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When firms reduce their target level of inventories, how do equilibrium expenditure and real GDP change?

Equilibrium expenditure ________ and real GDP ________.

increases; decreases

decreases; decreases

increases; increases

decreases; does not change

decreases; increases

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An economy has a consumption function of C = 10 + 0.8Y, investment equal to 6, government expenditure equal to 10, exports equal to 10, and an import function of M = 0.1Y.

Refer to Fact 11.5.1. If autonomous consumption increases by 10, what is the new equation of the AE curve for this economy?

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In an economy with a fixed price level, which of the following events would increase equilibrium real GDP?

an increase in saving

an increase in taxes

a decrease in exports

a decrease in investment

an increase in exports

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Table 11.1.3

Disposable Income (dollars)	Consumption Expenditure (dollars)
0	100
100	165
200	230
300	295
400	360

In Table 11.1.3, at which of the following values of disposable income is there positive saving? At which of the following values of disposable income is there positive saving?

all values under $300

all values over $300

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Short Description: A line graph shows the relationship between consumption expenditure and disposable income for an economy. Long Description: The vertical axis is labelled, consumption expenditure (billions of 20 12 dollars per year) and ranges from 0 to 800. The horizontal axis is labelled, disposable income (billions of 20 12 dollars per year) and ranges from 0 to 800. The 45 degree line slopes upward from the origin and passes through the points B (200, 200), D (250, 250), and (500, 500). The line for consumption function slopes upward from (0, 100) and passes through the point (200, 250). The line intersects the 45 degree line at (500, 500).

Refer to Figure 11.5.1, which shows the consumption function. Which of the following equations is the consumption function?

C = 500 + 0.8YD

C = 100 + 0.6YD

C = 100 + 0.2YD

C = 100 + 0.8YD

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Why is the multiplier greater than 1?

An increase in autonomous expenditure increases real GDP, which

increases consumption expenditure.

increases exports.

increases saving.

increases investment.

increases autonomous expenditure even more.

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Which of the following items limits the use of discretionary fiscal policy?

the time it takes to pass laws to change outlays and revenues

none of the above

all of the above

the time it takes to put new policies into action

the time it takes to forecast when fiscal policy action is needed

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Which of the following outcomes happens automatically when the economy goes into a recession?

Government budget revenues decrease, but government outlays do not change.

The government budget deficit increases or the government budget surplus decreases.

Both government budget outlays and revenues increase, but the deficit stays the same.

Government budget outlays increase, but revenues do not change.

The government budget deficit decreases.

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An economy has the following government revenues and outlays: $25 million in personal income taxes, $15 million in corporate income taxes, $5 million in indirect taxes, $2 million in investment income, $30 million in transfer payments, $12 million in government expenditure, and $8 million in debt interest. What is the government budget balance?

a deficit of $3 million

a deficit of $13 million

a surplus of $57 million

a surplus of $13 million

a surplus of $3 million

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During a recession, how does the government budget change?

Government revenues remain constant, but government outlays increase.

Both government revenues and outlays increase.

Both government revenues and outlays decrease.

Government revenues decrease, but government outlays increase.

Government revenues increase, but government outlays decrease.

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