Question 1

The difference between total investment and planned investment is that:

Accepted Answer

A) planned investment is total investment minus taxes. 
B) planned investment is always larger than total investment. 
C) total investment includes changes in inventories. 
D) planned investment includes changes in inventories. 
A) planned investment is total investment minus taxes. 
B) planned investment is always larger than total investment. 
C) total investment includes changes in inventories. 
D) planned investment includes changes in inventories.

Question 2

Which of the following is the fiscal policy reaction when a weaker GDP is expected?

Accepted Answer

A) If government policymakers expect weaker GDP, they proactively increase government expenditure to boost GDP. 
B) If the Federal Reserve expects weaker GDP, it will proactively decrease interest rates to boost GDP. 
C) If the Federal Reserve expects weaker GDP, it will proactively increase interest rates to boost GDP. 
D) If government expenditure rises, then GDP will also rise. 
A) If government policymakers expect weaker GDP, they proactively increase government expenditure to boost GDP. 
B) If the Federal Reserve expects weaker GDP, it will proactively decrease interest rates to boost GDP. 
C) If the Federal Reserve expects weaker GDP, it will proactively increase interest rates to boost GDP. 
D) If government expenditure rises, then GDP will also rise.

Question 3

If the Federal Reserve lowers interest rates:

Accepted Answer

A) the dollar will appreciate, and this will lead to higher imports and lower exports and a fall in aggregate expenditure. 
B) consumption and investment will increase, leading to a rise in aggregate expenditure and an increase in equilibrium GDP. 
C) consumption and investment will decrease, leading to a fall in aggregate expenditure and a decrease in equilibrium GDP. 
D) banks will lower loan amounts, and this will lead to a fall in investment, and a fall in aggregate expenditure. 
A) the dollar will appreciate, and this will lead to higher imports and lower exports and a fall in aggregate expenditure. 
B) consumption and investment will increase, leading to a rise in aggregate expenditure and an increase in equilibrium GDP. 
C) consumption and investment will decrease, leading to a fall in aggregate expenditure and a decrease in equilibrium GDP. 
D) banks will lower loan amounts, and this will lead to a fall in investment, and a fall in aggregate expenditure.

Question 4

If the federal government lowers taxes on investment by businesses:

Accepted Answer

A) aggregate expenditure will fall, leading to a decrease in equilibrium GDP. 
B) consumption and investment will increase, leading to a rise in aggregate expenditure and an increase in equilibrium GDP. 
C) imports by consumers will rise and this will cause net exports to fall. 
D) aggregate expenditure will rise, leading to an increase in equilibrium GDP. 
A) aggregate expenditure will fall, leading to a decrease in equilibrium GDP. 
B) consumption and investment will increase, leading to a rise in aggregate expenditure and an increase in equilibrium GDP. 
C) imports by consumers will rise and this will cause net exports to fall. 
D) aggregate expenditure will rise, leading to an increase in equilibrium GDP.

Question 5

The U.S. dollar appreciates, leading to a decrease in the competitiveness of U.S. exports. Which figure shows what happens to the aggregate expenditure function?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 6

Which of the following figures shows the correct typical shape of the consumption function?

Accepted Answer

A) Figure A 
B) Figure B 
C) Figure C 
D) Figure D 
A) Figure A 
B) Figure B 
C) Figure C 
D) Figure D

Question 7

If a country imports more than it exports:

Accepted Answer

A) net exports will increase, causing aggregate expenditure to rise and leading to an increase in equilibrium GDP. 
B) net exports will decrease, causing aggregate expenditure to fall and leading to a decrease in equilibrium GDP. 
C) the currency will appreciate, leading to a rise in aggregate expenditures. 
D) aggregate expenditure will rise, leading to an increase in equilibrium GDP. 
A) net exports will increase, causing aggregate expenditure to rise and leading to an increase in equilibrium GDP. 
B) net exports will decrease, causing aggregate expenditure to fall and leading to a decrease in equilibrium GDP. 
C) the currency will appreciate, leading to a rise in aggregate expenditures. 
D) aggregate expenditure will rise, leading to an increase in equilibrium GDP.

Question 8

Which figure shows the impact of a fall in the marginal propensity to consume (MPC) on the aggregate expenditure function?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 9

Consider the following data. What is the marginal propensity to consume? $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Aggregate } \
\text { Expenditure } \
\text { (trillions of \$) }
\end{array} & \begin{array} { c } 
\text { Real GDP } \
\text { (trillions of \$) }
\end{array} \
\hline 5.9 & 5 \
\hline 6.6 & 6 \
\hline 7.3 & 7 \
\hline 8.0 & 8 \
\hline 8.7 & 9 \
\hline
\end{array}$$

Accepted Answer

A) 0.8 
B) 0.7 
C) 0.9 
D) 0.3 
A) 0.8 
B) 0.7 
C) 0.9 
D) 0.3

Question 10

Aggregate expenditure is made up of the following four components:

Accepted Answer

A) healthcare, infrastructure spending, defense spending, and social security spending. 
B) consumption, investment, government expenditure, and net exports. 
C) stocks, bonds, mutual funds, and certificates of deposit. 
D) consumption, investment, government expenditure, and taxation. 
A) healthcare, infrastructure spending, defense spending, and social security spending. 
B) consumption, investment, government expenditure, and net exports. 
C) stocks, bonds, mutual funds, and certificates of deposit. 
D) consumption, investment, government expenditure, and taxation.

Question 11

Consider the Keynesian cross shown here. At the real GDP level of $43 billion, aggregate expenditures are:

Accepted Answer

A) $41 billion. 
B) $33 billion. 
C) $37 billion. 
D) $43 billion. 
A) $41 billion. 
B) $33 billion. 
C) $37 billion. 
D) $43 billion.

Question 12

In the Keynesian cross, the 45-degree line:

Accepted Answer

A) is always lower than the aggregate expenditure function. 
B) has the same slope as the aggregate expenditure function. 
C) is a plot of all equilibrium GDP levels. 
D) is always higher than the aggregate expenditure function. 
A) is always lower than the aggregate expenditure function. 
B) has the same slope as the aggregate expenditure function. 
C) is a plot of all equilibrium GDP levels. 
D) is always higher than the aggregate expenditure function.

Question 13

Consumption is $45 billion, investment is $40 billion, government expenditure is $38 billion, exports are $20 billion, and imports are $25 billion. Aggregate expenditure is:

Accepted Answer

A) $118 billion. 
B) $123 billion. 
C) $128 billion. 
D) $143 billion. 
A) $118 billion. 
B) $123 billion. 
C) $128 billion. 
D) $143 billion.

Question 14

Aggregate expenditure will shift upward if:

Accepted Answer

A) consumption or investment or government expenditure or net exports rise. 
B) consumption or investment or government expenditure or net exports fall. 
C) the government reduces its expenditure and increases its tax collection. 
D) the marginal propensity to consume falls. 
A) consumption or investment or government expenditure or net exports rise. 
B) consumption or investment or government expenditure or net exports fall. 
C) the government reduces its expenditure and increases its tax collection. 
D) the marginal propensity to consume falls.

Question 15

A rise in the marginal propensity to consume will:
(i) lower the slope of the consumption function.
(ii) increase the slope of the consumption function.
(iii) increase the level of equilibrium GDP.
(iv) shift the aggregate expenditure function upward.

Accepted Answer

A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iv) 
D) (ii) and (iv) 
A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iv) 
D) (ii) and (iv)

Question 16

The multiplier:

Accepted Answer

A) increases unplanned inventory stocks in the economy. 
B) creates additional government expenditure expenses. 
C) minimizes the impact of a change in spending on GDP. 
D) causes a ripple effect of an increase in spending on GDP. 
A) increases unplanned inventory stocks in the economy. 
B) creates additional government expenditure expenses. 
C) minimizes the impact of a change in spending on GDP. 
D) causes a ripple effect of an increase in spending on GDP.

Question 17

If consumption decreases:

Accepted Answer

A) a depression occurs in the economy. 
B) real GDP rises. 
C) the aggregate expenditure line shifts down. 
D) the aggregate expenditure line shifts up. 
A) a depression occurs in the economy. 
B) real GDP rises. 
C) the aggregate expenditure line shifts down. 
D) the aggregate expenditure line shifts up.

Question 18

If a country exports more than it imports:

Accepted Answer

A) net exports will increase, causing aggregate expenditure to rise and leading to an increase in equilibrium GDP. 
B) net exports will decrease, causing aggregate expenditure to fall and leading to a decrease in equilibrium GDP. 
C) aggregate expenditure is not affected in the long run. 
D) aggregate expenditure will rise, leading to an increase in equilibrium GDP. 
A) net exports will increase, causing aggregate expenditure to rise and leading to an increase in equilibrium GDP. 
B) net exports will decrease, causing aggregate expenditure to fall and leading to a decrease in equilibrium GDP. 
C) aggregate expenditure is not affected in the long run. 
D) aggregate expenditure will rise, leading to an increase in equilibrium GDP.

Question 19

Which of the following figures shows the impact of increased consumer pessimism on the aggregate expenditure function?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 20

Consider the following data. Based on this data, over what range of real GDP (in millions of dollars) will businesses build up inventory? $$\begin{array} { | c | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Real GDP } \
\text { (millions of } \
\text { dollars) }
\end{array} & \begin{array} { c } 
\text { Consumptio } \
\mathbf { n } \
\text { (millions of } \
\text { dollars) }
\end{array} & \begin{array} { c } 
\text { Investment } \
\text { (millions of } \
\text { dollars) }
\end{array} & \begin{array} { c } 
\text { Government } \
\text { Expenditure } \
\text { (millions of } \
\text { dollars) }
\end{array} & \begin{array} { c } 
\text { Net Exports } \
\text { (millions of } \
\text { dollars) }
\end{array} \
\hline 0 & 400 & 525 & 550 & - 75 \
\hline 600 & 800 & 525 & 550 & - 75 \
\hline 1,200 & 1,200 & 525 & 550 & - 75 \
\hline 1,800 & 1,600 & 525 & 550 & - 75 \
\hline 2,400 & 2,000 & 525 & 550 & - 75 \
\hline 3,000 & 2,400 & 525 & 550 & - 75 \
\hline 3,600 & 2,800 & 525 & 550 & - 75 \
\hline 4,200 & 3,200 & 525 & 550 & - 75 \
\hline 4,800 & 3,600 & 525 & 550 & - 75 \
\hline
\end{array}$$

Accepted Answer

A) when real GDP is less than 3,600 
B) when real GDP is less than 4,200 
C) when real GDP is greater than 4,800 
D) when real GDP is greater than 4,200 
A) when real GDP is less than 3,600 
B) when real GDP is less than 4,200 
C) when real GDP is greater than 4,800 
D) when real GDP is greater than 4,200

Exam 36: Appendix: Aggregate Expenditure and the Multiplier

The difference between total investment and planned investment is that:

Which of the following is the fiscal policy reaction when a weaker GDP is expected?

If the Federal Reserve lowers interest rates:

If the federal government lowers taxes on investment by businesses:

The U.S. dollar appreciates, leading to a decrease in the competitiveness of U.S. exports. Which figure shows what happens to the aggregate expenditure function?

Which of the following figures shows the correct typical shape of the consumption function?

If a country imports more than it exports:

Which figure shows the impact of a fall in the marginal propensity to consume (MPC) on the aggregate expenditure function?

Aggregate expenditure is made up of the following four components:

Consider the Keynesian cross shown here. At the real GDP level of $43 billion, aggregate expenditures are:

In the Keynesian cross, the 45-degree line:

Consumption is $45 billion, investment is $40 billion, government expenditure is $38 billion, exports are $20 billion, and imports are $25 billion. Aggregate expenditure is:

Aggregate expenditure will shift upward if:

A rise in the marginal propensity to consume will: (i) lower the slope of the consumption function. (ii) increase the slope of the consumption function. (iii) increase the level of equilibrium GDP. (iv) shift the aggregate expenditure function upward.

The multiplier:

If consumption decreases:

If a country exports more than it imports:

Which of the following figures shows the impact of increased consumer pessimism on the aggregate expenditure function?

The Core Principles of Economics

Demand: Thinking Like a Buyer

Supply: Thinking Like a Seller

Equilibrium: Where Supply Meets Demand

Elasticity: Measuring Responsiveness

When Governments Intervene in Markets

Welfare and Efficiency

Gains From Trade

International Trade

Externalities and Public Goods

Labor Demand and Supply

Wages, Workers, and Management

Inequality, Social Insurance, and Redistribution

Market Structure and Market Power

Entry, Exit, and Long-Run Profitability

Business Strategy

Sophisticated Pricing Strategies

Game Theory and Strategic Choices

Decisions Involving Uncertainty

Decisions With Private Information

Sizing up the Economy Using Gdp

Economic Growth

Unemployment

Inflation and Money

Consumption and Saving

Investment

The Financial Sector

International Finance and the Exchange Rate

Business Cycles

IS-MP Analysis: Interest Rates and Output

Phillips Curve

The Fed Model: Linking Interest Rates, Output, and Inflation

Aggregate Demand and Aggregate Supply

Monetary Policy

Government Spending, Taxes, and Fiscal Policy

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