Question 1

In the aggregate expenditures model, if an economy operates above equilibrium GDP, there will be:

Accepted Answer

A) unplanned inventory accumulation. 
B) a decrease in GDP. 
C) a decrease in employment. 
D) all of the above. 
A) unplanned inventory accumulation. 
B) a decrease in GDP. 
C) a decrease in employment. 
D) all of the above.

Question 2

At the equilibrium level of real GDP, which of the following is true ?

Accepted Answer

A) Unplanned inventory investment is positive. 
B) Unplanned inventory investment is negative. 
C) Aggregate output equals aggregate expenditures. 
D) Aggregate output plus consumption spending equals aggregate expenditures. 
A) Unplanned inventory investment is positive. 
B) Unplanned inventory investment is negative. 
C) Aggregate output equals aggregate expenditures. 
D) Aggregate output plus consumption spending equals aggregate expenditures.

Question 3

The effect of an increase in investment on real GDP will be greater, the larger the:

Accepted Answer

A) MPC. 
B) APC. 
C) MPS. 
D) APS. 
A) MPC. 
B) APC. 
C) MPS. 
D) APS.

Question 4

Suppose that John Maestro, the owner of a tennis shop in Evanston, Illinois, decides to purchase a new machine that restrings tennis rackets in half the time it formerly took. The new technology costs $1,000, and the MPC is 0.80. How much real GDP will be generated from John's $1,000 initial investment?

Accepted Answer

A) $200 
B) $500 
C) $1,000 
D) $2,000 
E) $5,000 
A) $200 
B) $500 
C) $1,000 
D) $2,000 
E) $5,000

Question 5

Exhibit 9-1 GDP and consumption data
   
As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1 trillion, net exports are - $0.5 trillion, and GDP is $2 trillion, then:

Accepted Answer

A) inventory depletion is - $1.5 trillion. 
B) inventory accumulation is - $2.0 trillion. 
C) inventory depletion is - $0.5 trillion. 
D) inventory accumulation is $0.5 trillion. 
A) inventory depletion is - $1.5 trillion. 
B) inventory accumulation is - $2.0 trillion. 
C) inventory depletion is - $0.5 trillion. 
D) inventory accumulation is $0.5 trillion.

Question 6

Within the framework of the Keynesian model, if aggregate expenditures exceed aggregate output, then:

Accepted Answer

A) the inventories of firms would decline, and the firms would expand output in order to restore their inventories to desired levels. 
B) the inventories of firms would increase, and the firms would reduce output until inventories were cut back to the desired level. 
C) the current level of income would persist in the future. 
D) firms would reduce their investment, and the economy would fall into a recession. 
A) the inventories of firms would decline, and the firms would expand output in order to restore their inventories to desired levels. 
B) the inventories of firms would increase, and the firms would reduce output until inventories were cut back to the desired level. 
C) the current level of income would persist in the future. 
D) firms would reduce their investment, and the economy would fall into a recession.

Question 7

The greater the marginal propensity to consume (MPC)in the economy, the greater the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 8

If firms increase their investment spending by $10 million, then the economy's equilibrium output rises by exactly $10 million.

Accepted Answer

A) True 
 B)False

Question 9

If the marginal propensity to consume (MPC)is 0.96, the value of the spending multiplier is:

Accepted Answer

A) 25. 
B) 40. 
C) 96. 
D) 100. 
A) 25. 
B) 40. 
C) 96. 
D) 100.

Question 10

The size of the spending multiplier depends on the level of real GDP.

Accepted Answer

A) True 
 B)False

Question 11

If an economy spends 90 percent of any increase in real GDP, then an increase in investment of $1 billion would result ultimately in an increase in real GDP of:

Accepted Answer

A) $0. 
B) $0.9 billion. 
C) $1.0 billion. 
D) $10 billion. 
A) $0. 
B) $0.9 billion. 
C) $1.0 billion. 
D) $10 billion.

Question 12

If the multiplier is 3, equilibrium real GDP is $1,000 billion, and investment is $400 billion, what will happen if investment decreases to $380 billion? Real GDP will:

Accepted Answer

A) increase to $1,020 billion. 
B) increase to $1,060 billion. 
C) decrease to $980 billion. 
D) decrease to $940 billion. 
E) decrease to $970 billion. 
A) increase to $1,020 billion. 
B) increase to $1,060 billion. 
C) decrease to $980 billion. 
D) decrease to $940 billion. 
E) decrease to $970 billion.

Question 13

A $2,000 decrease in investment will shift the aggregate expenditures curve down by:

Accepted Answer

A) exactly $2,000 and will decrease the equilibrium level of real GDP by exactly $2,000. 
B) exactly $2,000 and will decrease the equilibrium level of real GDP by less than $2,000. 
C) exactly $2,000 and will decrease the equilibrium level of real GDP by more than $2,000. 
D) less than $2,000 and will decrease the equilibrium level of real GDP by less than $2,000. 
A) exactly $2,000 and will decrease the equilibrium level of real GDP by exactly $2,000. 
B) exactly $2,000 and will decrease the equilibrium level of real GDP by less than $2,000. 
C) exactly $2,000 and will decrease the equilibrium level of real GDP by more than $2,000. 
D) less than $2,000 and will decrease the equilibrium level of real GDP by less than $2,000.

Question 14

If the marginal propensity to consume (MPC)is 0.80, the value of the spending multiplier is:

Accepted Answer

A) 2. 
B) 5. 
C) 8. 
D) 10. 
A) 2. 
B) 5. 
C) 8. 
D) 10.

Question 15

The spending multiplier effect is the result of a shift in the aggregate expenditures (AE)line.

Accepted Answer

A) True 
 B)False

Question 16

If the marginal propensity to save is 0.40, a $20 billion increase in investment spending would cause equilibrium output to:

Accepted Answer

A) increase by $50. 
B) increase by $80. 
C) decrease by $33. 
D) decrease by $40. 
E) decrease by $20. 
A) increase by $50. 
B) increase by $80. 
C) decrease by $33. 
D) decrease by $40. 
E) decrease by $20.

Question 17

In the aggregate expenditures model, if aggregate expenditures (AE)are less than GDP, then:

Accepted Answer

A) inventory is depleted. 
B) inventory is unchanged. 
C) employment decreases. 
D) employment increases. 
A) inventory is depleted. 
B) inventory is unchanged. 
C) employment decreases. 
D) employment increases.

Question 18

Exhibit 9-8 Keynesian aggregate-expenditures model   In Exhibit 9-8, an increase in aggregate expenditures of 100 causes real GDP to rise by:

Accepted Answer

A) $100. 
B) $200. 
C) $300. 
D) $400. 
E) $500. 
A) $100. 
B) $200. 
C) $300. 
D) $400. 
E) $500.

Question 19

Which one of the following are the components of aggregate expenditures?

Accepted Answer

A) Household consumption, business investment, government spending for goods and services, and net exports. 
B) Household consumption, business investment, government transfer payments, and net exports. 
C) Household consumption, business investment, government spending for goods and services, and exports. 
D) Household consumption, business investment, government spending for goods and services, and saving. 
E) Household consumption, business inventories, government spending for goods and services, and net exports. 
A) Household consumption, business investment, government spending for goods and services, and net exports. 
B) Household consumption, business investment, government transfer payments, and net exports. 
C) Household consumption, business investment, government spending for goods and services, and exports. 
D) Household consumption, business investment, government spending for goods and services, and saving. 
E) Household consumption, business inventories, government spending for goods and services, and net exports.

Question 20

If $30 billion in new investment was added to the economy and MPC was 0.90, real GDP would increase by:

Accepted Answer

A) $30 billion. 
B) $90 billion. 
C) $100 billion. 
D) $210 billion. 
E) $300 billion. 
A) $30 billion. 
B) $90 billion. 
C) $100 billion. 
D) $210 billion. 
E) $300 billion.

Exam 9: The Keynesian Model in Action

In the aggregate expenditures model, if an economy operates above equilibrium GDP, there will be:

At the equilibrium level of real GDP, which of the following is true ?

The effect of an increase in investment on real GDP will be greater, the larger the:

Exhibit 9-1 GDP and consumption data As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1 trillion, net exports are - $0.5 trillion, and GDP is $2 trillion, then:

Within the framework of the Keynesian model, if aggregate expenditures exceed aggregate output, then:

The greater the marginal propensity to consume (MPC)in the economy, the greater the spending multiplier.

If firms increase their investment spending by $10 million, then the economy's equilibrium output rises by exactly $10 million.

If the marginal propensity to consume (MPC)is 0.96, the value of the spending multiplier is:

The size of the spending multiplier depends on the level of real GDP.

If an economy spends 90 percent of any increase in real GDP, then an increase in investment of $1 billion would result ultimately in an increase in real GDP of:

If the multiplier is 3, equilibrium real GDP is $1,000 billion, and investment is $400 billion, what will happen if investment decreases to $380 billion? Real GDP will:

A $2,000 decrease in investment will shift the aggregate expenditures curve down by:

If the marginal propensity to consume (MPC)is 0.80, the value of the spending multiplier is:

The spending multiplier effect is the result of a shift in the aggregate expenditures (AE)line.

If the marginal propensity to save is 0.40, a $20 billion increase in investment spending would cause equilibrium output to:

In the aggregate expenditures model, if aggregate expenditures (AE)are less than GDP, then:

Exhibit 9-8 Keynesian aggregate-expenditures model In Exhibit 9-8, an increase in aggregate expenditures of 100 causes real GDP to rise by:

Which one of the following are the components of aggregate expenditures?

If $30 billion in new investment was added to the economy and MPC was 0.90, real GDP would increase by:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters