Exam 8: Aggregate Expenditure and Output in the Short Run

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.

If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium?

The decline in consumer spending during the 2008-2009 recession was due in part to a decrease in disposable income.The decline in consumption resulting from the decline in disposable income caused a(n)________ the consumption function curve.

Which of the following will raise consumer expenditures?

During a(n)________ many firms experience increased profits, which increases ________ and investment spending.

The multiplier is calculated as the change in ________ / change in ________.

The marginal propensity to consume is the slope of the consumption function.

Which of the following will decrease aggregate expenditure in Canada?

Investment spending will increase when

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.According to the figure above, at what point is aggregate expenditure greater than GDP?

Figure 8.4 Alt text for Figure 8.4: In figure 8.4, a graph comparing real GDP and real aggregate expenditure. Long description for Figure 8.4: 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 AE1, begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Line AE2, begins half way along the x-axis and slopes up to the top right corner.Line AE2 is to the right of line AE1 and is on a similar path as line AE1.Line Y = AE, originates at the vertex and slopes up to the top right corner.Line Y = AE meets line AE2 at point K, half way along both lines.Line Y = AE meets line AE1 at point N, plotted close to the right end of line AE1.Point J is plotted a little less than half way along line AE2, to the left of point K.Point L is marked close to the right end of line AE2, to the right of point K. -Refer to Figure 8.4.If the Canadian economy is currently at point K, which of the following could cause it to move to point N?

Explain, in detail, how the adjustment to macroeconomic equilibrium occurs when spending is less than production.Be sure to discuss how inventories play a crucial role in the adjustment process.State what happens to GDP and employment during the adjustment process.

Consumption spending is $22 million, planned investment spending is $7 million, actual investment spending is $7 million, government purchases are $9 million, and net export spending is $3 million.Based on this information, which of the following is true?

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

The marginal propensity to save is defined as

Which of the following will increase aggregate expenditure in Canada?

MPC + MPS =

Which of the following is a true statement about the multiplier?

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 at point J, what will happen?

Which is the smallest component of aggregate expenditure?