Question 1

Examples of assets that are included in household wealth would be

Accepted Answer

A)  stocks, bonds, and savings accounts. 
B)  stocks, loans owed, and savings accounts. 
C)  stocks, bonds, and mortgages. 
D)  stocks, credit cards, and savings accounts. 
A)  stocks, bonds, and savings accounts. 
B)  stocks, loans owed, and savings accounts. 
C)  stocks, bonds, and mortgages. 
D)  stocks, credit cards, and savings accounts.

Question 2

If the marginal propensity to consume is 0.75, the marginal propensity to save is

Accepted Answer

A)  0.25. 
B)  0.5. 
C)  1. 
D)  3. 
A)  0.25. 
B)  0.5. 
C)  1. 
D)  3.

Question 3

If firms find that consumers are purchasing less 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 rise. 
D)  The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment rise. 
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 rise. 
D)  The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment rise.

Question 4

At macroeconomic equilibrium, total ________ equals total ________.

Accepted Answer

A)  spending; production 
B)  investment; inventories 
C)  consumption; production 
D)  taxes; transfers 
A)  spending; production 
B)  investment; inventories 
C)  consumption; production 
D)  taxes; transfers

Question 5

If planned aggregate expenditure is less than total production,

Accepted Answer

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

Question 6

If planned aggregate expenditure is below 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 a recession. 
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 a recession. 
D)  the economy is at full employment.

Question 7

Firms in a small economy planned that inventories would grow over the past year by $300,000. Over that year, inventories actually grew by $400,000. This implies that

Accepted Answer

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

Question 8

The formula for aggregate expenditure is

Accepted Answer

A)  AE = C + I + G. 
B)  AE = C + I + G - NX. 
C)  AE = C + I + G + NX. 
D)  AE = C + I + depreciation - NX. 
A)  AE = C + I + G. 
B)  AE = C + I + G - NX. 
C)  AE = C + I + G + NX. 
D)  AE = C + I + depreciation - NX.

Question 9

The aggregate expenditure model focuses on the short-run relationship between ________ and ________.

Accepted Answer

A)  real spending; real GDP 
B)  unemployment; inflation 
C)  nominal spending; nominal GDP 
D)  planned inventories; unplanned inventories 
A)  real spending; real GDP 
B)  unemployment; inflation 
C)  nominal spending; nominal GDP 
D)  planned inventories; unplanned inventories

Question 10

The marginal propensity to save is defined as

Accepted Answer

A)  saving divided by disposable income. 
B)  disposable income divided by saving. 
C)  the change in saving divided by the change in disposable income. 
D)  the change in disposable income divided by the change in saving. 
A)  saving divided by disposable income. 
B)  disposable income divided by saving. 
C)  the change in saving divided by the change in disposable income. 
D)  the change in disposable income divided by the change in saving.

Question 11

A decrease 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 12

Which of the following leads to an increase in real GDP?

Accepted Answer

A)  a decrease in government spending 
B)  a decrease in the inflation rate in other countries, relative to the inflation in the United States 
C)  a decrease in interest rates 
D)  Households have increasingly pessimistic expectations about future income. 
A)  a decrease in government spending 
B)  a decrease in the inflation rate in other countries, relative to the inflation in the United States 
C)  a decrease in interest rates 
D)  Households have increasingly pessimistic expectations about future income.

Question 13

C = 3,600 + (MPC)Y
I = 1,200
G = 1,400
NX = -200
If the equilibrium level of GDP is $30,000, using the equations for C, I, G, and NX shown above, find the value of the marginal propensity to consume.

Accepted Answer

Y = C + I + G + NX.
30,000 = 3

Question 14

The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by

Accepted Answer

A)  investment spending. 
B)  export spending. 
C)  government spending. 
D)  the level of aggregate expenditure. 
A)  investment spending. 
B)  export spending. 
C)  government spending. 
D)  the level of aggregate expenditure.

Question 15

Figure 23-4  
-Refer to Figure 23-4. Potential GDP equals $100 billion. The economy is currently producing GDP1 which is equal to $90 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP?

Accepted Answer

A)  -$18 billion 
B)  -$2 billion 
C)  $2 billion 
D)  $18 billion 
A)  -$18 billion 
B)  -$2 billion 
C)  $2 billion 
D)  $18 billion

Question 16

Given the equations for C, I, G, and NX below, what is the equilibrium level of GDP? C = 2,000 + 0.9Y
I = 2,500
G = 3,000
NX = 400

Accepted Answer

A)  $4,333 
B)  $7,100 
C)  $8,778 
D)  $79,000 
A)  $4,333 
B)  $7,100 
C)  $8,778 
D)  $79,000

Question 17

What is the formula for the multiplier? Explain why this formula is considered to be too simple.

Accepted Answer

Multiplier = @#IMG-DLM& .
The formula ignores the

Question 18

If planned aggregate expenditure is less 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 19

If the consumption function is defined as C = 7,250 + 0.8Y, what is the marginal propensity to save?

Accepted Answer

A)  0.2 
B)  0.8 
C)  5.8 
D)  7.25 
A)  0.2 
B)  0.8 
C)  5.8 
D)  7.25

Question 20

The difference between GDP and disposable income is

Accepted Answer

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

Exam 23: Aggregate Expenditure and Output in the Short Run

Examples of assets that are included in household wealth would be

If the marginal propensity to consume is 0.75, the marginal propensity to save is

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

At macroeconomic equilibrium, total ________ equals total ________.

If planned aggregate expenditure is less than total production,

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

Firms in a small economy planned that inventories would grow over the past year by $300,000. Over that year, inventories actually grew by $400,000. This implies that

The formula for aggregate expenditure is

The aggregate expenditure model focuses on the short-run relationship between ________ and ________.

The marginal propensity to save is defined as

A decrease in aggregate expenditure has what result on equilibrium GDP?

Which of the following leads to an increase in real GDP?

C = 3,600 + (MPC)Y I = 1,200 G = 1,400 NX = -200 If the equilibrium level of GDP is $30,000, using the equations for C, I, G, and NX shown above, find the value of the marginal propensity to consume.

The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by

Figure 23-4 -Refer to Figure 23-4. Potential GDP equals $100 billion. The economy is currently producing GDP1 which is equal to $90 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP?

Given the equations for C, I, G, and NX below, what is the equilibrium level of GDP? C = 2,000 + 0.9Y I = 2,500 G = 3,000 NX = 400

What is the formula for the multiplier? Explain why this formula is considered to be too simple.

If planned aggregate expenditure is less than total production,

If the consumption function is defined as C = 7,250 + 0.8Y, what is the marginal propensity to save?

The difference between GDP and disposable income is

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

At macroeconomic equilibrium, total equals total .

The aggregate expenditure model focuses on the short-run relationship between and .