Principles of Economics International Edition 8th Edition By Michael Melvin – Test Bank

Chapter 10—Income and Expenditures Equilibrium

MULTIPLE CHOICE

1. John Maynard Keynes believed that
a. the sum of all incomes will never provide enough purchasing power to allow households to pay for all products.
b. macroeconomic equilibrium is not possible.
c. all markets will automatically clear if government does not interfere with the economy.
d. capitalism is responsible for the downturn of the U.S. economy.
e. the economy can reach an equilibrium level of real GDP that is below full employment of resources

ANS: E PTS: 1 DIF: Easy REF: Ch 10, EI
TOP: Keynesian economics TYP: Factual

2. Which of the following economists wrote the influential book The General Theory of Employment, Interest, and Money? a. Adam Smith
b. John Maynard Keynes
c. Milton Friedman
d. Paul Samuelson
e. None of these

ANS: B PTS: 1 DIF: Medium REF: Ch 10, EI
TOP: John Maynard Keynes TYP: Factual

3. Which of the following will not occur if total spending is greater than income?
a. Inventories begin to rise.
b. Goods produced in the past are being sold.
c. Manufacturers increase production to meet demand for products.
d. Increased production increases income.
e. More goods and services are being purchased than are being produced.

ANS: A PTS: 1 DIF: Medium REF: Ch 10, 1.a
OBJ: Ch 10, 1 TOP: Equilibrium income and expenditures
TYP: Interpretive

4. If aggregate expenditures are less than real GDP, then
a. inventories will decline and real GDP will decline.
b. inventories will decline and real GDP will increase.
c. inventories will increase and real GDP will decline.
d. inventories will increase and real GDP will increase.
e. inventories will increase but real GDP will not change.

ANS: C PTS: 1 DIF: Easy REF: Ch 10, 1.a
OBJ: Ch 10, 1 TOP: Expenditures and income TYP: Interpretive

Figure 10-1

5. Consider the economy described in Figure 10-1. When real GDP is equal to H,
a. aggregate expenditures exceed total income.
b. all resources are used efficiently.
c. households are dissaving an amount equal to DC.
d. businesses accumulate unwanted inventories.
e. unplanned investment declines.

ANS: D PTS: 1 DIF: Medium REF: Ch 10, 1.a
OBJ: Ch 10, 1 TOP: Expenditures and income TYP: Applied

6. According to Figure 10-1, at a real GDP level of G,
a. there is pressure for the economy to expand.
b. there are unplanned reductions in inventory.
c. aggregate expenditures are less than real GDP.
d. the economy has achieved macroeconomic equilibrium.
e. there is pressure for the economy to contract.