equilibrium
A) planned expenditures exceed production and income.
B) there is no savings nor investment.
C) government tax revenues equal planned government expenditures.
D) production and income equal planned expenditures.
41
4) If the MPS is .1 and the income tax rate is .33 and nx = 0, the multiplier, k, is approximately
A) 2.5.
B) 2.0.
C) 10.
D) 3.
5) Income on the horizontal axis at which the vertical distance to the 45-degree line is greater
than the vertical distance to the Ep line gives rise to ______-than-equal planned expenditures,
and so we must be _______ the equilibrium level of income.
A) less, below
B) less, above
C) greater, below
D) greater, above
Figure 3-4
6) In Figure 3-4, the shift from AP0 to AP1 could have been caused by a _____ in T of ______.
A) fall, 300
B) fall, 180
C) fall, 500
D) rise, 300
E) rise, 500
42
Figure 3-5
7) In figure 3-5, the saving function is
A) 100 + 0.8(Y-T)
B) -100 + 0.05(Y-T).
C) 0.2Y - 100.
D) 100 + Y - T.
Figure 3-6
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8) In figure 3-6, at point J
A) there is unintended inventory investment.
B) there is unintended inventory disinvestment (i.e., negative unintended inventory
investment).
C) there is no change in inventory levels.
D) intended and unintended inventory investment are equal.
Figure 3-7
9) In figure 3-7, if the natural real GDP is $2500, AP= $250, and the change in Ca = change in I
= change in NX = 0, then the natural real GDP could be attained with a
A) $250 decrease in T.
B) $250 increase in G.
C) $1250 increase in G.
D) $500 decrease in T.
10) A change in the multiplier (k) will change the
A) slope of the IS curve.
B) slope and the position of the IS curve.
C) slope of the balance budget curve.
D) position of the rate of return line.
44
Figure 3-4
11) In figure 3-4, if the interest rate falls from 10% to 7.5% and this causes businesses to
become more optimistic about future investment conditions, we would observe that planned
investment would
A) decrease from B to C to D.
B) increase from B to C to D.
C) increase from B to C to F.
D) decrease from B to C to F.
12) Since business firms will undertake a project whose rate of return exceeds the present level
of interest rates, when interest rates
A) rise planned investment rises, ceteris paribus.
B) fall planned investment falls, ceteris paribus.
C) rise planned investment does not change.
D) rise planned investment falls, ceteris paribus.
13) If business firms are more optimistic during the expansion phase of the business cycle, they
A) raise their expected rates of return on projects and investment increases.
B) lower their expected rates of return on projects and investment increases.
C) raise their expected rates of return on projects and investment decreases.
D) lower their prices and increase investment.
45
Figure 4-4
14) In figure 4-4, if the interest rate falls from 10% to 7.5% and this causes businesses to
become more optimistic about future investment conditions, we would observe that planned
investment would
A) decrease from B to C to D.
B) increase from B to C to D.
C) increase from B to C to F.
D) decrease from B to C to F.
15) Since business firms will undertake a project whose rate of return exceeds the present level
of interest rates, when interest rates
A) rise planned investment rises, ceteris paribus.
B) fall planned investment falls, ceteris paribus.
C) rise planned investment does not change.
D) rise planned investment falls, ceteris paribus.
16) The IS curve would be vertical if
A) the government's budget was balanced.
B) autonomous expenditures were insensitive to the interest rate.
C) the demand for money was insensitive to the interest rate.
D) the government increased the money supply.
17) The IS curve represents
A) investment and saving when the commodity markets are in disequilibrium.
B) equilibrium in the commodity markets for every combination of interest rates and
output level.
C) the determination of the level of interest rate.
D) the determination of the level of income and output.
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18) In constructing the planned autonomous demand schedule, which two components are
assumed to depend on the interest rate?
A) government expenditures and net exports
B) government expenditures and net taxes
C) autonomous consumption and autonomous planned investment
D) autonomous consumption and net exports
E) government expenditure and autonomous planned investment
19) If government spending is increased,
A) we move upward along an unchanged Ap demand line.
B) we move downward along an unchanged Ap demand line.
C) the Ap line shifts to the right.
D) the Ap line shifts to the left.
20) With a rise in the interest rate,
A) we move upward along an unchanged Ap demand line.
B) we move downward along an unchanged Ap demand line.
C) the Ap line shifts to the right.
D) the Ap line shifts to the left.
21) Should net exports fall,
A) we move upward along an unchanged Ap demand line.
B) we move downward along an unchanged Ap demand line.
C) the Ap line shifts to the right.
D) the Ap line shifts to the left.
22) The IS curve plots for each level of income the _____ that causes income to equal _______.
A) interest rate, planned expenditures
B) interest rate, planned autonomous spending
C) planned autonomous spending, planned expenditures
D) planned autonomous spending, planned autonomous spending
23) At every point on the IS curve, the level of income on the horizontal axis equals
A) planned autonomous spending.
B) planned autonomous spending times the multiplier.
C) planned autonomous spending divided by the multiplier.
D) planned expenditures times the multiplier.
24) A lower interest rate _____ Ap and thus causes _______ the IS curve.
A) raises, movement downward along
B) lowers, movement upward along
C) raises, a parallel rightward shift of
D) lowers, a parallel leftward shift of
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25) An increase in the marginal propensity to consume would cause the IS curve to
A) make a parallel shift to the right.
B) make a parallel shift to the left.
C) rotate to become steeper from its vertical intercept.
D) rotate to become flatter from its vertical intercept.
E) rotate to become flatter from its horizontal intercept.
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