A durable good has a relatively short lifespan, approximately a few years or less.
True
False

Label each as either an injection or leakage.
Consumer savings
Exports
Business Investment
Taxes
Imports
Government expenditures

In general, government expenditures exhibit much less volatility than investment -- although episodic events such as wars and natural disasters can lead to huge fluctuations.
True
False

When a nation is said to export more than it imports, it is running a ________. In contrast, if a country imports more than it exports, it is entering a _________.
Trade deficit; trade surplus
Budget deficit; budget surplus
Budget surplus; budget deficit
Trade surplus; trade deficit

The two economists that wrote the primary macroeconomic textbooks of the 20th century were
Adam Smith and John Maynard Keynes
Alvin Hansen and Paul Samuelson
David Ricardo and Jean-Baptiste Say
Robert Solow and Thomas Malthus

In the investment function in the Keynesian model, expenditures:
Are independent of income
Fall with income
Rise with income

The Keynesian model is also referred to as
1. The multiplier model
2. The aggregate production, aggregate expenditures model
Both 1 and 2

The government uses contractionary fiscal policy to rein in inflation. Which action can the government take to slow an over-heated economy?
Increase taxes or decrease government spending
Decrease taxes or increase government spending
Decrease both taxes and government spending
Increase taxes and government spending

What is induced consumption dependent on?
The marginal propensity to consume
The marginal propensity to save
Disposable income
Autonomous consumption

What is the slope of the consumption function?
1. MPC
2. 1 â€“ MPS
3. MPS
All three
1 & 2 only

The aggregate expenditures curve is ______ sloping and is calculated by combining the four elements of the GDP growth formula: ________, ________, ________, and _________.
Upward; Consumption, Investment, Government Expenditures, Net Exports
Downward; Consumption, Investment, Government Expenditures, Net Exports
Upward; Price level, Real output, Aggregate demand, Aggregate supply
Downward; Inflation, Imports, Exports, Stock prices

The amount of money left after paying taxes to the government is referred to as:
Disposable income
Disposable consumption
Induced consumption

What happens when economists misinterpret changes within the various leading economic indicators, such as consumer confidence or trade reports?
Excess inventory may build up
Firms may be unable to meet the demand for their goods
The unemployment rate will increase
The economy will slow down
All of the above

Monetary policy relies on what two key tools to stimulate or control an over-heated economy?
1. Interest rates
2. Taxes
3. Money supply
4. Government spending
2 and 3 only
1 and 3 only

All tools are used by the Federal Reserve
In a bearish economy
Business executives increase their level of investment, taking advantage of the low interest rates
Firms attempt to decrease their inventory levels
The unemployment rate reaches double digits, often near 13%
Consumer spending on interest sensitive goods rises

Suppose the U.S. permanently decreases defense spending by $100 billion after troops pull out of Afghanistan. How much will GDP be reduced assuming an MPC of 0.75?
$100 billion
$200 billion
$300 billion
$400 billion
$500 billion

Calculate the Keynesian multiplier when given a marginal propensity to consume of 0.66. (Round to the nearest tenth)
3
4
5
6

How much would the government need to cut taxes in order to close a recessionary gap of $400 million given a marginal propensity to consume of 0.8?
55 million
75 million
80 million
100 million

When private investment falls due to an increase in government spending, _________ occurs.
A rise in the interest rate
A recession
Crowding out
Inflation

Which of these components of the aggregate expenditure function is not represented by a horizontal line?
Consumption function
Government function
Investment function

â€œAnimals spiritsâ€ in the Keynesian model is important because:
1. If businesses are bearishly pessimistic on the economy, they will cut back on investment
2. If businesses are bullishly optimistic on the economy, they will increase investment
3. If businesses believe the economy will go bad, it could become a self-fulfilling prophecy
All three
1 & 2 only

If the economy enters a recession, automatic stabilizers will naturally adjust and provide additional funding for _________. This includes unemployment compensation for those lacking stable and secure work.
Discretionary expenditures
Pension funds
Non-discretionary expenditures
Energy effecient production processes

Why is the aggregate expenditures curve flatter than the aggregate production curve?
Because MPC is greater than one
Both curves are parallel to each other
Because the MPC is less than one
Because money is re-spent over and over again

A leakage is defined as _______. An example being ______.
Addition of income to the circular flow; Savings
Income not directly spent on domestic output; Investment
Income not directly spent on domestic output; Savings
Addition of income to the circular flow; Investment

A durable good has a relatively short lifespan, approximately a few...