Problem 1
True or False: The aggregate expenditures model assumes flexible prices.
Problem 2
If total spending is just sufficient to purchase an economy's output, then the economy is: a. In equilibrium. b. In recession. c. In debt. d. In expansion.
Problem 3
True or False: If spending exceeds output, real GDP will decline as firms cut back on production.
Problem 4
If inventories unexpectedly rise, then production __________ sales and firms will respond by _________ output. a. Trails; expanding. b. Trails; reducing. c. Exceeds; expanding. d. Exceeds; reducing.
Problem 5
If the multiplier is 5 and investment increases by \(\$ 3\) billion, equilibrium real GDP will increase by: a. \(\$ 2\) billion. b. \(\$3\) billion. c. \(\$8\) billion. d. \(\$15\) billion. e. None of the above.
Problem 7
Explain graphically the determination of equilibrium GDP for a private economy through the aggregate expenditures model. Now add government purchases (any amount you choose) to your graph, showing its impact on equilibrium GDP. Finally, add taxation (any amount of lump-sum tax that you choose) to your graph and show its effect on equilibrium GDP. Looking at your graph, determine whether equilibrium GDP has increased, decreased, or stayed the same given the sizes of the government purchases and taxes that you selected.
Problem 8
The economy's current level of equilibrium GDP is \(\$ 780\) billion. The full employment level of GDP is \(\$ 800\) billion. The multiplier is \(4 .\) Given those facts, we know that the economy faces_________expenditure gap of _________. a. An inflationary; \(\$ 5\) billion. b. An inflationary; \(\$ 10\) billion. c. An inflationary; \(\$ 20\) billion. d. A recessionary; \(\$ 5\) billion. e. A recessionary; \(\$ 10\) billion. f. A recessionary; \(\$ 20\) billion.
Problem 9
If an economy has an inflationary expenditure gap, the government could attempt to bring the economy back toward the fullemployment level of GDP by _________ taxes or ________ government expenditures. a. Increasing; increasing. b. Increasing; decreasing. c. Decreasing; increasing. d. Decreasing; decreasing.
