Question 1

Figure 23-1  
-Refer to Figure 23-1. If the economy is at a level of aggregate expenditure given by point K,

Accepted Answer

A)  the economy is in equilibrium. 
B)  production is greater than spending. 
C)  production is less than spending. 
D)  inventories will increase above their desired level. 
A)  the economy is in equilibrium. 
B)  production is greater than spending. 
C)  production is less than spending. 
D)  inventories will increase above their desired level.

Question 2

If national income increases by $20 million and consumption increases by $5 million, the marginal propensity to consume is

Accepted Answer

A)  4. 
B)  0.75. 
C)  0.5. 
D)  0.25. 
A)  4. 
B)  0.75. 
C)  0.5. 
D)  0.25.

Question 3

If disposable income increases by $500 million, and consumption increases by $400 million, then the marginal propensity to consume is

Accepted Answer

A)  1.25. 
B)  0.8. 
C)  0.6. 
D)  0.4. 
A)  1.25. 
B)  0.8. 
C)  0.6. 
D)  0.4.

Question 4

Macroeconomic equilibrium occurs when

Accepted Answer

A)  aggregate expenditure = GDP. 
B)  aggregate expenditure = C+ I + G + net transfers. 
C)  aggregate income = planned inventories. 
D)  aggregate expenditure = planned inventories. 
A)  aggregate expenditure = GDP. 
B)  aggregate expenditure = C+ I + G + net transfers. 
C)  aggregate income = planned inventories. 
D)  aggregate expenditure = planned inventories.

Question 5

An example of assets that are included in ________ would be stocks, bonds, and savings accounts.

Accepted Answer

A)  household wealth 
B)  household income 
C)  planned investment 
D)  consumer purchases 
A)  household wealth 
B)  household income 
C)  planned investment 
D)  consumer purchases

Question 6

________ consumption is consumption that depends upon the level of GDP and ________ consumption is consumption that does not depend upon the level of GDP.

Accepted Answer

A)  Autonomous; induced 
B)  Induced; autonomous 
C)  Voluntary; autonomous 
D)  Autonomous; voluntary 
A)  Autonomous; induced 
B)  Induced; autonomous 
C)  Voluntary; autonomous 
D)  Autonomous; voluntary

Question 7

Explain how a stock market crash has the potential to lead to a recession in an economy.

Accepted Answer

A stock market crash is essentially a su

Question 8

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.

Accepted Answer

If spending is less than production, the

Question 9

U.S. net export spending rises when

Accepted Answer

A)  the price level in the United States rises relative to the price level in other countries. 
B)  the growth rate of U.S. GDP is slower than the growth rate of GDP in other countries. 
C)  the value of the U.S. dollar increases relative to other currencies. 
D)  the inflation rate is higher in the United States relative to other countries. 
A)  the price level in the United States rises relative to the price level in other countries. 
B)  the growth rate of U.S. GDP is slower than the growth rate of GDP in other countries. 
C)  the value of the U.S. dollar increases relative to other currencies. 
D)  the inflation rate is higher in the United States relative to other countries.

Question 10

When Jack's income increases by $5,000, he spends an additional $4,000 dollars. This implies that his marginal propensity to consume is 1.25.

Accepted Answer

A) True 
 B)False

Question 11

An unplanned increase in inventories results from

Accepted Answer

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

Question 12

If the MPC is 0.95, then a $10 million increase in disposable income will

Accepted Answer

A)  increase consumption by $200 million. 
B)  increase consumption by $9.5 million. 
C)  decrease consumption by $105 million 
D)  increase consumption by $950 million. 
A)  increase consumption by $200 million. 
B)  increase consumption by $9.5 million. 
C)  decrease consumption by $105 million 
D)  increase consumption by $950 million.

Question 13

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

Accepted Answer

A)  frictional unemployment 
B)  export spending 
C)  government spending 
D)  GDP 
A)  frictional unemployment 
B)  export spending 
C)  government spending 
D)  GDP

Question 14

Figure 23-3  
-Refer to Figure 23-3. Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what is the change in GDP?

Accepted Answer

A)  $9 million 
B)  $10 million 
C)  $90 million 
D)  $100 million 
A)  $9 million 
B)  $10 million 
C)  $90 million 
D)  $100 million

Question 15

Actual investment spending does not include

Accepted Answer

A)  spending on consumer durable goods. 
B)  spending on new capital equipment. 
C)  spending on new houses. 
D)  changes in inventories. 
A)  spending on consumer durable goods. 
B)  spending on new capital equipment. 
C)  spending on new houses. 
D)  changes in inventories.

Question 16

A decrease in the real interest rate will

Accepted Answer

A)  cause consumers to spend less and save more. 
B)  most likely increase consumer's purchases of durable goods. 
C)  most likely increase the reward to savings. 
D)  most likely increase the cost of borrowing. 
A)  cause consumers to spend less and save more. 
B)  most likely increase consumer's purchases of durable goods. 
C)  most likely increase the reward to savings. 
D)  most likely increase the cost of borrowing.

Question 17

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

Accepted Answer

A)  The multiplier rises as the MPC rises. 
B)  The smaller the MPC, the larger the multiplier. 
C)  The multiplier is a value between zero and one. 
D)  The multiplier effect does not occur when autonomous expenditure decreases. 
A)  The multiplier rises as the MPC rises. 
B)  The smaller the MPC, the larger the multiplier. 
C)  The multiplier is a value between zero and one. 
D)  The multiplier effect does not occur when autonomous expenditure decreases.

Question 18

Aggregate expenditure includes spending on

Accepted Answer

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

Question 19

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

Accepted Answer

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

Question 20

Use a 45-degree diagram to illustrate macroeconomic equilibrium. Make sure your diagram shows the aggregate expenditure function. Include in your diagram a point where aggregate expenditure is greater than GDP and a point where aggregate expenditure is less than GDP.

Accepted Answer

@#IMG-DLM& Macroeconomic equilibrium occ

Exam 23: Aggregate Expenditure and Output in the Short Run

Figure 23-1 -Refer to Figure 23-1. If the economy is at a level of aggregate expenditure given by point K,

If national income increases by $20 million and consumption increases by $5 million, the marginal propensity to consume is

If disposable income increases by $500 million, and consumption increases by $400 million, then the marginal propensity to consume is

Macroeconomic equilibrium occurs when

An example of assets that are included in ________ would be stocks, bonds, and savings accounts.

________ consumption is consumption that depends upon the level of GDP and ________ consumption is consumption that does not depend upon the level of GDP.

Explain how a stock market crash has the potential to lead to a recession in an economy.

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.

U.S. net export spending rises when

When Jack's income increases by $5,000, he spends an additional $4,000 dollars. This implies that his marginal propensity to consume is 1.25.

An unplanned increase in inventories results from

If the MPC is 0.95, then a $10 million increase in disposable income will

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

Figure 23-3 -Refer to Figure 23-3. Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what is the change in GDP?

Actual investment spending does not include

A decrease in the real interest rate will

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

Aggregate expenditure includes spending on

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

Use a 45-degree diagram to illustrate macroeconomic equilibrium. Make sure your diagram shows the aggregate expenditure function. Include in your diagram a point where aggregate expenditure is greater than GDP and a point where aggregate expenditure is less than GDP.

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

consumption is consumption that depends upon the level of GDP and consumption is consumption that does not depend upon the level of GDP.