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Multiple Choice Quiz
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1
Which of the following is not a leakage from the economy?
A)Consumer saving
B)Business saving
C)Business investment spending
D)Import purchases
2
If leakages are greater than injections into the economy then:
A)The economy will grow
B)The economy will slow
C)Inflation will result
D)Business investment spending will pick up the slack
3
Classical economists argued that the economy will self-adjust from:
A)New leakages from the economy
B)Rising Interest Rates
C)A fall in prices
D)An increase in consumer saving
4
Full employment is defined as:
A)Zero unemployment
B)100 percent employment
C)90 percent employment of those who want to work
D)The lowest unemployment rate compatible with price stability
5
Deflation is not a macro goal because:
A)It represents a fall in prices
B)It is associated with severe recessions or depressions
C)Consumer incomes rise in deflation
D)Business profits rise during deflation
6
If businesses see that inventories are piling up:
A)They will increase production plans
B)They will raise prices
C)They will become more optimistic
D)They will lower prices and cut production
7
The multiplier process describes:
A)How the economy self-adjusts to a fall in aggregate demand
B)How layoffs in one sector can spread to many other sectors
C)How marginal propensity to consume will rise
D)How the circular flow freezes up in a recession
8
If investment spending falls by $100 billion, then:
A)Real GDP falls by $100 billion
B)Real GDP rises by $100 billion
C)Real GDP will fall by a multiple of that amount
D)Read GDP will rise by a multiple of that amount
9
The formula for the multiplier is:
A)The change in consumer spending in response to a change in income
B)The recessionary gap divided by the multiplier
C)The change in spending in response to a change in the marginal propensity to consume
D)1/(1-MPC)
10
In an economy that is below full employment, an increase in investment, ceteris paribus, leads to:
A)Higher desired saving and higher income
B)Higher desired saving but no change in income
C)No change in desired saving but higher income
D)No change in desired saving and no change in income
11
The amount of change in aggregate demand that will close a recessionary gap:
A)Consists of a shift due to the change in spending
B)Consists of one shift due to the change in spending and an additional shift due to the multiplier effects
C)Consists of three shifts due to multiplier effects
D)Will equal the amount of leakages
12
The basic conclusion of Keynes was that:
A)The economy is subject to abrupt changes in spending behavior that will not self adjust
B)That flexible prices and wages will cause the economy to self-adjust
C)That Injections will cure a recessionary gap
D)That injections will cure an inflationary gap
13
Changes in consumer confidence:
A)Cause the aggregate supply curve to shift
B)Cause the aggregate demand curve to shift
C)Do not affect the economy
D)Are not a major disruption to the economy
14
Cyclical unemployment:
A)Increases during an inflationary gap
B)Falls during a recessionary gap
C)Increases during a recessionary gap
D)Does not change over the course of the business cycle
15
The major difference between classical and Keynesian economists is:
A)Classical economists argue that prices and wages are not flexible and Keynes disagreed
B)Keynesians argue that the economy will not self-adjust to disruptions in aggregate demand
C)Keynesians argue that the multiplier process will cause the economy to self-adjust
D)Classical economists argue that the multiplier process will cause the economy to worsen with an economic slowdown.





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