Question 1

An upward shift in the consumption function can be caused by

Accepted Answer

A) expectations of product shortages. 
B) expectations of less income in the future. 
C) a decrease in consumer confidence. 
D) a reduction in the wealth of households. 
A) expectations of product shortages. 
B) expectations of less income in the future. 
C) a decrease in consumer confidence. 
D) a reduction in the wealth of households.

Question 2

Figure 13-1
  
-Refer to Figure 13-1.When disposable personal income is $2,000 billion,

Accepted Answer

A) personal saving is $1,200 billion. 
B) consumption is $1,600 billion. 
C) saving is $800 billion. 
D) consumption is $800 billion. 
A) personal saving is $1,200 billion. 
B) consumption is $1,600 billion. 
C) saving is $800 billion. 
D) consumption is $800 billion.

Question 3

In the aggregate expenditures model, if aggregate expenditures equal $800 billion and real GDP equals $600 billion,

Accepted Answer

A) unplanned inventory accumulation equals $200 billion. 
B) unplanned inventory depletion equals $200 billion. 
C) consumption plus investment equals $200 billion. 
D) net investment equals $200 billion. 
A) unplanned inventory accumulation equals $200 billion. 
B) unplanned inventory depletion equals $200 billion. 
C) consumption plus investment equals $200 billion. 
D) net investment equals $200 billion.

Question 4

In the aggregate expenditures model, in equilibrium,

Accepted Answer

A) aggregate expenditures equal real GDP produced. 
B) inventory changes equal saving. 
C) inventory changes equal investment. 
D) aggregate expenditures equal consumption. 
A) aggregate expenditures equal real GDP produced. 
B) inventory changes equal saving. 
C) inventory changes equal investment. 
D) aggregate expenditures equal consumption.

Question 5

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to consume is 0.75?

Accepted Answer

A) 1 
B) 4 
C) 5 
D) infinity 
A) 1 
B) 4 
C) 5 
D) infinity

Question 6

Figure 13-5
  
-Refer to Figure 13-5.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment.Consider a simple economy where AE = C + IP, IP is autonomous
And the consumption function is given by C = $1,000 billion + 0.75Y.What is the value of consumption when real GDP is $6,000 billion?

Accepted Answer

A) $1,000 billion 
B) $2,500 billion 
C) $4,500 billion 
D) $5,500 billion 
A) $1,000 billion 
B) $2,500 billion 
C) $4,500 billion 
D) $5,500 billion

Question 7

Unplanned investment occurs when
I.aggregate expenditures exceed real GDP produced.
II.aggregate expenditures fall short of real GDP produced.
III.when real GDP produced is less than potential real GDP.
IV.when real GDP produced is greater than potential real GDP.

Accepted Answer

A) I and II only 
B) I and IV only 
C) II and III only 
D) I, II, III, and IV 
A) I and II only 
B) I and IV only 
C) II and III only 
D) I, II, III, and IV

Question 8

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.Which of the following causes the aggregate expenditures curve to shift upwards?

Accepted Answer

A) an increase in taxes 
B) an increase in exports 
C) a decrease in the national debt 
D) a decrease in interest rate 
A) an increase in taxes 
B) an increase in exports 
C) a decrease in the national debt 
D) a decrease in interest rate

Question 9

Figure 13-6
  
-Refer to Figure 13-6.What is the value of the multiplier?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 5 
A) 1 
B) 2 
C) 3 
D) 5

Question 10

Figure 13-6
  
-Refer to Figure 13-6.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment, G = Government Purchases.Further, IP and G are autonomous.
If real GDP produced is $4,000, how will equilibrium be restored in the economy?

Accepted Answer

A) Policymakers must conduct contractionary policies to move the economy toward its equilibrium real GDP. 
B) Firms will reduce their output in subsequent periods, moving the economy toward its equilibrium real GDP. 
C) The price level must rise to reduce aggregate expenditures and restore equilibrium. 
D) The price level must fall to increase aggregate expenditures and restore equilibrium. 
A) Policymakers must conduct contractionary policies to move the economy toward its equilibrium real GDP. 
B) Firms will reduce their output in subsequent periods, moving the economy toward its equilibrium real GDP. 
C) The price level must rise to reduce aggregate expenditures and restore equilibrium. 
D) The price level must fall to increase aggregate expenditures and restore equilibrium.

Question 11

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.Which of the following causes the aggregate expenditures curve to shift downwards?

Accepted Answer

A) a decrease in taxes 
B) an increase in imports 
C) an increase in government spending 
D) an increase in investment 
A) a decrease in taxes 
B) an increase in imports 
C) an increase in government spending 
D) an increase in investment

Question 12

Suppose at each price level, autonomous aggregate expenditures fall by $80 billion.As a result, the aggregate expenditures curve shifts

Accepted Answer

A) downward at each price level and results in a leftward shift in aggregate demand. 
B) upward at each price level and results in a rightward shift in aggregate demand. 
C) downward at each price level and results in a movement down along a given aggregate demand. 
D) upward at each price level and results in a movement up along a given aggregate demand. 
A) downward at each price level and results in a leftward shift in aggregate demand. 
B) upward at each price level and results in a rightward shift in aggregate demand. 
C) downward at each price level and results in a movement down along a given aggregate demand. 
D) upward at each price level and results in a movement up along a given aggregate demand.

Question 13

Figure 13-6
  
-Refer to Figure 13-6.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment, G = Government Purchases.Further, IP and G are autonomous.If real GDP produced is $4,000, what is the amount of unplanned investment?

Accepted Answer

A) zero 
B) $1,200 billion 
C) $2,400 billion 
D) $2,800 billion 
A) zero 
B) $1,200 billion 
C) $2,400 billion 
D) $2,800 billion

Question 14

Let real GDP =Y = Yd, and the consumption function is C = $1,000 + .06Y.
What is the value of autonomous consumption (A)and what is the marginal propensity to consume (MPC)?

Accepted Answer

A) A = $600; MPC = 0.4 
B) A = $1,000; MPC = 0.6 
C) A = $1,600; MPC = 2.5 
D) A = $2,500; MPC = 0.6 
A) A = $600; MPC = 0.4 
B) A = $1,000; MPC = 0.6 
C) A = $1,600; MPC = 2.5 
D) A = $2,500; MPC = 0.6

Question 15

Consider a simple economy that is made up of three sectors: households, firms, and government.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment, G = Government Purchases.Further, IP and G are autonomous.
In this case, the slope of the aggregate expenditures curve is

Accepted Answer

A) 1. 
B) infinity (since the AE curve is horizontal). 
C) equal to the marginal propensity to consume. 
D) the value of the multiplier. 
A) 1. 
B) infinity (since the AE curve is horizontal). 
C) equal to the marginal propensity to consume. 
D) the value of the multiplier.

Question 16

The multiplier effect is triggered by a shift in the aggregate expenditures curve.

Accepted Answer

A) True 
 B)False

Question 17

An increase in aggregate demand causes an increase in _______, which in turn induces an increase in _______.

Accepted Answer

A) income, consumption 
B) investment, consumption 
C) government spending, net exports 
D) consumption, price 
A) income, consumption 
B) investment, consumption 
C) government spending, net exports 
D) consumption, price

Question 18

The aggregate demand traces

Accepted Answer

A) the total spending by consumers, business firms, and government agencies at a given price level. 
B) the locus of equilibrium real GDP associated with each price level in the aggregate expenditures model. 
C) the locus of equilibrium aggregate expenditures-real GDP combinations in the aggregate expenditures model. 
D) the locus of equilibrium real GDP associated with each income level in the aggregate expenditures model. 
A) the total spending by consumers, business firms, and government agencies at a given price level. 
B) the locus of equilibrium real GDP associated with each price level in the aggregate expenditures model. 
C) the locus of equilibrium aggregate expenditures-real GDP combinations in the aggregate expenditures model. 
D) the locus of equilibrium real GDP associated with each income level in the aggregate expenditures model.

Question 19

Suppose that your annual income has averaged $20,000 for the past 10 years and that you expect it will average $20,000 over the next 10 years.If your income this year increases to $30,000 but your consumption expenditures don't change, then you are most likely acting according to the

Accepted Answer

A) transitory income theory of consumption. 
B) current income hypothesis. 
C) permanent income hypothesis. 
D) disposable personal income theory of consumption. 
A) transitory income theory of consumption. 
B) current income hypothesis. 
C) permanent income hypothesis. 
D) disposable personal income theory of consumption.

Exam 28: Consumption and the Aggregate Expenditures Model

An upward shift in the consumption function can be caused by

Figure 13-1 -Refer to Figure 13-1.When disposable personal income is $2,000 billion,

In the aggregate expenditures model, if aggregate expenditures equal $800 billion and real GDP equals $600 billion,

In the aggregate expenditures model, in equilibrium,

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to consume is 0.75?

Unplanned investment occurs when I.aggregate expenditures exceed real GDP produced. II.aggregate expenditures fall short of real GDP produced. III.when real GDP produced is less than potential real GDP. IV.when real GDP produced is greater than potential real GDP.

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.Which of the following causes the aggregate expenditures curve to shift upwards?

Figure 13-6 -Refer to Figure 13-6.What is the value of the multiplier?

Figure 13-6 -Refer to Figure 13-6.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases.Further, IP and G are autonomous. If real GDP produced is $4,000, how will equilibrium be restored in the economy?

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.Which of the following causes the aggregate expenditures curve to shift downwards?

Suppose at each price level, autonomous aggregate expenditures fall by $80 billion.As a result, the aggregate expenditures curve shifts

Figure 13-6 -Refer to Figure 13-6.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases.Further, IP and G are autonomous.If real GDP produced is $4,000, what is the amount of unplanned investment?

Let real GDP =Y = Yd, and the consumption function is C = $1,000 + .06Y. What is the value of autonomous consumption (A)and what is the marginal propensity to consume (MPC)?

The multiplier effect is triggered by a shift in the aggregate expenditures curve.

An increase in aggregate demand causes an increase in _______, which in turn induces an increase in _______.

The aggregate demand traces

Suppose that your annual income has averaged $20,000 for the past 10 years and that you expect it will average $20,000 over the next 10 years.If your income this year increases to $30,000 but your consumption expenditures don't change, then you are most likely acting according to the

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Figure 13-6 -Refer to Figure 13-6.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases.Further, I_P and G are autonomous. If real GDP produced is $4,000, how will equilibrium be restored in the economy?

Figure 13-6 -Refer to Figure 13-6.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases.Further, I_P and G are autonomous.If real GDP produced is $4,000, what is the amount of unplanned investment?

Let real GDP =Y = Y_d, and the consumption function is C = $1,000 + .06Y. What is the value of autonomous consumption (A)and what is the marginal propensity to consume (MPC)?

An increase in aggregate demand causes an increase in _, which in turn induces an increase in _.