Question 1

What impact does a decrease in the price level in the United States have on net exports and why?

Accepted Answer

A)  A decrease in the price level increases net exports because lower prices increase the value of the dollar. 
B)  A decrease in the price level increases net exports by reducing the relative cost of American goods. 
C)  A decrease in the price level reduces net exports because lower prices raise the value of the dollar. 
D)  A decrease in the price level reduces net exports because lower prices increase American spending on imports. 
A)  A decrease in the price level increases net exports because lower prices increase the value of the dollar. 
B)  A decrease in the price level increases net exports by reducing the relative cost of American goods. 
C)  A decrease in the price level reduces net exports because lower prices raise the value of the dollar. 
D)  A decrease in the price level reduces net exports because lower prices increase American spending on imports.

Question 2

If the economy is currently in equilibrium at a level of GDP that is below potential GDP, which of the following would move the economy back to potential GDP?

Accepted Answer

A)  an increase in wealth 
B)  an increase in interest rates 
C)  a decrease in business confidence 
D)  an increase in the value of the dollar relative to other currencies 
A)  an increase in wealth 
B)  an increase in interest rates 
C)  a decrease in business confidence 
D)  an increase in the value of the dollar relative to other currencies

Question 3

Suppose the United States experiences a long period of inflation relative to other countries. How will this affect U.S. net exports?

Accepted Answer

If inflation in the United States is hig

Question 4

An increase in the price level in the United States will reduce imports and increase exports.

Accepted Answer

A) True 
 B)False

Question 5

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. 
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.

Question 6

When we graph consumption as a function of ________ rather than as a function of disposable income, the slope of this consumption function is ________.

Accepted Answer

A)  national income; the MPC 
B)  personal income; (MPC - MPS) 
C)  national income; the MPS 
D)  personal income; the MPS 
A)  national income; the MPC 
B)  personal income; (MPC - MPS) 
C)  national income; the MPS 
D)  personal income; the MPS

Question 7

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

Accepted Answer

A)  The price level in the United States falls relative to the price level in other countries. 
B)  Congress abolishes investment tax incentives. 
C)  The interest rate rises. 
D)  Household wealth declines. 
A)  The price level in the United States falls relative to the price level in other countries. 
B)  Congress abolishes investment tax incentives. 
C)  The interest rate rises. 
D)  Household wealth declines.

Question 8

Figure 23-4  
-In the aggregate expenditure model, ________ has both an autonomous component and an induced component.

Accepted Answer

A)  planned investment spending 
B)  consumption spending 
C)  government spending 
D)  net export spending 
A)  planned investment spending 
B)  consumption spending 
C)  government spending 
D)  net export spending

Question 9

Table 23-3
  
-Refer to Table 23-3. Given the consumption schedule in the table above, the marginal propensity to save is

Accepted Answer

A)  0.1. 
B)  0.4. 
C)  0.7. 
D)  0.9. 
A)  0.1. 
B)  0.4. 
C)  0.7. 
D)  0.9.

Question 10

A decrease in consumer confidence can put your job at risk if

Accepted Answer

A)  aggregate expenditures fall. 
B)  consumers expect their incomes to rise in the future. 
C)  aggregate expenditures rise. 
D)  consumers expect firms to increase investment in the future. 
A)  aggregate expenditures fall. 
B)  consumers expect their incomes to rise in the future. 
C)  aggregate expenditures rise. 
D)  consumers expect firms to increase investment in the future.

Question 11

If consumption is defined as C = 2,000 + 0.8Y, then the marginal propensity to save is 0.8.

Accepted Answer

A) True 
 B)False

Question 12

The change in consumption divided by the change in disposable income is equal to

Accepted Answer

A)  the slope of the consumption function. 
B)  aggregate expenditure. 
C)  household saving. 
D)  real GDP. 
A)  the slope of the consumption function. 
B)  aggregate expenditure. 
C)  household saving. 
D)  real GDP.

Question 13

An increase in aggregate expenditure has what result on equilibrium GDP?

Accepted Answer

A)  Equilibrium GDP rises. 
B)  Equilibrium GDP is not affected by a decrease in aggregate expenditure. 
C)  Equilibrium GDP falls. 
D)  Equilibrium GDP may rise or fall depending on the size of the decrease in aggregate expenditure relative to the initial level of GDP. 
A)  Equilibrium GDP rises. 
B)  Equilibrium GDP is not affected by a decrease in aggregate expenditure. 
C)  Equilibrium GDP falls. 
D)  Equilibrium GDP may rise or fall depending on the size of the decrease in aggregate expenditure relative to the initial level of GDP.

Question 14

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

Accepted Answer

As GDP decreases in the United States du

Question 15

The National Restaurant Association states that the restaurant industry has economic effect of more than $1.7 trillion annually in the United States, with every dollar spent in restaurants generating an estimated total of $2.05 in spending in the economy. This indicates that the spending multiplier for the restaurant industry is equal to

Accepted Answer

A)  1.21. 
B)  1.70. 
C)  2.05. 
D)  4.25. 
A)  1.21. 
B)  1.70. 
C)  2.05. 
D)  4.25.

Question 16

You review a salesman's income over a 5-year period. You note it fluctuates tremendously from year to year, yet his consumption of goods and services remains consistently at the same level, year after year. Does this mean that income is not a determinant of consumption, or could something else explain his behavior?

Accepted Answer

The salesman is not making purchase deci

Question 17

If firms sell what they expected to sell, which of the following will be true?

Accepted Answer

A)  Aggregate expenditure will be greater than GDP. 
B)  There is no unplanned change in inventories. 
C)  Inventories will rise, and GDP and employment will fall. 
D)  Aggregate expenditure will be less than GDP. 
A)  Aggregate expenditure will be greater than GDP. 
B)  There is no unplanned change in inventories. 
C)  Inventories will rise, and GDP and employment will fall. 
D)  Aggregate expenditure will be less than GDP.

Question 18

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

Question 19

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is GDP?

Accepted Answer

A)  $15 million 
B)  $23 million 
C)  $25 million 
D)  $27 million 
A)  $15 million 
B)  $23 million 
C)  $25 million 
D)  $27 million

Question 20

Table 23-9
  
-Given Table 23-9 below, fill in the values of the marginal propensity to save (MPS) and the marginal propensity to consume (MPC). Show that MPC + MPS = 1.

Accepted Answer

The MPC is defined as:
MPC = @#IMG-DLM& = @#IMG-DLM& = @#IMG-DLM& = 0.

Exam 23: Aggregate Expenditure and Output in the Short Run

What impact does a decrease in the price level in the United States have on net exports and why?

If the economy is currently in equilibrium at a level of GDP that is below potential GDP, which of the following would move the economy back to potential GDP?

Suppose the United States experiences a long period of inflation relative to other countries. How will this affect U.S. net exports?

An increase in the price level in the United States will reduce imports and increase exports.

Increases in the price level will

When we graph consumption as a function of ________ rather than as a function of disposable income, the slope of this consumption function is ________.

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

Figure 23-4 -In the aggregate expenditure model, ________ has both an autonomous component and an induced component.

Table 23-3 -Refer to Table 23-3. Given the consumption schedule in the table above, the marginal propensity to save is

A decrease in consumer confidence can put your job at risk if

If consumption is defined as C = 2,000 + 0.8Y, then the marginal propensity to save is 0.8.

The change in consumption divided by the change in disposable income is equal to

An increase in aggregate expenditure has what result on equilibrium GDP?

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

If firms sell what they expected to sell, which of the following will be true?

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?

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is GDP?

Table 23-9 -Given Table 23-9 below, fill in the values of the marginal propensity to save (MPS) and the marginal propensity to consume (MPC). Show that MPC + MPS = 1.

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

When we graph consumption as a function of rather than as a function of disposable income, the slope of this consumption function is .