Question 1

The slope of the consumption function is equal to

Accepted Answer

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

Question 2

If the multiplier is 10, the marginal propensity to consume must be 0.1.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

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

Question 4

Table 23-6
  
-Given Table 23-7 below, fill in the values of the marginal propensity to save (MPS) and the marginal propensity to consume (MPC). Show that MPC + MPS = 1.

Accepted Answer

The MPC is defined as:
MPC = @#IMG-DLM& = @#IMG-DLM& = @#IMG-DLM& = 0.

Question 5

Figure 23-1  
-Refer to Figure 23-1. What will happen next when the economy is at point J?

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 6

All of the following are true statements about the multiplier except

Accepted Answer

A)  the multiplier rises as the MPC rises. 
B)  the smaller the MPS, the larger the multiplier. 
C)  the multiplier is a value between zero and one. 
D)  the multiplier effect occurs when autonomous expenditure changes. 
A)  the multiplier rises as the MPC rises. 
B)  the smaller the MPS, the larger the multiplier. 
C)  the multiplier is a value between zero and one. 
D)  the multiplier effect occurs when autonomous expenditure changes.

Question 7

How does a decrease in government spending affect the aggregate expenditure line?

Accepted Answer

A)  It shifts the aggregate expenditure line upward. 
B)  It shifts the aggregate expenditure line downward. 
C)  It increases the slope of the aggregate expenditure line. 
D)  It decreases the slope of the aggregate expenditure line. 
A)  It shifts the aggregate expenditure line upward. 
B)  It shifts the aggregate expenditure line downward. 
C)  It increases the slope of the aggregate expenditure line. 
D)  It decreases the slope of the aggregate expenditure line.

Question 8

A decrease in aggregate expenditure has what result on equilibrium GDP?

Accepted Answer

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

Question 9

If firms find that consumers are purchasing less 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 rise. 
D)  The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment rise. 
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 rise. 
D)  The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment rise.

Question 10

The difference between GDP and net taxes is

Accepted Answer

A)  personal income. 
B)  actual investment spending. 
C)  disposable income. 
D)  unplanned investment spending. 
A)  personal income. 
B)  actual investment spending. 
C)  disposable income. 
D)  unplanned investment spending.

Question 11

Figure 23-2  
-Refer to Figure 23-2. If the U.S. economy is currently at point K, which of the following could cause it to move to point N?

Accepted Answer

A)  The price level in the United States rises relative to the price level in other countries. 
B)  Congress passes investment tax incentives. 
C)  The interest rate rises. 
D)  Household wealth declines. 
A)  The price level in the United States rises relative to the price level in other countries. 
B)  Congress passes investment tax incentives. 
C)  The interest rate rises. 
D)  Household wealth declines.

Question 12

Figure 23-1  
-Refer to Figure 23-1. According to the figure above, at what point is aggregate expenditure greater than GDP?

Accepted Answer

A)  J 
B)  K 
C)  L 
D)  none of the above 
A)  J 
B)  K 
C)  L 
D)  none of the above

Question 13

Which of the following is a true statement about the multiplier?

Accepted Answer

A)  The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate. 
B)  The larger the MPC, the smaller the multiplier. 
C)  The multiplier is the ratio of the change in spending to the change in GDP. 
D)  The multiplier makes the economy less sensitive to changes in autonomous expenditure. 
A)  The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate. 
B)  The larger the MPC, the smaller the multiplier. 
C)  The multiplier is the ratio of the change in spending to the change in GDP. 
D)  The multiplier makes the economy less sensitive to changes in autonomous expenditure.

Question 14

The marginal propensity to consume measures the average amount of wealth that a consumer spends in a given period of time.

Accepted Answer

A) True 
 B)False

Question 15

If an increase in autonomous consumption spending of $25 million results in a $100 million increase in equilibrium real GDP, then

Accepted Answer

A)  the MPC is 0.25. 
B)  the MPC is 0.75. 
C)  the MPC is 0.8. 
D)  the MPC is 2.5. 
A)  the MPC is 0.25. 
B)  the MPC is 0.75. 
C)  the MPC is 0.8. 
D)  the MPC is 2.5.

Question 16

Autonomous expenditure times the multiplier equals

Accepted Answer

A)  autonomous saving. 
B)  autonomous consumption. 
C)  equilibrium GDP. 
D)  planned autonomous investment. 
A)  autonomous saving. 
B)  autonomous consumption. 
C)  equilibrium GDP. 
D)  planned autonomous investment.

Question 17

If inventories decline by more than analysts predict they will decline, this implies that

Accepted Answer

A)  actual investment spending was greater than planned investment spending. 
B)  actual investment spending was less than planned investment spending. 
C)  actual investment spending was equal to than planned investment spending. 
D)  there is no relationship between actual investment spending and planned investment spending. 
A)  actual investment spending was greater than planned investment spending. 
B)  actual investment spending was less than planned investment spending. 
C)  actual investment spending was equal to than planned investment spending. 
D)  there is no relationship between actual investment spending and planned investment spending.

Question 18

How does an increase in government spending affect the aggregate expenditure line?

Accepted Answer

A)  It shifts the aggregate expenditure line upward. 
B)  It shifts the aggregate expenditure line downward. 
C)  It increases the slope of the aggregate expenditure line. 
D)  It decreases the slope of the aggregate expenditure line. 
A)  It shifts the aggregate expenditure line upward. 
B)  It shifts the aggregate expenditure line downward. 
C)  It increases the slope of the aggregate expenditure line. 
D)  It decreases the slope of the aggregate expenditure line.

Question 19

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

Accepted Answer

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

Question 20

Table 23-10
  
-Refer to Table 23-10. 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 determi

Exam 23: Aggregate Expenditure and Output in the Short Run

The slope of the consumption function is equal to

If the multiplier is 10, the marginal propensity to consume must be 0.1.

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

Table 23-6 -Given Table 23-7 below, fill in the values of the marginal propensity to save (MPS) and the marginal propensity to consume (MPC). Show that MPC + MPS = 1.

Figure 23-1 -Refer to Figure 23-1. What will happen next when the economy is at point J?

All of the following are true statements about the multiplier except

How does a decrease in government spending affect the aggregate expenditure line?

A decrease in aggregate expenditure has what result on equilibrium GDP?

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

The difference between GDP and net taxes is

Figure 23-2 -Refer to Figure 23-2. If the U.S. economy is currently at point K, which of the following could cause it to move to point N?

Figure 23-1 -Refer to Figure 23-1. According to the figure above, at what point is aggregate expenditure greater than GDP?

Which of the following is a true statement about the multiplier?

The marginal propensity to consume measures the average amount of wealth that a consumer spends in a given period of time.

If an increase in autonomous consumption spending of $25 million results in a $100 million increase in equilibrium real GDP, then

Autonomous expenditure times the multiplier equals

If inventories decline by more than analysts predict they will decline, this implies that

How does an increase in government spending affect the aggregate expenditure line?

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

Table 23-10 -Refer to Table 23-10. Using the table above, calculate the unplanned change in inventories for each level of GDP, and explain what will happen to 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

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