Question 1

What impact does a lower price level have on interest rates, wealth, and investment spending?

Accepted Answer

A lower price level increases

Question 2

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

Accepted Answer

A) Price level increases raise real wealth, which causes consumption spending and aggregate expenditure to decline. 
B) Price level increases cause firms and consumers to hold more money, which raises the interest rate. Higher interest rates lower consumption and planned investment expenditures, which lowers aggregate expenditure. 
C) Price level increases in Canada relative to other countries raise net exports, which lowers aggregate expenditure. 
D) As the price level rises, government spending falls, which lowers aggregate expenditure. 
E) As the price level rises, real interest rates fall making consumers feel less wealthy. 
A) Price level increases raise real wealth, which causes consumption spending and aggregate expenditure to decline. 
B) Price level increases cause firms and consumers to hold more money, which raises the interest rate. Higher interest rates lower consumption and planned investment expenditures, which lowers aggregate expenditure. 
C) Price level increases in Canada relative to other countries raise net exports, which lowers aggregate expenditure. 
D) As the price level rises, government spending falls, which lowers aggregate expenditure. 
E) As the price level rises, real interest rates fall making consumers feel less wealthy.

Question 3

Canadian net export spending falls when

Accepted Answer

A) the price level in Canada falls relative to the price level in other countries. 
B) the growth rate of Canadian GDP is slower than the growth rate of GDP in other countries. 
C) the value of the Canadian dollar decreases relative to other currencies. 
D) the inflation rate is lower in Canada relative to other countries. 
E) the Canadian economy becomes more open to international trade. 
A) the price level in Canada falls relative to the price level in other countries. 
B) the growth rate of Canadian GDP is slower than the growth rate of GDP in other countries. 
C) the value of the Canadian dollar decreases relative to other currencies. 
D) the inflation rate is lower in Canada relative to other countries. 
E) the Canadian economy becomes more open to international trade.

Question 4

From 1981-2007, net exports for Canada

Accepted Answer

A) grew and then declined. 
B) were negative. 
C) were positive. 
D) fell as globalization took hold. 
E) increased as exports rose above imports. 
A) grew and then declined. 
B) were negative. 
C) were positive. 
D) fell as globalization took hold. 
E) increased as exports rose above imports.

Question 5

The difference between GDP and disposable income is

Accepted Answer

A) national income. 
B) actual investment spending. 
C) net taxes. 
D) unplanned investment spending. 
E) net exports. 
A) national income. 
B) actual investment spending. 
C) net taxes. 
D) unplanned investment spending. 
E) net exports.

Question 6

If firms find that consumers are purchasing more than expected, which of the following would you expect?

Accepted Answer

A) Aggregate expenditure will likely be greater than GDP. 
B) Aggregate expenditure will likely be less than GDP. 
C) The economy will adjust to macroeconomic equilibrium as inventories rise, and production and employment fall. 
D) The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment fall. 
E) Firms will see inventories rising. 
A) Aggregate expenditure will likely be greater than GDP. 
B) Aggregate expenditure will likely be less than GDP. 
C) The economy will adjust to macroeconomic equilibrium as inventories rise, and production and employment fall. 
D) The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment fall. 
E) Firms will see inventories rising.

Question 7

When aggregate expenditure = GDP

Accepted Answer

A) macroeconomic equilibrium occurs. 
B) the federal budget is balanced. 
C) net exports equal zero. 
D) saving equals zero. 
E) the economy is operating at the ideal level. 
A) macroeconomic equilibrium occurs. 
B) the federal budget is balanced. 
C) net exports equal zero. 
D) saving equals zero. 
E) the economy is operating at the ideal level.

Question 8

Which of the following will cause a direct increase in consumption spending?

Accepted Answer

A) an increase in planned investment 
B) an increase in government spending 
C) an increase in disposable income 
D) a decrease in net export spending 
E) an increase in income taxes 
A) an increase in planned investment 
B) an increase in government spending 
C) an increase in disposable income 
D) a decrease in net export spending 
E) an increase in income taxes

Question 9

If consumption is defined as C = 1,350 + 0.6Y, then the marginal propensity to consume is 0.6.

Accepted Answer

A) True 
 B)False

Question 10

Figure 8.3   Alt text for Figure 8.3: In figure 8.3, a graph comparing real GDP and real aggregate expenditure.
Long description for Figure 8.3: The x-axis is labelled, real GDP, Y (trillions of 2002 dollars).The y-axis is labelled, real aggregate expenditure, AE (trillions of 2002 dollars).Line Y = AE, originates at the vertex and slopes up to the top right corner.Line AE1, begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Both these lines intersect at point K, approximately 3 quarters of the way along both lines.Point J is plotted a little less than half way along line AE1, to the left of point K.Point L is marked close to the right end of the line AE1, to the right of point K.
-Refer to Figure 8.3.If the economy is in equilibrium, it is at a level of aggregate expenditure given by point

Accepted Answer

A) J) 
B) K) 
C) L) 
D) Points J, K, and L all represent equilibrium. 
A) J) 
B) K) 
C) L) 
D) Points J, K, and L all represent equilibrium.

Question 11

Explain how a stock market crash has the potential to lead to a recession in an economy.

Accepted Answer

A stock market crash is essentially a su

Question 12

Increases in the price level will

Accepted Answer

A) lower consumption because goods and services are less affordable. 
B) raise consumption because some goods and services are more affordable. 
C) raise consumption because real wealth increases. 
D) lower consumption because real wealth decreases. 
E) increase consumption because nominal interest rates will fall. 
A) lower consumption because goods and services are less affordable. 
B) raise consumption because some goods and services are more affordable. 
C) raise consumption because real wealth increases. 
D) lower consumption because real wealth decreases. 
E) increase consumption because nominal interest rates will fall.

Question 13

The slope of the consumption function is equal to

Accepted Answer

A) the change in consumption divided by the change in disposable income. 
B) the change in consumption divided by the change in personal income. 
C) the change in disposable income divided by the change in consumption. 
D) the change in national income divided by the change in consumption. 
E) the change in saving divided by the change in disposable income. 
A) the change in consumption divided by the change in disposable income. 
B) the change in consumption divided by the change in personal income. 
C) the change in disposable income divided by the change in consumption. 
D) the change in national income divided by the change in consumption. 
E) the change in saving divided by the change in disposable income.

Question 14

Figure 8.1   Alt text for Figure 8.1: In figure 8.1, a graph comparing real GDP and real aggregate expenditure.
Long description for Figure 8.1: The x-axis is labelled, real GDP, Y (trillions of 2002 dollars).The y-axis is labelled, real aggregate expenditure, AE (trillions of 2002 dollars).A line, labelled Y = AE, originates at the vertex and slopes up to the top right corner.Another line, labelled AE1, begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Both these lines intersect at point K, approximately three quarters of the way along both lines.Point J is plotted a little less than half way along the line AE1, to the left of point K.Point L is plotted close to the right end of the line AE1, to the right of point K.
-Refer to Figure 8.1.At point L in the figure above, which of the following is true?

Accepted Answer

A) Aggregate expenditure is greater than GDP. 
B) The economy has achieved macroeconomic equilibrium. 
C) Actual inventories are greater than planned inventories. 
D) GDP will be increasing. 
E) Government spending will decrease. 
A) Aggregate expenditure is greater than GDP. 
B) The economy has achieved macroeconomic equilibrium. 
C) Actual inventories are greater than planned inventories. 
D) GDP will be increasing. 
E) Government spending will decrease.

Question 15

Given Table 8.4 below, fill in the values for saving.Assume there are no taxes.
Table 8.4

Accepted Answer

When taxes are zero, saving is

Question 16

Consumption spending refers to ________ spending on goods and services.

Accepted Answer

A) household 
B) business 
C) government 
D) foreign 
E) unplanned 
A) household 
B) business 
C) government 
D) foreign 
E) unplanned

Question 17

For all points above the 45-degree line, planned aggregate expenditure will be less than GDP.

Accepted Answer

A) True 
 B)False

Question 18

The multiplier is calculated as the

Accepted Answer

A) change in real GDP / change in autonomous expenditure. 
B) change in autonomous expenditure / change in real GDP. 
C) change in nominal GDP / change in autonomous expenditure. 
D) change in real GDP / change in induced spending. 
E) change in consumption/change in disposable income. 
A) change in real GDP / change in autonomous expenditure. 
B) change in autonomous expenditure / change in real GDP. 
C) change in nominal GDP / change in autonomous expenditure. 
D) change in real GDP / change in induced spending. 
E) change in consumption/change in disposable income.

Question 19

From 2009 to 2014, ________ for Canada were negative.

Accepted Answer

A) planned inventories 
B) net exports 
C) unplanned inventories 
D) transfer payments 
E) interest rates 
A) planned inventories 
B) net exports 
C) unplanned inventories 
D) transfer payments 
E) interest rates

Question 20

Economists think that the marginal propensity to consume for the Canadian economy is somewhere around 0.9.Based on our simple multiplier formula, this would imply that the multiplier for Canada should be around 10.However, economists agree that the government spending multiplier is less than 2.What might explain this supposed anomaly?

Accepted Answer

The formula for the multiplier, M = @#IMG-DLM& , i

What impact does a lower price level have on interest rates, wealth, and investment spending?

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

Canadian net export spending falls when

From 1981-2007, net exports for Canada

The difference between GDP and disposable income is

If firms find that consumers are purchasing more than expected, which of the following would you expect?

When aggregate expenditure = GDP

Which of the following will cause a direct increase in consumption spending?

If consumption is defined as C = 1,350 + 0.6Y, then the marginal propensity to consume is 0.6.

Explain how a stock market crash has the potential to lead to a recession in an economy.

Increases in the price level will

The slope of the consumption function is equal to

Given Table 8.4 below, fill in the values for saving.Assume there are no taxes. Table 8.4

Consumption spending refers to ________ spending on goods and services.

For all points above the 45-degree line, planned aggregate expenditure will be less than GDP.

The multiplier is calculated as the

From 2009 to 2014, ________ for Canada were negative.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Bank of Canada

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Bank of Canada Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 8: Aggregate Expenditure and Output in the Short Run

What impact does a lower price level have on interest rates, wealth, and investment spending?

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

Canadian net export spending falls when

From 1981-2007, net exports for Canada

The difference between GDP and disposable income is

If firms find that consumers are purchasing more than expected, which of the following would you expect?

When aggregate expenditure = GDP

Which of the following will cause a direct increase in consumption spending?

If consumption is defined as C = 1,350 + 0.6Y, then the marginal propensity to consume is 0.6.

Explain how a stock market crash has the potential to lead to a recession in an economy.

Increases in the price level will

The slope of the consumption function is equal to

Given Table 8.4 below, fill in the values for saving.Assume there are no taxes. Table 8.4

Consumption spending refers to ________ spending on goods and services.

For all points above the 45-degree line, planned aggregate expenditure will be less than GDP.

The multiplier is calculated as the

From 2009 to 2014, ________ for Canada were negative.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Bank of Canada

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Bank of Canada Policy

Macroeconomics in an Open Economy

The International Financial System

Filters