Question 1

If disposable income falls by $50 billion and consumption falls by $40 billion, then the slope of the consumption function is

Accepted Answer

A)  1.20. 
B)  0.80. 
C)  0.70. 
D)  0.10. 
A)  1.20. 
B)  0.80. 
C)  0.70. 
D)  0.10.

Question 2

Ceteris paribus, how does an expansion in the United States affect U.S. net exports?

Accepted Answer

As GDP increases in the United States du

Question 3

An increase in taxes will ________ consumption spending, and a decrease in transfer payments will ________ consumption spending.

Accepted Answer

A)  increase; increase 
B)  decrease; increase 
C)  increase; decrease 
D)  decrease; decrease 
A)  increase; increase 
B)  decrease; increase 
C)  increase; decrease 
D)  decrease; decrease

Question 4

In a small economy in 2013, aggregate expenditure was $850 million while GDP that year was $800 million. Which of the following can explain the difference between aggregate expenditure and GDP that year?

Accepted Answer

A)  Aggregate expenditure is always less than GDP in developed countries. 
B)  Firm investment in inventories was less than anticipated in 2013. 
C)  Firm investment in inventories was greater than anticipated in 2013. 
D)  Aggregate expenditure is always less than GDP in developing countries. 
A)  Aggregate expenditure is always less than GDP in developed countries. 
B)  Firm investment in inventories was less than anticipated in 2013. 
C)  Firm investment in inventories was greater than anticipated in 2013. 
D)  Aggregate expenditure is always less than GDP in developing countries.

Question 5

Figure 23-2  
-Refer to Figure 23-2. If the U.S. economy is currently at point N, which of the following could cause it to move to point K?

Accepted Answer

A)  Households expect future income to rise. 
B)  Household wealth falls. 
C)  The firm's cash flow rises as profits rise. 
D)  Government expenditures increase. 
A)  Households expect future income to rise. 
B)  Household wealth falls. 
C)  The firm's cash flow rises as profits rise. 
D)  Government expenditures increase.

Question 6

If the marginal propensity to consume is 0.6, the marginal propensity to save is

Accepted Answer

A)  0.4. 
B)  0.6. 
C)  1. 
D)  1.5. 
A)  0.4. 
B)  0.6. 
C)  1. 
D)  1.5.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Figure 23-1  
-Refer to Figure 23-1. According to the figure above, at what point is aggregate expenditure less than GDP?

Accepted Answer

A)  J 
B)  K 
C)  L 
D)  none of the above 
A)  J 
B)  K 
C)  L 
D)  none of the above

Question 9

If planned aggregate expenditure is less than real GDP, some firms will experience unplanned increases in inventories.

Accepted Answer

A) True 
 B)False

Question 10

When aggregate expenditure is more than GDP, which of the following is true?

Accepted Answer

A)  There was an unplanned decrease in inventories. 
B)  Firms spent less on capital goods than they planned. 
C)  Households bought fewer new homes than they planned. 
D)  All of the above must be true when aggregate expenditure is more than GDP. 
A)  There was an unplanned decrease in inventories. 
B)  Firms spent less on capital goods than they planned. 
C)  Households bought fewer new homes than they planned. 
D)  All of the above must be true when aggregate expenditure is more than GDP.

Question 11

What are inventories? What usually happens to inventories at the beginning of a recession, and what usually happens to inventories at the beginning of an expansion?

Accepted Answer

Inventories are goods that hav

Question 12

The formula for the multiplier is (1 - MPC).

Accepted Answer

A) True 
 B)False

Question 13

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. 
A)  macroeconomic equilibrium occurs. 
B)  the federal budget is balanced. 
C)  net exports equal zero. 
D)  saving equals zero.

Question 14

If planned aggregate expenditure is greater than total production,

Accepted Answer

A)  actual inventories will equal planned inventories. 
B)  firms will experience an unplanned decrease in inventories. 
C)  GDP will decrease. 
D)  the economy is in equilibrium. 
A)  actual inventories will equal planned inventories. 
B)  firms will experience an unplanned decrease in inventories. 
C)  GDP will decrease. 
D)  the economy is in equilibrium.

Question 15

Assume that inventories declined by more than analysts predicted. This implies that

Accepted Answer

A)  planned aggregate expenditure was greater than real GDP. 
B)  planned aggregate expenditure was equal to real GDP. 
C)  planned aggregate expenditure was less than real GDP. 
D)  planned aggregate expenditure is unrelated to real GDP. 
A)  planned aggregate expenditure was greater than real GDP. 
B)  planned aggregate expenditure was equal to real GDP. 
C)  planned aggregate expenditure was less than real GDP. 
D)  planned aggregate expenditure is unrelated to real GDP.

Question 16

An unplanned decrease in inventories results in

Accepted Answer

A)  a decrease in planned investment. 
B)  an increase in planned investment. 
C)  actual investment that is greater than planned investment. 
D)  actual investment that is less than planned investment. 
A)  a decrease in planned investment. 
B)  an increase in planned investment. 
C)  actual investment that is greater than planned investment. 
D)  actual investment that is less than planned investment.

Question 17

The five most important variables that determine the level of consumption are

Accepted Answer

A)  disposable income, wealth, expected future income, price level, and interest rate. 
B)  wealth, savings account balances, checking account balances, stock portfolio balances, and bond portfolio balances. 
C)  government purchases, interest rates, income, taxes, and transfers. 
D)  government purchases, saving account balances, wealth, interest rates, portfolio balances. 
A)  disposable income, wealth, expected future income, price level, and interest rate. 
B)  wealth, savings account balances, checking account balances, stock portfolio balances, and bond portfolio balances. 
C)  government purchases, interest rates, income, taxes, and transfers. 
D)  government purchases, saving account balances, wealth, interest rates, portfolio balances.

Question 18

Macroeconomic equilibrium can occur at any point on the 45-degree line.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is a reason why decreases in the price level result in a rise in aggregate expenditure?

Accepted Answer

A)  Price level decreases cause firms and consumers to hold less money, which lowers the interest rate. Lower interest rates raise consumption and planned investment expenditures, which raises aggregate expenditure. 
B)  Price level decreases reduce real wealth, which causes consumption spending and aggregate expenditure to rise. 
C)  As the price level falls, government spending rises, which raises aggregate expenditure. 
D)  Price level decreases in the United States relative to other countries' lower net exports, which raises aggregate expenditure. 
A)  Price level decreases cause firms and consumers to hold less money, which lowers the interest rate. Lower interest rates raise consumption and planned investment expenditures, which raises aggregate expenditure. 
B)  Price level decreases reduce real wealth, which causes consumption spending and aggregate expenditure to rise. 
C)  As the price level falls, government spending rises, which raises aggregate expenditure. 
D)  Price level decreases in the United States relative to other countries' lower net exports, which raises aggregate expenditure.

Question 20

________ is equal to consumption spending plus planned investment spending plus government purchases plus net exports.

Accepted Answer

A)  Full employment GDP 
B)  Short-run aggregate supply 
C)  Planned inventory investment 
D)  Planned aggregate expenditure 
A)  Full employment GDP 
B)  Short-run aggregate supply 
C)  Planned inventory investment 
D)  Planned aggregate expenditure

Exam 23: Aggregate Expenditure and Output in the Short Run

If disposable income falls by $50 billion and consumption falls by $40 billion, then the slope of the consumption function is

Ceteris paribus, how does an expansion in the United States affect U.S. net exports?

An increase in taxes will ________ consumption spending, and a decrease in transfer payments will ________ consumption spending.

In a small economy in 2013, aggregate expenditure was $850 million while GDP that year was $800 million. Which of the following can explain the difference between aggregate expenditure and GDP that year?

Figure 23-2 -Refer to Figure 23-2. If the U.S. economy is currently at point N, which of the following could cause it to move to point K?

If the marginal propensity to consume is 0.6, the marginal propensity to save is

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

Figure 23-1 -Refer to Figure 23-1. According to the figure above, at what point is aggregate expenditure less than GDP?

If planned aggregate expenditure is less than real GDP, some firms will experience unplanned increases in inventories.

When aggregate expenditure is more than GDP, which of the following is true?

What are inventories? What usually happens to inventories at the beginning of a recession, and what usually happens to inventories at the beginning of an expansion?

The formula for the multiplier is (1 - MPC).

When aggregate expenditure = GDP,

If planned aggregate expenditure is greater than total production,

Assume that inventories declined by more than analysts predicted. This implies that

An unplanned decrease in inventories results in

The five most important variables that determine the level of consumption are

Macroeconomic equilibrium can occur at any point on the 45-degree line.

Which of the following is a reason why decreases in the price level result in a rise in aggregate expenditure?

________ is equal to consumption spending plus planned investment spending plus government purchases plus net exports.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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 Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

An increase in taxes will consumption spending, and a decrease in transfer payments will consumption spending.