Question 1

On the 45 degree-line diagram, the 45 degree line shows points where

Accepted Answer

A)  real income equals real GDP. 
B)  real aggregate expenditure equals C + I. 
C)  real aggregate expenditure equals real GDP. 
D)  real aggregate output equals the quantity produced. 
A)  real income equals real GDP. 
B)  real aggregate expenditure equals C + I. 
C)  real aggregate expenditure equals real GDP. 
D)  real aggregate output equals the quantity produced.

Question 2

What are the four categories of aggregate expenditure?

Accepted Answer

The four categories are consum

Question 3

C = 4,000 + 0.5Y
I = 1,500
G =2,250
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 = 4,000

Question 4

Which of the following will increase aggregate expenditure in the United States?

Accepted Answer

A)  an increase in the value of the dollar 
B)  an increase in the price level 
C)  an increase in interest rates 
D)  an increase in government purchases 
A)  an increase in the value of the dollar 
B)  an increase in the price level 
C)  an increase in interest rates 
D)  an increase in government purchases

Question 5

Increases in the price level will

Accepted Answer

A)  lower consumption because goods and services are less affordable. 
B)  raise consumption because some goods and services are more affordable. 
C)  raise consumption because real wealth increases. 
D)  lower consumption because real wealth decreases. 
A)  lower consumption because goods and services are less affordable. 
B)  raise consumption because some goods and services are more affordable. 
C)  raise consumption because real wealth increases. 
D)  lower consumption because real wealth decreases.

Question 6

The five most important variables that determine the level of consumption are

Accepted Answer

A)  disposable income, wealth, expected future income, price level, and interest rate. 
B)  wealth, savings account balances, checking account balances, stock portfolio balances, and bond portfolio balances. 
C)  government purchases, interest rates, income, taxes, and transfers. 
D)  government purchases, saving account balances, wealth, interest rates, portfolio balances. 
A)  disposable income, wealth, expected future income, price level, and interest rate. 
B)  wealth, savings account balances, checking account balances, stock portfolio balances, and bond portfolio balances. 
C)  government purchases, interest rates, income, taxes, and transfers. 
D)  government purchases, saving account balances, wealth, interest rates, portfolio balances.

Question 7

The ________ illustrates the relationship between the price level and the quantity of planned aggregate expenditure, holding constant all other factors that affect aggregate expenditure.

Accepted Answer

A)  aggregate demand curve 
B)  savings line 
C)  45-degree line 
D)  consumption function 
A)  aggregate demand curve 
B)  savings line 
C)  45-degree line 
D)  consumption function

Question 8

If planned aggregate expenditure is greater than total production

Accepted Answer

A)  actual inventories will equal planned inventories. 
B)  firms will experience an unplanned decrease in inventories. 
C)  GDP will decrease. 
D)  the economy is in equilibrium. 
A)  actual inventories will equal planned inventories. 
B)  firms will experience an unplanned decrease in inventories. 
C)  GDP will decrease. 
D)  the economy is in equilibrium.

Question 9

If planned aggregate expenditure is less than total production

Accepted Answer

A)  actual inventories will equal planned inventories. 
B)  firms will experience an unplanned decrease in inventories. 
C)  GDP will decrease. 
D)  the economy is in equilibrium. 
A)  actual inventories will equal planned inventories. 
B)  firms will experience an unplanned decrease in inventories. 
C)  GDP will decrease. 
D)  the economy is in equilibrium.

Question 10

________ usually increase(s) when the U.S. economy is in a recession and decrease(s) when the U.S. economy is expanding.

Accepted Answer

A)  Consumer spending 
B)  Planned investment 
C)  Net Exports 
D)  Unplanned investment 
A)  Consumer spending 
B)  Planned investment 
C)  Net Exports 
D)  Unplanned investment

Question 11

A rising price level decreases consumption by decreasing the real value of household wealth.

Accepted Answer

A) True 
 B)False

Question 12

Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $21,500, what is the value of the marginal propensity to consume? C = 1,500 + (MPC)Y
I = 1,000
G = 2,000
NX = -200

Accepted Answer

A)  0.67 
B)  0.75 
C)  0.8 
D)  0.9 
A)  0.67 
B)  0.75 
C)  0.8 
D)  0.9

Question 13

What is the difference between aggregate expenditure and consumption spending?

Accepted Answer

Aggregate expenditure represents the tot

Question 14

The marginal propensity to consume is defined as

Accepted Answer

A)  consumption divided by disposable income. 
B)  disposable income divided by consumption. 
C)  the change in consumption divided by the change in disposable income. 
D)  the change in disposable income divided by the change in consumption. 
A)  consumption divided by disposable income. 
B)  disposable income divided by consumption. 
C)  the change in consumption divided by the change in disposable income. 
D)  the change in disposable income divided by the change in consumption.

Question 15

Figure 23-1  
-Refer to Figure 23-1. If the economy is at point L, what will happen?

Accepted Answer

A)  Inventories have fallen below their desired level, and firms decrease production. 
B)  Inventories have fallen below their desired level, and firms increase production. 
C)  Inventories have risen above their desired level, and firms decrease production. 
D)  Inventories have risen above their desired level, and firms increase production. 
A)  Inventories have fallen below their desired level, and firms decrease production. 
B)  Inventories have fallen below their desired level, and firms increase production. 
C)  Inventories have risen above their desired level, and firms decrease production. 
D)  Inventories have risen above their desired level, and firms increase production.

Question 16

Figure 23-3  
-Refer to Figure 23-3. Suppose that investment spending decreases by $5 million, decreasing aggregate expenditure and decreasing real GDP from GDP2 to GDP1. If the MPC is 0.8, then what is the change in GDP?

Accepted Answer

A)  -$4 million 
B)  -$5 million 
C)  -$25 million 
D)  -$40 million 
A)  -$4 million 
B)  -$5 million 
C)  -$25 million 
D)  -$40 million

Question 17

Consumer spending ________ and investment spending ________.

Accepted Answer

A)  is very volatile and subject to fluctuations; follows a smooth trend 
B)  follows a smooth trend; is more volatile and subject to fluctuations 
C)  follows a smooth trend; is the most stable component of aggregate expenditure 
D)  is very erratic; is also erratic, but less erratic than consumer spending 
A)  is very volatile and subject to fluctuations; follows a smooth trend 
B)  follows a smooth trend; is more volatile and subject to fluctuations 
C)  follows a smooth trend; is the most stable component of aggregate expenditure 
D)  is very erratic; is also erratic, but less erratic than consumer spending

Question 18

If firms find that consumers are purchasing more than expected, which of the following would you expect?

Accepted Answer

A)  Aggregate expenditure will likely be greater than GDP. 
B)  Aggregate expenditure will likely be less than GDP. 
C)  The economy will adjust to macroeconomic equilibrium as inventories rise, and production and employment fall. 
D)  The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment fall. 
A)  Aggregate expenditure will likely be greater than GDP. 
B)  Aggregate expenditure will likely be less than GDP. 
C)  The economy will adjust to macroeconomic equilibrium as inventories rise, and production and employment fall. 
D)  The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment fall.

Question 19

John Maynard Keynes argued that if many households decide to increase saving and reduce spending at the same time,

Accepted Answer

A)  this may benefit the economy in the short run, but not in the long run. 
B)  the economy will benefit in the short run and benefit by an even greater amount in the long run. 
C)  this will have a major negative impact on the economy in both the short run and in the long run. 
D)  this may benefit the economy in the long run, but could be counterproductive in the short run. 
A)  this may benefit the economy in the short run, but not in the long run. 
B)  the economy will benefit in the short run and benefit by an even greater amount in the long run. 
C)  this will have a major negative impact on the economy in both the short run and in the long run. 
D)  this may benefit the economy in the long run, but could be counterproductive in the short run.

Question 20

Actual investment will equal planned investment only when

Accepted Answer

A)  there is an unplanned increase in inventories. 
B)  there is an unplanned decrease in inventories. 
C)  there is no unplanned change in inventories. 
D)  companies have no inventories. 
A)  there is an unplanned increase in inventories. 
B)  there is an unplanned decrease in inventories. 
C)  there is no unplanned change in inventories. 
D)  companies have no inventories.

Exam 23: Aggregate Expenditure and Output in the Short Run

On the 45 degree-line diagram, the 45 degree line shows points where

What are the four categories of aggregate expenditure?

C = 4,000 + 0.5Y I = 1,500 G =2,250 NX = -150 Given the equations for C, I, G, and NX above, what is the equilibrium level of GDP (Y)?

Which of the following will increase aggregate expenditure in the United States?

Increases in the price level will

The five most important variables that determine the level of consumption are

The ________ illustrates the relationship between the price level and the quantity of planned aggregate expenditure, holding constant all other factors that affect aggregate expenditure.

If planned aggregate expenditure is greater than total production

If planned aggregate expenditure is less than total production

________ usually increase(s) when the U.S. economy is in a recession and decrease(s) when the U.S. economy is expanding.

A rising price level decreases consumption by decreasing the real value of household wealth.

Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $21,500, what is the value of the marginal propensity to consume? C = 1,500 + (MPC)Y I = 1,000 G = 2,000 NX = -200

What is the difference between aggregate expenditure and consumption spending?

The marginal propensity to consume is defined as

Figure 23-1 -Refer to Figure 23-1. If the economy is at point L, what will happen?

Figure 23-3 -Refer to Figure 23-3. Suppose that investment spending decreases by $5 million, decreasing aggregate expenditure and decreasing real GDP from GDP2 to GDP1. If the MPC is 0.8, then what is the change in GDP?

Consumer spending ________ and investment spending ________.

If firms find that consumers are purchasing more than expected, which of the following would you expect?

John Maynard Keynes argued that if many households decide to increase saving and reduce spending at the same time,

Actual investment will equal planned investment only when

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

Figure 23-3 -Refer to Figure 23-3. Suppose that investment spending decreases by $5 million, decreasing aggregate expenditure and decreasing real GDP from GDP₂ to GDP₁. If the MPC is 0.8, then what is the change in GDP?

Consumer spending and investment spending .