Question 1

If the consumption function is defined as C = 7,250 + 0.8Y, what is the value of the marginal propensity to save?

Accepted Answer

A)  0.2 
B)  0.8 
C)  5.8 
D)  9.1 
A)  0.2 
B)  0.8 
C)  5.8 
D)  9.1 A

Question 2

Suppose the United States experiences a long period of relatively stable prices while other countries experience long periods of inflation. How will this affect U.S. net exports?

Accepted Answer

If inflation in the United States is lower than inflation in other countries, then prices of products and services produced in the United States increase at a slower pace than the prices of products and services of other countries. This difference in the price levels increases the demand for U.S. goods relative to foreign goods. U.S. exports increase, imports decrease, and U.S. net exports rise.

Question 3

Table 23-11
  
-Refer to Table 23-11. Using the table above, calculate the unplanned change in inventories for each level of GDP, and explain what will happen to GDP.

Accepted Answer

The macroeconomic equilibrium is determined where aggregate expenditure = real GDP. The values for aggregate expenditure for each level of real GDP are given in the table below. The unplanned change in inventories is the difference between aggregate expenditure and real GDP. If there is an unplanned decrease in inventories, firms are selling goods faster than they planned, and this is a signal for firms to increase production. If there is an unplanned increase in inventories, firms are selling goods more slowly than they expected, and this is a signal for firms to decrease production.

Question 4

Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories occurred?

Accepted Answer

A)  There was an unplanned increase in inventories equal to $2 million. 
B)  There was no unplanned change in inventories. 
C)  There was an unplanned decrease in inventories equal to $2 million. 
D)  There was an unplanned decrease in inventories equal to $19 million. 
A)  There was an unplanned increase in inventories equal to $2 million. 
B)  There was no unplanned change in inventories. 
C)  There was an unplanned decrease in inventories equal to $2 million. 
D)  There was an unplanned decrease in inventories equal to $19 million.

Question 5

The aggregate expenditure model focuses on the short-run relationship between ________ and ________.

Accepted Answer

A)  real spending; real GDP 
B)  unemployment; inflation 
C)  nominal spending; nominal GDP 
D)  planned inventories; unplanned inventories 
A)  real spending; real GDP 
B)  unemployment; inflation 
C)  nominal spending; nominal GDP 
D)  planned inventories; unplanned inventories

Question 6

When net exports equal zero, the economy is in macroeconomic equilibrium.

Accepted Answer

A) True 
 B)False

Question 7

Given the equations for C, I, G, and NX below, what is the value of the marginal propensity to consume? C = 1,000 + 0.8Y
I = 1,500
G =1,250
NX = 100

Accepted Answer

A)  0.2 
B)  0.8 
C)  1.8 
D)  10 
A)  0.2 
B)  0.8 
C)  1.8 
D)  10

Question 8

Why is the aggregate demand curve downward sloping while the aggregate expenditure line is upward sloping?

Accepted Answer

A downward-sloping aggregate demand curv

Question 9

If the multiplier is 5, the marginal propensity to consume must be 0.8.

Accepted Answer

A) True 
 B)False

Question 10

Figure 23-3  
-Refer to Figure 23-3. Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what is the change in GDP?

Accepted Answer

A)  $9 million 
B)  $10 million 
C)  $90 million 
D)  $100 million 
A)  $9 million 
B)  $10 million 
C)  $90 million 
D)  $100 million

Question 11

Figure 23-3  
-Refer to Figure 23-3. Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP1 to GDP2, and this amount is $200 billion. If the MPC is 0.8, then what is the distance between N and L or by how much did government spending change?

Accepted Answer

A)  $16 billion 
B)  $40 billion 
C)  $200 billion 
D)  $1,000 billion 
A)  $16 billion 
B)  $40 billion 
C)  $200 billion 
D)  $1,000 billion

Question 12

Why do economists care about aggregate expenditures?

Accepted Answer

Increases and decreases in aggregate exp

Question 13

Disposable income is defined as

Accepted Answer

A)  national income - transfers + taxes. 
B)  national income + transfers + taxes. 
C)  national income - transfers - taxes. 
D)  national income + transfers - taxes. 
A)  national income - transfers + taxes. 
B)  national income + transfers + taxes. 
C)  national income - transfers - taxes. 
D)  national income + transfers - taxes.

Question 14

Investment spending increases during ________, and decreases during ________.

Accepted Answer

A)  an expansion; a recession 
B)  a recession; an expansion 
C)  a recession; a depression 
D)  a deflation; an inflation 
A)  an expansion; a recession 
B)  a recession; an expansion 
C)  a recession; a depression 
D)  a deflation; an inflation

Question 15

At macroeconomic equilibrium, total ________ equals total ________.

Accepted Answer

A)  spending; production 
B)  investment; inventories 
C)  consumption; production 
D)  taxes; transfers 
A)  spending; production 
B)  investment; inventories 
C)  consumption; production 
D)  taxes; transfers

Question 16

Economists first began studying the relationship between changes in aggregate expenditures and changes in GDP

Accepted Answer

A)  in the 1950s. 
B)  during the Great Depression. 
C)  at the end of the Civil War. 
D)  during the Industrial Revolution. 
A)  in the 1950s. 
B)  during the Great Depression. 
C)  at the end of the Civil War. 
D)  during the Industrial Revolution.

Question 17

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is GDP?

Accepted Answer

A)  $15 million 
B)  $23 million 
C)  $25 million 
D)  $27 million 
A)  $15 million 
B)  $23 million 
C)  $25 million 
D)  $27 million

Question 18

Table 23-1
  
-Refer to Table 23-1. Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

Accepted Answer

The macroeconomic equilibrium is determi

Question 19

Which of the following leads to an increase in real GDP?

Accepted Answer

A)  a decrease in government spending 
B)  a decrease in the inflation rate in other countries relative to the inflation rate in the United States 
C)  a decrease in interest rates 
D)  Households have increasingly pessimistic expectations about future income. 
A)  a decrease in government spending 
B)  a decrease in the inflation rate in other countries relative to the inflation rate in the United States 
C)  a decrease in interest rates 
D)  Households have increasingly pessimistic expectations about future income.

Question 20

An increase in aggregate expenditure has what effect on the equilibrium GDP?

Accepted Answer

A)  Equilibrium GDP rises. 
B)  Equilibrium GDP is not affected by an increase in aggregate expenditure. 
C)  Equilibrium GDP falls. 
D)  Equilibrium GDP may rise or fall depending on the size of the increase in aggregate expenditure relative to the initial level of GDP. 
A)  Equilibrium GDP rises. 
B)  Equilibrium GDP is not affected by an increase in aggregate expenditure. 
C)  Equilibrium GDP falls. 
D)  Equilibrium GDP may rise or fall depending on the size of the increase in aggregate expenditure relative to the initial level of GDP.

Exam 23: Aggregate Expenditure and Output in the Short Run

If the consumption function is defined as C = 7,250 + 0.8Y, what is the value of the marginal propensity to save?

Suppose the United States experiences a long period of relatively stable prices while other countries experience long periods of inflation. How will this affect U.S. net exports?

Table 23-11 -Refer to Table 23-11. Using the table above, calculate the unplanned change in inventories for each level of GDP, and explain what will happen to GDP.

Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories occurred?

The aggregate expenditure model focuses on the short-run relationship between ________ and ________.

When net exports equal zero, the economy is in macroeconomic equilibrium.

Given the equations for C, I, G, and NX below, what is the value of the marginal propensity to consume? C = 1,000 + 0.8Y I = 1,500 G =1,250 NX = 100

Why is the aggregate demand curve downward sloping while the aggregate expenditure line is upward sloping?

If the multiplier is 5, the marginal propensity to consume must be 0.8.

Figure 23-3 -Refer to Figure 23-3. Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what is the change in GDP?

Figure 23-3 -Refer to Figure 23-3. Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP1 to GDP2, and this amount is $200 billion. If the MPC is 0.8, then what is the distance between N and L or by how much did government spending change?

Why do economists care about aggregate expenditures?

Disposable income is defined as

Investment spending increases during ________, and decreases during ________.

At macroeconomic equilibrium, total ________ equals total ________.

Economists first began studying the relationship between changes in aggregate expenditures and changes in GDP

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is GDP?

Table 23-1 -Refer to Table 23-1. Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

Which of the following leads to an increase in real GDP?

An increase in aggregate expenditure has what effect on the equilibrium GDP?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

The aggregate expenditure model focuses on the short-run relationship between and .

Figure 23-3 -Refer to Figure 23-3. Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP₁ to GDP₂. If the MPC is 0.9, then what is the change in GDP?

Investment spending increases during , and decreases during .

At macroeconomic equilibrium, total equals total .