Principle of Macroeconomics
Dept. of Economics
Prof. M. El-Sakka
College of Business Administration
Quiz # 4 VERSION B
1. In the aggregate expenditures model, technological progress will shift the investment
schedule:
A. downward and increase aggregate expenditures.
B. downward and decrease aggregate expenditures.
C. upward and increase aggregate expenditures.
D. upward and decrease aggregate expenditures.
Answer: C
2. Exports have the same effect on the current size of GDP as:
A. imports.
B. investment.
C. taxes.
D. saving.
Answer: B
3. If net exports are positive:
A. the equilibrium GDP must be greater than the full-employment GDP.
B. imports must exceed exports.
C. aggregate expenditures are greater at each level of GDP than when net exports are zero or
negative.
D. some other component of aggregate expenditures must be negative.
Answer: C
4. Assume the MPC is .8. If government were to impose $50 billion of new taxes on
household income, consumption spending would initially decrease by:
A. $100 billion.
B. $90 billion.
C. $40 billion.
D. $50 billion.
Answer: C
5. Which of the following would reduce GDP by the greatest amount?
A. a $20 billion increase in taxes
B. $20 billion increases in both government spending and taxes
C. $20 billion decreases in both government spending and taxes
D. a $20 billion decrease in government spending
Answer: D
6. If the marginal propensity to consume in an economy is 0.8, net exports are zero, and
government spending is $33 billion at each level of real GDP, the slope of the economy's
aggregate expenditures schedule will be:
A. 0.8.
B. 0.2.
C. 5.
D. 0.125.
Answer: A
7. If MPC = .5, a simultaneous increase in both taxes and government spending of $20 will:
A. decrease GDP by $20.
B. decrease GDP by $40.
C. increase GDP by $20.
D. increase GDP by $40.
Answer: C
8. In the aggregate expenditures model, it is assumed that investment:
A. automatically changes in response to changes in real GDP.
B. changes by less in percentage terms than changes in real GDP.
C. does not respond to changes in interest rates.
D. does not change when real GDP changes.
Answer: D
9. The level of aggregate expenditures in the private closed economy is determined by the:
A. expenditures of consumers and businesses.
B. intersection of the saving schedule and the 45-degree line.
C. equality of the MPC and MPS.
D. intersection of the saving and consumption schedules.
Answer: A
[Question]
10. Refer to the above diagram that applies to a private closed economy. The APC is equal
to 1 at income level:
A. J.
B. M.
C. H.
D. G.
Answer: D
11. Refer to the above diagram that applies to a private closed economy. If aggregate
expenditures are C + Ig2, the amount of saving at income level J is:
A. LK.
B. KN.
C. KD.
D. JD.
Answer: B
12. Refer to the above diagram that applies to a private closed economy. If gross investment
is Ig1, the equilibrium GDP and the level of consumption will be:
A. H and HB respectively.
B. J and JI respectively.
C. J and JK respectively.
D. H and HF respectively.
Answer: D
13. If aggregate expenditures exceed GDP in a private closed economy:
A. leakages will exceed injections.
B. planned investment will exceed saving.
C. unplanned investment in inventories will occur.
D. saving will exceed planned investment.
Answer: B