Question 1

Which of the following is NOT consistent with the paradox of thrift?

Accepted Answer

A)  Changes in savings cause changes in consumer spending. 
B)  Interest rates adjust to move the loanable funds market to equilibrium. 
C)  Changes in consumer spending cause changes in aggregate demand. 
D)  The level of aggregate demand impacts the output level in the country. 
A)  Changes in savings cause changes in consumer spending. 
B)  Interest rates adjust to move the loanable funds market to equilibrium. 
C)  Changes in consumer spending cause changes in aggregate demand. 
D)  The level of aggregate demand impacts the output level in the country.

Question 2

Which of the following is NOT part of the Keynesian perspective?

Accepted Answer

A)  The short run is more important than the long run. 
B)  Prices and wages tend to be sticky. 
C)  Markets move quickly to new equilibriums when supply or demand curves shift. 
D)  Changes in government purchases change total spending in an economy. 
A)  The short run is more important than the long run. 
B)  Prices and wages tend to be sticky. 
C)  Markets move quickly to new equilibriums when supply or demand curves shift. 
D)  Changes in government purchases change total spending in an economy.

Question 3

What is the role of unplanned investment in the aggregate expenditures model? When does it occur, and what does it trigger?

Accepted Answer

Unplanned investment is primarily an und

Question 4

In the aggregate expenditure model, the points on the 45-degree line represent all points where:

Accepted Answer

A)  aggregate expenditure equals aggregate saving. 
B)  real GDP equals the money supply. 
C)  real GDP equals aggregate expenditure. 
D)  aggregate saving equals aggregate GDP. 
A)  aggregate expenditure equals aggregate saving. 
B)  real GDP equals the money supply. 
C)  real GDP equals aggregate expenditure. 
D)  aggregate saving equals aggregate GDP.

Question 5

A key difference in Keynes's perspective compared to the classical view is that Keynes:

Accepted Answer

A)  focused on the short run. 
B)  believed that prices were flexible. 
C)  believed that unemployment would not be persistent enough to be a problem. 
D)  believed that the supply side of the economy was the main determinant of current output. 
A)  focused on the short run. 
B)  believed that prices were flexible. 
C)  believed that unemployment would not be persistent enough to be a problem. 
D)  believed that the supply side of the economy was the main determinant of current output.

Question 6

If the consumption function is C = 25 + .80 (disposable income), what is the expenditure multiplier for the full potential expenditure multiplier effect?

Accepted Answer

A)  25 
B)  1.25 
C)  31.25 
D)  5 
A)  25 
B)  1.25 
C)  31.25 
D)  5

Question 7

(Table 1: Economic Data for Macroland) Table 1 shows economic data for Macroland. Assume that Macroland is not involved in any international trade. Use the data in Table 1 to determine the marginal propensity to consume in Macroland. 
$\begin{array}{c}
\hline \text { Table 1. Economic Data for Macroland }\
\begin{array}{|l|l|l|l|l|}
\hline {\text { Income }} & {\begin{array}{c}
\text { Consumption } \
\text { Spending }
\end{array}} & \begin{array}{c}
\text { Government } \
\text { Spending }
\end{array} & \begin{array}{c}
\text { Investment } \
\text { Spending }
\end{array} & \begin{array}{c}
\text { Aggregate } \
\text { Expenditures }
\end{array} \
\hline \$ 0 & \$ 50 \text { billion } & \$ 100 \text { billion } & \$ 50 \text { billion } & \$ 200 \text { billion } \
\hline \$ 100 \text { billion } & \$ 120 \text { billion } & \$ 100 \text { billion } & \$ 50 \text { billion } & \$ 270 \text { billion } \
\hline \$ 200 \text { billion } & \$ 190 \text { billion } & \$ 100 \text { billion } & \$ 50 \text { billion } & \$ 340 \text { billion } \
\hline \$ 300 \text { billion } & \$ 260 \text { billion } & \$ 100 \text { billion } & \$ 50 \text { billion } & \$ 410 \text { billion }\
\hline
\end{array}
\end{array}$

Accepted Answer

A)  1.75 
B)  .75 
C)  .7 
D)  .25 
A)  1.75 
B)  .75 
C)  .7 
D)  .25

Question 8

According to the aggregate expenditures model, an increase in the aggregate expenditures curve for an economy will lead to:

Accepted Answer

A)  higher output and lower prices. 
B)  lower prices and fewer jobs. 
C)  higher output and more jobs. 
D)  lower output and higher prices. 
A)  higher output and lower prices. 
B)  lower prices and fewer jobs. 
C)  higher output and more jobs. 
D)  lower output and higher prices.

Question 9

In the aggregate expenditures model, an economy will be producing at the:

Accepted Answer

A)  maximum investment level that is allowed by its savings. 
B)  intersection of real GDP and aggregate expenditures. 
C)  intersection of aggregate demand and aggregate supply. 
D)  point where government purchases equal taxes. 
A)  maximum investment level that is allowed by its savings. 
B)  intersection of real GDP and aggregate expenditures. 
C)  intersection of aggregate demand and aggregate supply. 
D)  point where government purchases equal taxes.

Question 10

In the aggregate expenditures model, which of the following would cause the aggregate expenditures curve to decrease?

Accepted Answer

A)  Disposable income increases. 
B)  Business expectations become more pessimistic. 
C)  Net wealth increases. 
D)  Interest rates decrease. 
A)  Disposable income increases. 
B)  Business expectations become more pessimistic. 
C)  Net wealth increases. 
D)  Interest rates decrease.

Question 11

Keynes believed that increased saving:

Accepted Answer

A)  leads to price increases. 
B)  causes economic growth. 
C)  causes an economy to grow by providing investment funds. 
D)  causes consumer spending and total spending to fall. 
A)  leads to price increases. 
B)  causes economic growth. 
C)  causes an economy to grow by providing investment funds. 
D)  causes consumer spending and total spending to fall.

Question 12

The _____ economic model demonstrates the short-run relationship between aggregate expenditures and real GDP, assuming that the price level is constant.

Accepted Answer

A)  market price 
B)  macroeconomic money 
C)  aggregate supply and aggregate demand 
D)  aggregate expenditures 
A)  market price 
B)  macroeconomic money 
C)  aggregate supply and aggregate demand 
D)  aggregate expenditures

Question 13

The formula for the marginal propensity to consume is:

Accepted Answer

A)  planned consumption spending divided by disposable income. 
B)  disposable income minus saving. 
C)  the change in planned consumption spending divided by the change in disposable income. 
D)  disposable income minus government purchases, investment, and net exports. 
A)  planned consumption spending divided by disposable income. 
B)  disposable income minus saving. 
C)  the change in planned consumption spending divided by the change in disposable income. 
D)  disposable income minus government purchases, investment, and net exports.

Question 14

Describe the role of the 45-degree angle line in the aggregate expenditures model. What does it measure, and how does it help identify equilibrium? When does high unemployment occur?

Accepted Answer

The 45-degree angle line consists of all

Question 15

When income is $100 billion, consumption spending is $75 billion. When income is $120 billion, consumption spending is $89 billion. What is the marginal propensity to consume?

Accepted Answer

A)  .7 
B)  .3 
C)  2 
D)  1.4 
A)  .7 
B)  .3 
C)  2 
D)  1.4

Question 16

Which of the following is NOT true of an aggregate demand and aggregate supply graph that is drawn to represent the Keynesian perspective?

Accepted Answer

A)  The aggregate demand curve has a negative slope. 
B)  If output is below the natural rate, changes in demand affect both output and price. 
C)  Output is determined primarily by shifts in the aggregate demand curve. 
D)  If output is below the natural rate, the price level remains steady when the aggregate demand curve shifts. 
A)  The aggregate demand curve has a negative slope. 
B)  If output is below the natural rate, changes in demand affect both output and price. 
C)  Output is determined primarily by shifts in the aggregate demand curve. 
D)  If output is below the natural rate, the price level remains steady when the aggregate demand curve shifts.

Question 17

When expenditures exceed income, then business inventories will:

Accepted Answer

A)  not change. 
B)  rise. 
C)  fall. 
D)  rise and then fall. 
A)  not change. 
B)  rise. 
C)  fall. 
D)  rise and then fall.

Question 18

If the consumption function is C = 50 + .60 (disposable income), what is the expenditure multiplier for the full potential expenditure multiplier effect?

Accepted Answer

A)  8.33 
B)  1.67 
C)  50 
D)  2.5 
A)  8.33 
B)  1.67 
C)  50 
D)  2.5

Question 19

Describe how to identify the marginal propensity to consume on a graph of the aggregate expenditures function.

Accepted Answer

The marginal propensity to consume is th

Question 20

A key difference between the classical perspective and the Keynesian aggregate expenditure model is that the classical perspective believes that ______ and the Keynesian perspective does not.

Accepted Answer

A)  the short run is the time period that matters 
B)  countercyclical policies are needed 
C)  the economy self-corrects 
D)  prices are not flexible 
A)  the short run is the time period that matters 
B)  countercyclical policies are needed 
C)  the economy self-corrects 
D)  prices are not flexible

Exam 29: The Aggregate Expenditure Model

Which of the following is NOT consistent with the paradox of thrift?

Which of the following is NOT part of the Keynesian perspective?

What is the role of unplanned investment in the aggregate expenditures model? When does it occur, and what does it trigger?

In the aggregate expenditure model, the points on the 45-degree line represent all points where:

A key difference in Keynes's perspective compared to the classical view is that Keynes:

If the consumption function is C = 25 + .80 (disposable income), what is the expenditure multiplier for the full potential expenditure multiplier effect?

According to the aggregate expenditures model, an increase in the aggregate expenditures curve for an economy will lead to:

In the aggregate expenditures model, an economy will be producing at the:

In the aggregate expenditures model, which of the following would cause the aggregate expenditures curve to decrease?

Keynes believed that increased saving:

The _____ economic model demonstrates the short-run relationship between aggregate expenditures and real GDP, assuming that the price level is constant.

The formula for the marginal propensity to consume is:

Describe the role of the 45-degree angle line in the aggregate expenditures model. What does it measure, and how does it help identify equilibrium? When does high unemployment occur?

When income is $100 billion, consumption spending is $75 billion. When income is $120 billion, consumption spending is $89 billion. What is the marginal propensity to consume?

Which of the following is NOT true of an aggregate demand and aggregate supply graph that is drawn to represent the Keynesian perspective?

When expenditures exceed income, then business inventories will:

If the consumption function is C = 50 + .60 (disposable income), what is the expenditure multiplier for the full potential expenditure multiplier effect?

Describe how to identify the marginal propensity to consume on a graph of the aggregate expenditures function.

A key difference between the classical perspective and the Keynesian aggregate expenditure model is that the classical perspective believes that ______ and the Keynesian perspective does not.

The Basics of Economics

Why We Trade

The Supply and Demand Model

Elasticity

Consumer Choice

The Economic Efficiency of Markets

Taxation: An Economic Analysis

Externalities, the Environment, and Public Goods

Organizing a Business

Stocks and Bonds

The Cost of Doing Business

Perfect Competition

Monopoly and Antitrust Laws

Monopolistic Competition and Price Discrimination

Oligopoly

Behavioral Economics and Strategy

Labor and Other Resources

The Distribution of Income

Information and Health Economics

GDP and the Price Level

Unemployment and the Business Cycle

Long Run Economic Growth

Saving, Investment, and the Federal Budget Deficit

The Monetary System

Money and the Price Level in the Long Run

Aggregate Supply and Aggregate Demand

Monetary Policy and Interest Rates

Fiscal Policy and the Business Cycle

Inflation Expectations and Stabilization Policies

International Trade

Foreign Exchange Markets

International Finance

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