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Exam 22: Spending, Output, and Fiscal Policy

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Question 1

Multiple Choice

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In the basic Keynesian model,a decline in autonomous spending:

A) reduces short-run equilibrium output.
B) increases short-run equilibrium output.
C) reduces potential output.
D) increases potential output.

E) B) and C)
F) All of the above

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Question 2

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The recession of 2007-2009 happened in part because,after the housing bubble burst in 2006,disruptions in the financial market made it difficult:

A) for government to finance deficit spending.
B) to fight inflation.
C) for businesses and consumers to borrow money.
D) to shift the PAE line downward.

E) B) and C)
F) A) and B)

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Question 3

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Short-run equilibrium output is the level of output at which actual output:

If planned aggregate expenditure (PAE) in an economy equals 3,000 + 0.75Y and potential output (Y*) equals 12,000,then this economy has:

The recession of 2007-2009 happened in part because,after the housing bubble burst in 2006,the ensuing financial crisis:

When actual investment is less than planned investment:

In the basic Keynesian model,a tax increase:

A fiscal policy action to close a recessionary gap is to:

The two parts of planned aggregate expenditure are ______ expenditures and ______ expenditures.

Planned aggregate expenditure is total:

Changes in government purchases affect planned spending _____,and changes in taxes and/or transfers affect planned spending _______.

Automatic stabilizers are provisions in the law that imply automatic ______ in government spending or ______ in taxes when real output declines.

The bursting of the housing bubble in 2006 caused ______ to cut back on their spending,thereby shifting the PAE line _____.

If short-run equilibrium output equals 10,000,the income-expenditure multiplier equals 5,potential output (Y*) equals 11,000,then government purchases must ______ to eliminate any output gap.

Dave's Mirror Company expects to sell $1,000,000 worth of mirrors and to produce $1,250,000 worth of mirrors in the coming year.The company purchases $300,000 worth of new equipment during the year.Sales for the year turn out to be $900,000.Actual investment by Dave's Mirror Company equals ______ and planned investment equals _______.

The two parts of the Keynesian consumption function are consumption that depends on ______ and consumption that depends on _____.

In the basic Keynesian model,an increase in transfer payments:

In Macroland autonomous consumption equals 100,the marginal propensity to consume equals 0.75,net taxes are fixed at 40,planned investment is fixed at 50,government purchases are fixed at 150,and net exports are fixed at 20.Autonomous expenditure equals:

For an economy starting at potential output,a decrease in planned investment in the short run results in a(n) :

When housing prices decrease,household wealth _____,and consumption _____.