Question 1

U.S. net export spending falls when

Accepted Answer

A)  the price level in the United States falls relative to the price level in other countries. 
B)  the growth rate of U.S. GDP is faster than the growth rate of GDP in other countries. 
C)  the value of the U.S. dollar decreases relative to other currencies. 
D)  the inflation rate is lower in the United States relative to other countries. 
A)  the price level in the United States falls relative to the price level in other countries. 
B)  the growth rate of U.S. GDP is faster than the growth rate of GDP in other countries. 
C)  the value of the U.S. dollar decreases relative to other currencies. 
D)  the inflation rate is lower in the United States relative to other countries.

Question 2

A stock market crash which causes stock prices to fall should cause

Accepted Answer

A)  a decrease in consumption spending. 
B)  an increase in consumption spending. 
C)  an increase in wealth. 
D)  no change in consumption spending. 
A)  a decrease in consumption spending. 
B)  an increase in consumption spending. 
C)  an increase in wealth. 
D)  no change in consumption spending.

Question 3

When Javier's income increases by $5,000, he spends an additional $3,750 dollars. This implies that his marginal propensity to consume is 0.75.

Accepted Answer

A) True 
 B)False

Question 4

Ceteris paribus, how does an expansion in the United States affect U.S. net exports?

Accepted Answer

As GDP increases in the United States du

Question 5

Which of the following is a reason why decreases in the price level result in a rise in aggregate expenditure?

Accepted Answer

A)  Price level decreases cause firms and consumers to hold less money, which lowers the interest rate. Lower interest rates raise consumption and planned investment expenditures, which raises aggregate expenditure. 
B)  Price level decreases reduce real wealth, which causes consumption spending and aggregate expenditure to rise. 
C)  As the price level falls, government spending rises, which raises aggregate expenditure. 
D)  Price level decreases in the United States relative to other countries' lower net exports, which raises aggregate expenditure. 
A)  Price level decreases cause firms and consumers to hold less money, which lowers the interest rate. Lower interest rates raise consumption and planned investment expenditures, which raises aggregate expenditure. 
B)  Price level decreases reduce real wealth, which causes consumption spending and aggregate expenditure to rise. 
C)  As the price level falls, government spending rises, which raises aggregate expenditure. 
D)  Price level decreases in the United States relative to other countries' lower net exports, which raises aggregate expenditure.

Question 6

Inventories refer to

Accepted Answer

A)  goods which have been presold before they are produced. 
B)  goods that have been produced but not yet sold. 
C)  goods that have been planned but not yet produced. 
D)  goods that have been produced and sold in the same year. 
A)  goods which have been presold before they are produced. 
B)  goods that have been produced but not yet sold. 
C)  goods that have been planned but not yet produced. 
D)  goods that have been produced and sold in the same year.

Question 7

If planned aggregate expenditure is above potential GDP and planned aggregate expenditure equals GDP, then

Accepted Answer

A)  actual inventory investment will be less than planned inventory investment. 
B)  actual inventory investment will be greater than planned inventory investment. 
C)  the economy is in an expansion. 
D)  the economy is at full employment. 
A)  actual inventory investment will be less than planned inventory investment. 
B)  actual inventory investment will be greater than planned inventory investment. 
C)  the economy is in an expansion. 
D)  the economy is at full employment.

Question 8

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.

Accepted Answer

A)  total production; total income; real GDP 
B)  total spending; real GDP; total income 
C)  total spending; real GDP; the price level 
D)  total income; real GDP; the price level 
A)  total production; total income; real GDP 
B)  total spending; real GDP; total income 
C)  total spending; real GDP; the price level 
D)  total income; real GDP; the price level

Question 9

If the marginal propensity to save is 0.35, the multiplier is 2.86.

Accepted Answer

A) True 
 B)False

Question 10

The larger the MPS, the smaller the value of the multiplier.

Accepted Answer

A) True 
 B)False

Question 11

The aggregate demand curve illustrates the relationship between ________ and the ________, holding constant all other factors that affect aggregate expenditure.

Accepted Answer

A)  the price level; quantity of planned aggregate expenditure 
B)  the inflation rate; quantity of planned aggregate expenditure 
C)  the price level; quantity of planned investment expenditure 
D)  the price level; quantity of consumption expenditure 
A)  the price level; quantity of planned aggregate expenditure 
B)  the inflation rate; quantity of planned aggregate expenditure 
C)  the price level; quantity of planned investment expenditure 
D)  the price level; quantity of consumption expenditure

Question 12

Aggregate expenditure includes consumption spending, unplanned investment spending, government purchases, and net exports.

Accepted Answer

A) True 
 B)False

Question 13

If disposable income falls by $50 billion and consumption falls by $40 billion, then the slope of the consumption function is

Accepted Answer

A)  1.20. 
B)  0.80. 
C)  0.70. 
D)  0.10. 
A)  1.20. 
B)  0.80. 
C)  0.70. 
D)  0.10.

Question 14

Figure 23-1  
-Refer to Figure 23-1. At point L in the figure above, which of the following is true?

Accepted Answer

A)  Aggregate expenditure is greater than GDP. 
B)  The economy has achieved macroeconomic equilibrium. 
C)  Actual inventories are greater than planned inventories. 
D)  GDP will be increasing. 
A)  Aggregate expenditure is greater than GDP. 
B)  The economy has achieved macroeconomic equilibrium. 
C)  Actual inventories are greater than planned inventories. 
D)  GDP will be increasing.

Question 15

C = 2,800 + 0.9Y
I = 750
G = 1,200
NX = 150
Given the equations for C, I, G, and NX above, what is the equilibrium level of GDP (Y)?

Accepted Answer

Y = C + I + G + NX.
Y = 2,800

Question 16

If the economy is currently in equilibrium at a level of GDP that is above potential GDP, which of the following would move the economy back to potential GDP?

Accepted Answer

A)  a decrease in wealth 
B)  a decrease in interest rates 
C)  an increase in business confidence 
D)  a decrease in the value of the dollar relative to other currencies 
A)  a decrease in wealth 
B)  a decrease in interest rates 
C)  an increase in business confidence 
D)  a decrease in the value of the dollar relative to other currencies

Question 17

C = 3,600 + (MPC)Y
I = 1,200
G = 1,400
NX = -200
If the equilibrium level of GDP is $30,000, using the equations for C, I, G, and NX shown above, find the value of the marginal propensity to consume.

Accepted Answer

Y = C + I + G + NX.
30,000 = 3

Question 18

Firms in a small economy planned that inventories would grow over the past year by $300,000. Over that year, inventories actually grew by $400,000. This implies that

Accepted Answer

A)  aggregate expenditure that year was less than GDP that year. 
B)  there was an unplanned decrease in inventories that year. 
C)  there was a planned decrease in inventories that year. 
D)  aggregate expenditure that year was equal to GDP that year. 
A)  aggregate expenditure that year was less than GDP that year. 
B)  there was an unplanned decrease in inventories that year. 
C)  there was a planned decrease in inventories that year. 
D)  aggregate expenditure that year was equal to GDP that year.

Question 19

The five most important variables that determine the level of ________ are disposable income, wealth, expected future income, price level, and interest rate.

Accepted Answer

A)  consumption 
B)  government purchases 
C)  planned investment 
D)  net exports 
A)  consumption 
B)  government purchases 
C)  planned investment 
D)  net exports

Question 20

________ in taxes will decrease consumption spending, and ________ in transfer payments will increase consumption spending.

Accepted Answer

A)  An increase; an increase 
B)  A decrease; an increase 
C)  An increase; a decrease 
D)  A decrease; a decrease 
A)  An increase; an increase 
B)  A decrease; an increase 
C)  An increase; a decrease 
D)  A decrease; a decrease

Exam 23: Aggregate Expenditure and Output in the Short Run

U.S. net export spending falls when

A stock market crash which causes stock prices to fall should cause

When Javier's income increases by $5,000, he spends an additional $3,750 dollars. This implies that his marginal propensity to consume is 0.75.

Ceteris paribus, how does an expansion in the United States affect U.S. net exports?

Which of the following is a reason why decreases in the price level result in a rise in aggregate expenditure?

Inventories refer to

If planned aggregate expenditure is above potential GDP and planned aggregate expenditure equals GDP, then

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.

If the marginal propensity to save is 0.35, the multiplier is 2.86.

The larger the MPS, the smaller the value of the multiplier.

The aggregate demand curve illustrates the relationship between ________ and the ________, holding constant all other factors that affect aggregate expenditure.

Aggregate expenditure includes consumption spending, unplanned investment spending, government purchases, and net exports.

If disposable income falls by $50 billion and consumption falls by $40 billion, then the slope of the consumption function is

Figure 23-1 -Refer to Figure 23-1. At point L in the figure above, which of the following is true?

C = 2,800 + 0.9Y I = 750 G = 1,200 NX = 150 Given the equations for C, I, G, and NX above, what is the equilibrium level of GDP (Y)?

If the economy is currently in equilibrium at a level of GDP that is above potential GDP, which of the following would move the economy back to potential GDP?

C = 3,600 + (MPC)Y I = 1,200 G = 1,400 NX = -200 If the equilibrium level of GDP is $30,000, using the equations for C, I, G, and NX shown above, find the value of the marginal propensity to consume.

Firms in a small economy planned that inventories would grow over the past year by $300,000. Over that year, inventories actually grew by $400,000. This implies that

The five most important variables that determine the level of ________ are disposable income, wealth, expected future income, price level, and interest rate.

________ in taxes will decrease consumption spending, and ________ in transfer payments will increase consumption spending.

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 relationship between and in the short run, assuming is constant.

The aggregate demand curve illustrates the relationship between and the , holding constant all other factors that affect aggregate expenditure.

in taxes will decrease consumption spending, and in transfer payments will increase consumption spending.