Chapter 28 review
Student: ___________________________________________________________________________
1. The difference between the investment demand curve and the investment schedule is that the former shows: 
A) A direct relationship between investment and interest rate, while the latter shows no correlation between investment and income
B) An inverse relationship between investment and interest rate, while the latter shows no correlation between investment and income
C) A direct relationship between investment and income, while the latter shows no correlation between investment and interest rate
D) An inverse relationship between investment and income, while the latter shows no correlation between investment and interest rate
  The data below are for a private (no government) closed economy. All figures are in billions of dollars.

 
2. Refer to the above table. The MPC and multiplier are, respectively: 
A) .80 and 5
B) .75 and 4
C) .75 and 1.33
D) .80 and 1.25
 3. Refer to the above table. If planned investment is $25 billion, the equilibrium level of GDP will be: 
A) $600 billion
B) $620 billion
C) $640 billion
D) $660 billion
 
 All figures are in billions of dollars.

 
4. Refer to the above table. The MPS and the multiplier are, respectively: 
A) 0.6 and 1.67
B) 0.4 and 2.5
C) 0.6 and 2.5
D) 0.4 and 1.67
 5. Refer to the above table. If gross investment is $12 billion, the equilibrium level of GDP will be: 
A) $260 billion
B) $270 billion
C) $280 billion
D) $290 billion

 
6. Refer to the above graph for a private closed economy. In this economy, investment is: 
A) $50 billion
B) $100 billion
C) $150 billion
D) $200 billion
 7. Refer to the above graph for a private closed economy. The equilibrium level of GDP in this economy is: 
A) $150 billion
B) $250 billion
C) $350 billion
D) $450 billion
 
 The table shows a private closed economy. All figures are in billions of dollars.

 
8. Refer to the above table. If the real rate of interest is 2%, then the equilibrium level of GDP will be: 
A) $800 billion
B) $1000 billion
C) $1200 billion
D) $1400 billion
 9. Refer to the above table. An increase in the real interest rate from 2% to 6% will: 
A) Decrease the equilibrium level of GDP by $200 billion
B) Decrease the equilibrium level of GDP by $300 billion
C) Decrease the equilibrium level of GDP by $400 billion
D) Increase the equilibrium level of GDP by $400 billion
 
10. Consumption is $141 billion, planned investment is $15 billion, and saving is $15 billion in a private, closed economy. At this level: 
A) Actual investment does not equal planned investment
B) There will be unplanned increases in inventories
C) There will be unplanned decreases in inventories
D) The economy is in equilibrium
 11. If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by: 
A) $3.75 billion
B) $6.7 billion
C) $8.75 billion
D) $20 billion
 
12. In a private closed economy where MPC = 0.8, if consumers reduce their spending by $10 billion and firms cut investments by $5 billion, then equilibrium GDP will decrease by: 
A) $75 billion
B) $25 billion
C) $18.8 billion
D) $15 billion
 13. The marginal propensity to consume is 0.8. Equilibrium GDP will increase by $30 billion if aggregate expenditures rise by: 
A) $5 billion
B) $6 billion
C) $8 billion
D) $24 billion
 
14. Recently, the level of GDP has declined by $60 billion in an economy where the marginal propensity to consume is 0.75. Aggregate expenditures must have fallen by: 
A) $45 billion
B) $30 billion
C) $15 billion
D) $60 billion
 
15. The marginal propensity to save is 0.2. Equilibrium GDP will decrease by $50 billion if aggregate expenditures schedule decrease by: 
A) $10 billion
B) $15 billion
C) $16 billion
D) $40 billion
 16. If aggregate expenditures increase by $12 billion and equilibrium GDP consequently increases by $48 billion, then the marginal propensity to save in the economy must be: 
A) 0.75
B) 0.25
C) 0.8
D) 0.2
 
17. Other things being equal, a decrease in an economy's exports will: 
A) Increase domestic aggregate expenditures and the equilibrium level of GDP
B) Decrease domestic aggregate expenditures and the equilibrium level of GDP
C) Have no effect on domestic GDP because imports will offset the change in exports
D) Increase the amount of imports consumed by the private sector
 
 The table shows a private open economy. All figures are in billions of dollars.

 
18. Refer to the above table. The equilibrium real GDP is: 
A) $550
B) $600
C) $650
D) $700
 19. Refer to the above table. If net exports increased by $10 billion at each level of GDP, the equilibrium real GDP would be: 
A) Not determinate in the table
B) $610
C) $650
D) $700
 
20. Refer to the above table. If the marginal propensity to consume in this economy is 0.8, a $10 increase in its net exports would increase its equilibrium real GDP by: 
A) $25
B) $50
C) $100
D) $200
 
 All figures in the table below are in billions.

 21. Refer to the above data. The equilibrium level of GDP in a private, open economy is: 
A) $550 billion
B) $600 billion
C) $650 billion
D) $700 billion
 
22. Over time, an increase in the real output and incomes of the trading partners of the United States will most likely: 
A) Increase U.S. exports
B) Decrease U.S. exports
C) Increase imports of the U.S.
D) Decrease imports of the U.S.
 23. Which event would most likely decrease an economy's exports? 
A) A decline in the tariff on products imported from abroad
B) An increase in the prosperity of trading partners for this economy
C) An appreciation of a nation's currency relative to foreign currencies
D) A depreciation of a nation's currency relative to foreign currencies
 
 The data below is the consumption schedule in an economy. All figures are in billions of dollars.

 24. Refer to the above table. If gross investment is $34 billion, net exports are zero, and there is a lump-sum tax of $30 billion at all levels of GDP, then the after-tax equilibrium level of GDP will be: 
A) $490 billion
B) $540 billion
C) $590 billion
D) $640 billion

 
25. Refer to the above graph. If this economy was an open economy without a government sector, the level of GDP would be: 
A) $100 billion
B) $200 billion
C) $300 billion
D) $400 billion
  The table shows the consumption schedule for a hypothetical economy. All figures are in billions of dollars.

 
26. Refer to the above table. If taxes were zero, government purchases of goods and services $10, planned investment $6, and net exports zero, equilibrium real GDP would be: 
A) $620
B) $630
C) $640
D) $650
 27. A constitutional amendment is passed that requires the government to have an annually balanced budget. Should the government desire to increase GDP by $25 billion and meet the provisions of the law it: 
A) Cannot possibly reach its objective without breaking the law
B) Should increase spending by $25 billion and reduce taxes by $25 billion
C) Should increase spending by $25 billion and increase taxes by $25 billion
D) Should increase spending by $30 billion and increase taxes by $25 billion
 
28. If the marginal propensity to consume is .80 and both taxes and government purchases increase by $50 billion, GDP will: 
A) Increase by $50 billion
B) Decrease by $50 billion
C) Increase by $10 billion
D) Decrease by $10 billion
 
29. The amount by which an aggregate expenditures schedule must shift upward to achieve the full-employment GDP is a(n): 
A) Inflationary expenditure gap
B) Recessionary expenditure gap
C) Expenditure multiplier gap
D) Negative net export gap
 30. Assume that the marginal propensity to consume in an economy is 0.75. If the economy's full-employment real GDP is $900 billion and its equilibrium real GDP is $800 billion, there is a recessionary expenditure gap of: 
A) $25 billion
B) $100 billion
C) $133 billion
D) $400 billion
 
31. To close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0.8, it would be necessary to: 
A) Decrease the aggregate expenditures schedule by $20 billion
B) Decrease the aggregate expenditures schedule by $4 billion
C) Increase the aggregate expenditures schedule by $20 billion
D) Increase the aggregate expenditures schedule by $4 billion
 32. Assume that the marginal propensity to consume in an economy is 0.9. If the economy's full-employment real GDP is $500 billion and its equilibrium real GDP is $550 billion, there is an inflationary expenditure gap of: 
A) $10 billion
B) $50 billion
C) $100 billion
D) $500 billion

Chapter 28 review Key
 
1. B
 2. B
 3. C
 4. B
 5. C
 6. B
 7. D
 8. C
 9. C
 10. D
 11. D
 12. A
 13. B
 14. C
 15. A
 16. B
 17. B
 18. B
 19. C
 20. B
 21. B
 22. A
 23. C
 24. B
 25. C
 26. B
 27. C
 28. A
 29. B
 30. A
 31. A
 32. A