Question 1

To simplify the aggregate expenditure model, what must be assumed?

Accepted Answer

A)  that there is no consumption 
B)  that there are no government purchases 
C)  that there is no net private investment 
D)  that there is no capital depreciation and no business saving 
A)  that there is no consumption 
B)  that there are no government purchases 
C)  that there is no net private investment 
D)  that there is no capital depreciation and no business saving

Question 2

Which of the following best describes the multiplier?

Accepted Answer

A)  It shows the magnified change in planned aggregate spending that arises from a change in output. 
B)  It shows the magnified change in planned aggregate spending that arises from a change in equilibrium output. 
C)  It shows the magnified change in equilibrium output demanded that arises from a change in income. 
D)  It shows the magnified change in equilibrium output demanded that arises from a change in planned aggregate spending. 
A)  It shows the magnified change in planned aggregate spending that arises from a change in output. 
B)  It shows the magnified change in planned aggregate spending that arises from a change in equilibrium output. 
C)  It shows the magnified change in equilibrium output demanded that arises from a change in income. 
D)  It shows the magnified change in equilibrium output demanded that arises from a change in planned aggregate spending.

Question 3

In the simple aggregate expenditure model, what does the slope of the aggregate expenditure line depend on?

Accepted Answer

A)  interest rates 
B)  government budget policy 
C)  the price level 
D)  the marginal propensity to consume 
A)  interest rates 
B)  government budget policy 
C)  the price level 
D)  the marginal propensity to consume

Question 4

Which of the following best characterizes the relationship between the marginal propensity to consume and the multiplier?

Accepted Answer

A)  The lower the MPC, the higher the multiplier. 
B)  The higher the MPC, the lower the multiplier. 
C)  The MPC equals the multiplier. 
D)  The lower the MPC, the lower the multiplier. 
A)  The lower the MPC, the higher the multiplier. 
B)  The higher the MPC, the lower the multiplier. 
C)  The MPC equals the multiplier. 
D)  The lower the MPC, the lower the multiplier.

Question 5

Suppose the marginal propensity to consume equals 0.9.What is the multiplier?

Accepted Answer

A)  1 
B)  2 
C)  5 
D)  10 
A)  1 
B)  2 
C)  5 
D)  10

Question 6

$$\begin{array} { c c c } 
\hline \begin{array} { c } 
\text { Real } \
\text { GDP } \
( \$ )
\end{array} & \begin{array} { c } 
\text { Consumption } \
( \$ )
\end{array} & \begin{array} { c } 
\text { Planned } \
\text { investment } \
( \$ )
\end{array} \
\hline 0 & 140 & 100 \
100 & 220 & 100 \
200 & 300 & 100 \
300 & 380 & 100 \
400 & 460 & 100 \
500 & 540 & 100 \
600 & 620 & 100 \
700 & 700 & 100 \
800 & 780 & 100 \
900 & 860 & 100 \
1,000 & 940 & 100 \
1,100 & 1,020 & 100 \
1,200 & 1,100 & 100 \
1,300 & 1,180 & 100 \
\hline
\end{array}$$
-Refer to the table in the exhibit.What is the MPS in the economy represented?

Accepted Answer

A)  0 
B)  0.1 
C)  0.2 
D)  0.8 
A)  0 
B)  0.1 
C)  0.2 
D)  0.8

Question 7

Suppose the economy is currently at equilibrium at $1 trillion, and the MPC is 0.6.And suppose there is a $100 billion decrease in government purchases of goods and services.Which of the following is the new equilibrium?

Accepted Answer

A)  $400 billion 
B)  $600 billion 
C)  $750 billion 
D)  $1.4 trillion 
A)  $400 billion 
B)  $600 billion 
C)  $750 billion 
D)  $1.4 trillion

Question 8

A grocery store manager must decide whether to buy four carpet-cleaning machines so that the store can rent them to customers.The manager estimates that the first machine would yield an income of $200 per year, the second $150, the third $75, and the fourth $20.Suppose the interest rate is 12 percent and each machine costs $500.How many carpet-cleaning machines should the manager buy?

Accepted Answer

A)  none 
B)  one 
C)  two 
D)  three 
A)  none 
B)  one 
C)  two 
D)  three

Question 9

\(\begin{array}{l}
\text { Schedule for Real GDP, Net Taxes and Government Purchases (Trillions of Dollars) }\
\begin{array}{ccccccccc}
\hline \begin{array}{c}
\text { Real } \
\text { GDP }
\end{array} & \begin{array}{c}
\text { Net } \
\text { taxes }
\end{array} & \begin{array}{c}
\text { Disposable } \
\text { income } \
(Y)
\end{array} & \begin{array}{c}
\text { Consumption } \
(N T)
\end{array} & \begin{array}{c}
\text { Saving } \
(Y-N T)
\end{array} & \begin{array}{c}
\text { Planned } \
\text { investment } \
(S)
\end{array} & \begin{array}{c}
\text { Net } \
\text { exports } \
(N X)
\end{array} & \begin{array}{c}
\text { Government } \
\text { purchases } \
(G)
\end{array} & \begin{array}{c}
\text { Planned } \
\text { aggregate } \
\text { expenditure } \
(C+I+N X+G)
\end{array} \
\hline 3.0 & 0.9 & 2.1 & 2.0 & 0.1 & 0.5 & -0.2 & 0.9 & 3.2 \
3.6 & 0.9 & 2.7 & 2.4 & 0.3 & 0.5 & -0.2 & 0.9 & 3.5 \
4.2 & 0.9 & 3.3 & 2.8 & 0.5 & 0.5 & -0.2 & 0.9 & 4.0 \
4.8 & 0.9 & 3.9 & 3.2 & 0.7 & 0.5 & -0.2 & 0.9 & 4.4 \
5.4 & 0.9 & 4.5 & 3.6 & 0.9 & 0.5 & -0.2 & 0.9 & 4.8 \
\hline
\end{array}
\end{array}\)
-Refer to the table in the exhibit.Given that leakages must equal injections in equilibrium, which of the following characterizes this relationship?

Accepted Answer

A)  S + NT + NX = G + I 
B)  S = I 
C)  C + S = G + I 
D)  S + NT = NX + G + I 
A)  S + NT + NX = G + I 
B)  S = I 
C)  C + S = G + I 
D)  S + NT = NX + G + I

Question 10

Suppose that a pair of graphs represents a situation in which the aggregate expenditure line and the aggregate demand curve have shifted.What change caused the shift of the aggregate expenditure line?

Accepted Answer

A)  a change in disposable income 
B)  a change in the level of income 
C)  a change in autonomous investment 
D)  a change in the level of real GDP 
A)  a change in disposable income 
B)  a change in the level of income 
C)  a change in autonomous investment 
D)  a change in the level of real GDP

Question 11

How do households use disposable income?

Accepted Answer

A)  to consume and save 
B)  to consume and invest 
C)  to save and invest 
D)  to consume, save, and pay taxes 
A)  to consume and save 
B)  to consume and invest 
C)  to save and invest 
D)  to consume, save, and pay taxes

Question 12

-Refer to the graph in the exhibit.Assume the economy is in equilibrium with real GDP of $5 trillion.Suppose aggregate expenditure increases by $1 trillion.How would the economy's equilibrium real GDP most likely be affected?

Accepted Answer

A)  It would increase by more than $1 trillion. 
B)  It would increase by $1 trillion. 
C)  It would increase by less than $1 trillion. 
D)  It would decrease by $1 trillion. 
A)  It would increase by more than $1 trillion. 
B)  It would increase by $1 trillion. 
C)  It would increase by less than $1 trillion. 
D)  It would decrease by $1 trillion.

Question 13

Which of the following characterizes the relationship between the marginal propensity to consume and the consumption function?

Accepted Answer

A)  the larger the MPC, the higher the level of autonomous consumption 
B)  the larger the MPC, the steeper the consumption function 
C)  the smaller the MPC, the steeper the consumption function 
D)  the larger the MPC, the larger the level of autonomous consumption 
A)  the larger the MPC, the higher the level of autonomous consumption 
B)  the larger the MPC, the steeper the consumption function 
C)  the smaller the MPC, the steeper the consumption function 
D)  the larger the MPC, the larger the level of autonomous consumption

Question 14

Other things being equal, how will a decrease in an economy's exports affect aggregate expenditures and output?

Accepted Answer

A)  Domestic aggregate expenditures will increase, and the equilibrium level of output will increase. 
B)  Domestic aggregate expenditures will decrease, and the equilibrium level of output will increase. 
C)  Domestic aggregate expenditures will remain the same, and the equilibrium level of output will remain the same. 
D)  Aggregate expenditures will be negative, and equilibrium level of output will decline. 
A)  Domestic aggregate expenditures will increase, and the equilibrium level of output will increase. 
B)  Domestic aggregate expenditures will decrease, and the equilibrium level of output will increase. 
C)  Domestic aggregate expenditures will remain the same, and the equilibrium level of output will remain the same. 
D)  Aggregate expenditures will be negative, and equilibrium level of output will decline.

Question 15

On the aggregate expenditure graph, if autonomous saving decreases by $15 billion.What will be the effect on the aggregate expenditure line?

Accepted Answer

A)  The aggregate expenditure line will shift upward by $15 billion 
B)  The aggregate expenditure line will stay in the same position. 
C)  The aggregate expenditure line will shift downward by $15 billion. 
D)  The aggregate expenditure line will first shift downward, and then it will shift upward by $15 billion. 
A)  The aggregate expenditure line will shift upward by $15 billion 
B)  The aggregate expenditure line will stay in the same position. 
C)  The aggregate expenditure line will shift downward by $15 billion. 
D)  The aggregate expenditure line will first shift downward, and then it will shift upward by $15 billion.

Question 16

Suppose autonomous investment is measured on the vertical axis and disposable income is measured on the horizontal axis.What does the graph look like?

Accepted Answer

A)  a horizontal line 
B)  a vertical line 
C)  an upward-sloping line 
D)  a downward-sloping line 
A)  a horizontal line 
B)  a vertical line 
C)  an upward-sloping line 
D)  a downward-sloping line

Question 17

What does the marginal propensity to consume measure?

Accepted Answer

A)  the amount of total income spent on current consumption 
B)  the amount of additional income spent on consumption 
C)  the amount of aggregate expenditures that will be allocated to consumption spending 
D)  the extent of induced consumption that occurs in the economy 
A)  the amount of total income spent on current consumption 
B)  the amount of additional income spent on consumption 
C)  the amount of aggregate expenditures that will be allocated to consumption spending 
D)  the extent of induced consumption that occurs in the economy

Question 18

How would an increase in the Canadian price level, other things constant, affect imports and exports?

Accepted Answer

A)  It would decrease Canadian exports but leave Canadian imports unchanged. 
B)  It would increase Canadian exports but leave Canadian imports unchanged. 
C)  It would decrease Canadian exports and increase Canadian imports. 
D)  It would increase Canadian exports and decrease Canadian imports. 
A)  It would decrease Canadian exports but leave Canadian imports unchanged. 
B)  It would increase Canadian exports but leave Canadian imports unchanged. 
C)  It would decrease Canadian exports and increase Canadian imports. 
D)  It would increase Canadian exports and decrease Canadian imports.

Question 19

Which of the following best characterizes the relationship between the aggregate demand curve and the aggregate expenditure line?

Accepted Answer

A)  If the aggregate expenditure line shifts while prices are constant, the resulting change in equilibrium output demanded is depicted as a movement along the aggregate demand curve. 
B)  If the aggregate expenditure line shifts while prices are constant, the resulting change in equilibrium output demanded is depicted as a shift of the aggregate demand curve. 
C)  If the aggregate expenditure line shifts, the aggregate demand curve also shifts. 
D)  If a movement occurs along the aggregate expenditure curve, movement also occurs along the aggregate demand curve. 
A)  If the aggregate expenditure line shifts while prices are constant, the resulting change in equilibrium output demanded is depicted as a movement along the aggregate demand curve. 
B)  If the aggregate expenditure line shifts while prices are constant, the resulting change in equilibrium output demanded is depicted as a shift of the aggregate demand curve. 
C)  If the aggregate expenditure line shifts, the aggregate demand curve also shifts. 
D)  If a movement occurs along the aggregate expenditure curve, movement also occurs along the aggregate demand curve.

Question 20

Other things constant, how would a larger marginal propensity to save affect the saving function?

Accepted Answer

A)  The saving function would remain the same. 
B)  The saving function would be negative. 
C)  The saving function would be steeper. 
D)  The saving function would be flatter. 
A)  The saving function would remain the same. 
B)  The saving function would be negative. 
C)  The saving function would be steeper. 
D)  The saving function would be flatter.

To simplify the aggregate expenditure model, what must be assumed?

Which of the following best describes the multiplier?

In the simple aggregate expenditure model, what does the slope of the aggregate expenditure line depend on?

Which of the following best characterizes the relationship between the marginal propensity to consume and the multiplier?

Suppose the marginal propensity to consume equals 0.9.What is the multiplier?

Suppose the economy is currently at equilibrium at $1 trillion, and the MPC is 0.6.And suppose there is a $100 billion decrease in government purchases of goods and services.Which of the following is the new equilibrium?

Suppose that a pair of graphs represents a situation in which the aggregate expenditure line and the aggregate demand curve have shifted.What change caused the shift of the aggregate expenditure line?

How do households use disposable income?

-Refer to the graph in the exhibit.Assume the economy is in equilibrium with real GDP of $5 trillion.Suppose aggregate expenditure increases by $1 trillion.How would the economy's equilibrium real GDP most likely be affected?

Which of the following characterizes the relationship between the marginal propensity to consume and the consumption function?

Other things being equal, how will a decrease in an economy's exports affect aggregate expenditures and output?

On the aggregate expenditure graph, if autonomous saving decreases by $15 billion.What will be the effect on the aggregate expenditure line?

Suppose autonomous investment is measured on the vertical axis and disposable income is measured on the horizontal axis.What does the graph look like?

What does the marginal propensity to consume measure?

How would an increase in the Canadian price level, other things constant, affect imports and exports?

Which of the following best characterizes the relationship between the aggregate demand curve and the aggregate expenditure line?

Other things constant, how would a larger marginal propensity to save affect the saving function?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Supply

Fiscal Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy in an Open Economy

Macro Policy Debate: Active or Passive

International Finance

International Trade

Economic Development

Understanding Graphs

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Exam 10: Aggregate Expenditure and Aggregate Demand

To simplify the aggregate expenditure model, what must be assumed?

Which of the following best describes the multiplier?

In the simple aggregate expenditure model, what does the slope of the aggregate expenditure line depend on?

Which of the following best characterizes the relationship between the marginal propensity to consume and the multiplier?

Suppose the marginal propensity to consume equals 0.9.What is the multiplier?

Suppose the economy is currently at equilibrium at $1 trillion, and the MPC is 0.6.And suppose there is a $100 billion decrease in government purchases of goods and services.Which of the following is the new equilibrium?

Suppose that a pair of graphs represents a situation in which the aggregate expenditure line and the aggregate demand curve have shifted.What change caused the shift of the aggregate expenditure line?

How do households use disposable income?

-Refer to the graph in the exhibit.Assume the economy is in equilibrium with real GDP of $5 trillion.Suppose aggregate expenditure increases by $1 trillion.How would the economy's equilibrium real GDP most likely be affected?

Which of the following characterizes the relationship between the marginal propensity to consume and the consumption function?

Other things being equal, how will a decrease in an economy's exports affect aggregate expenditures and output?

On the aggregate expenditure graph, if autonomous saving decreases by $15 billion.What will be the effect on the aggregate expenditure line?

Suppose autonomous investment is measured on the vertical axis and disposable income is measured on the horizontal axis.What does the graph look like?

What does the marginal propensity to consume measure?

How would an increase in the Canadian price level, other things constant, affect imports and exports?

Which of the following best characterizes the relationship between the aggregate demand curve and the aggregate expenditure line?

Other things constant, how would a larger marginal propensity to save affect the saving function?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Supply

Fiscal Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy in an Open Economy

Macro Policy Debate: Active or Passive

International Finance

International Trade

Economic Development

Understanding Graphs

Filters