Question 1

The consumption function describes the relationship between

Accepted Answer

A)  consumption spending and national income. 
B)  consumption spending and aggregate income. 
C)  consumption spending and disposable income. 
D)  consumption spending and personal income. 
A)  consumption spending and national income. 
B)  consumption spending and aggregate income. 
C)  consumption spending and disposable income. 
D)  consumption spending and personal income.

Question 2

Firms in a small economy anticipated that inventories would grow over the past year by $500,000. Over that year, inventories actually grew by only $400,000. This implies that

Accepted Answer

A)  aggregate expenditure that year was greater than GDP that year. 
B)  there was an unplanned increase in inventories that year. 
C)  there was a planned increase in inventories that year. 
D)  aggregate expenditure that year was equal to GDP that year. 
A)  aggregate expenditure that year was greater than GDP that year. 
B)  there was an unplanned increase in inventories that year. 
C)  there was a planned increase in inventories that year. 
D)  aggregate expenditure that year was equal to GDP that year.

Question 3

Investment spending will decrease when

Accepted Answer

A)  the interest rate falls. 
B)  the corporate income tax decreases. 
C)  business cash flow decreases. 
D)  firms become more optimistic about earning future profits. 
A)  the interest rate falls. 
B)  the corporate income tax decreases. 
C)  business cash flow decreases. 
D)  firms become more optimistic about earning future profits.

Question 4

The passage of the Smoot-Hawley Tariff in 1930 sparked a trade war that caused net exports to ________ and real GDP to ________.

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 5

Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $32,000, what is the marginal propensity to consume? C = 5,000 + (MPC)Y
I = 1,500
G = 2,000
NX = -500

Accepted Answer

A)  0.67 
B)  0.75 
C)  0.8 
D)  0.9 
A)  0.67 
B)  0.75 
C)  0.8 
D)  0.9

Question 6

Consumer spending ________ and investment spending ________.

Accepted Answer

A)  is very volatile and subject to fluctuations; follows a smooth trend 
B)  follows a smooth trend; is more volatile and subject to fluctuations 
C)  follows a smooth trend; is the most stable component of aggregate expenditure 
D)  is very erratic; is also erratic, but less erratic than consumer spending 
A)  is very volatile and subject to fluctuations; follows a smooth trend 
B)  follows a smooth trend; is more volatile and subject to fluctuations 
C)  follows a smooth trend; is the most stable component of aggregate expenditure 
D)  is very erratic; is also erratic, but less erratic than consumer spending

Question 7

If planned aggregate expenditure is above potential GDP and planned aggregate expenditure equals GDP, then

Accepted Answer

A)  actual inventory investment will be less than planned inventory investment. 
B)  actual inventory investment will be greater than planned inventory investment. 
C)  the economy is in an expansion. 
D)  the economy is at full employment. 
A)  actual inventory investment will be less than planned inventory investment. 
B)  actual inventory investment will be greater than planned inventory investment. 
C)  the economy is in an expansion. 
D)  the economy is at full employment.

Question 8

Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $32,000, what will the new equilibrium level of GDP be if government spending increases to 2,500? C = 5,000 + (MPC)Y
I = 1,500
G = 2,000
NX = -500

Accepted Answer

A)  $32,500 
B)  $34,000 
C)  $38,000 
D)  $42,000 
A)  $32,500 
B)  $34,000 
C)  $38,000 
D)  $42,000

Question 9

Table 23-1
  
-Refer to Table 23-1. Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

Accepted Answer

The macroeconomic equilibrium is determi

Question 10

Consumption spending refers to ________ spending on goods and services.

Accepted Answer

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

Question 11

Table 23-11
  
-Refer to Table 23-11. Using the table above, calculate the unplanned change in inventories for each level of GDP, and explain what will happen to GDP.

Accepted Answer

The macroeconomic equilibrium is determi

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

If national income increases by $75 million and consumption increases by $15 million, the marginal propensity to consume is

Accepted Answer

A)  5. 
B)  0.75. 
C)  0.20. 
D)  0.15. 
A)  5. 
B)  0.75. 
C)  0.20. 
D)  0.15.

Question 14

How does a decrease in government spending affect the aggregate expenditure line?

Accepted Answer

A)  It shifts the aggregate expenditure line upward. 
B)  It shifts the aggregate expenditure line downward. 
C)  It increases the slope of the aggregate expenditure line. 
D)  It decreases the slope of the aggregate expenditure line. 
A)  It shifts the aggregate expenditure line upward. 
B)  It shifts the aggregate expenditure line downward. 
C)  It increases the slope of the aggregate expenditure line. 
D)  It decreases the slope of the aggregate expenditure line.

Question 15

On the 45-degree line diagram, the 45-degree line shows points where real aggregate expenditure equals

Accepted Answer

A)  unplanned investment. 
B)  planned investment. 
C)  real GDP. 
D)  nominal GDP. 
A)  unplanned investment. 
B)  planned investment. 
C)  real GDP. 
D)  nominal GDP.

Question 16

Figure 23-3  
-Refer to Figure 23-3. Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP1 to GDP2, and this amount is $400 billion. If the MPC is 0.75, then what is the distance between N and L or by how much did government spending change?

Accepted Answer

A)  $10 billion 
B)  $100 billion 
C)  $200 billion 
D)  $300 billion 
A)  $10 billion 
B)  $100 billion 
C)  $200 billion 
D)  $300 billion

Question 17

If the consumption function is defined as C = 5,500 + 0.9Y, what is the multiplier?

Accepted Answer

A)  0.l 
B)  0.9 
C)  6.1 
D)  10 
A)  0.l 
B)  0.9 
C)  6.1 
D)  10

Question 18

U.S. net export spending falls when

Accepted Answer

A)  the price level in the United States falls relative to the price level in other countries. 
B)  the growth rate of U.S. GDP is faster than the growth rate of GDP in other countries. 
C)  the value of the U.S. dollar decreases relative to other currencies. 
D)  the inflation rate is lower in the United States relative to other countries. 
A)  the price level in the United States falls relative to the price level in other countries. 
B)  the growth rate of U.S. GDP is faster than the growth rate of GDP in other countries. 
C)  the value of the U.S. dollar decreases relative to other currencies. 
D)  the inflation rate is lower in the United States relative to other countries.

Question 19

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

Accepted Answer

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

Question 20

Which of the following will increase aggregate expenditure in the United States?

Accepted Answer

A)  an increase in the value of the dollar 
B)  an increase in the price level 
C)  an increase in interest rates 
D)  an increase in government purchases 
A)  an increase in the value of the dollar 
B)  an increase in the price level 
C)  an increase in interest rates 
D)  an increase in government purchases

Exam 23: Aggregate Expenditure and Output in the Short Run

The consumption function describes the relationship between

Firms in a small economy anticipated that inventories would grow over the past year by $500,000. Over that year, inventories actually grew by only $400,000. This implies that

Investment spending will decrease when

The passage of the Smoot-Hawley Tariff in 1930 sparked a trade war that caused net exports to ________ and real GDP to ________.

Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $32,000, what is the marginal propensity to consume? C = 5,000 + (MPC)Y I = 1,500 G = 2,000 NX = -500

Consumer spending ________ and investment spending ________.

If planned aggregate expenditure is above potential GDP and planned aggregate expenditure equals GDP, then

Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $32,000, what will the new equilibrium level of GDP be if government spending increases to 2,500? C = 5,000 + (MPC)Y I = 1,500 G = 2,000 NX = -500

Table 23-1 -Refer to Table 23-1. Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

Consumption spending refers to ________ spending on goods and services.

Table 23-11 -Refer to Table 23-11. Using the table above, calculate the unplanned change in inventories for each level of GDP, and explain what will happen to GDP.

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

If national income increases by $75 million and consumption increases by $15 million, the marginal propensity to consume is

How does a decrease in government spending affect the aggregate expenditure line?

On the 45-degree line diagram, the 45-degree line shows points where real aggregate expenditure equals

Figure 23-3 -Refer to Figure 23-3. Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP1 to GDP2, and this amount is $400 billion. If the MPC is 0.75, then what is the distance between N and L or by how much did government spending change?

If the consumption function is defined as C = 5,500 + 0.9Y, what is the multiplier?

U.S. net export spending falls when

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

Which of the following will increase aggregate expenditure in the United States?

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

The passage of the Smoot-Hawley Tariff in 1930 sparked a trade war that caused net exports to and real GDP to .

Consumer spending and investment spending .