Question 1

A decrease in the price level results in a(n) ________ in household consumption spending and a(n) ________ in investment spending.

Accepted Answer

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

Question 2

If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium?

Accepted Answer

A)  Inventories will decline, and GDP and employment will decline. 
B)  Inventories will rise, and GDP and employment will decline. 
C)  Inventories will decline, and GDP and employment will rise. 
D)  Inventories will rise, and GDP and employment will rise. 
A)  Inventories will decline, and GDP and employment will decline. 
B)  Inventories will rise, and GDP and employment will decline. 
C)  Inventories will decline, and GDP and employment will rise. 
D)  Inventories will rise, and GDP and employment will rise.

Question 3

If the multiplier is 5, the marginal propensity to consume must be 0.8.

Accepted Answer

A) True 
 B)False

Question 4

An increase in Social Security payments will

Accepted Answer

A)  increase consumption spending. 
B)  increase investment spending. 
C)  increase government spending. 
D)  increase export spending. 
A)  increase consumption spending. 
B)  increase investment spending. 
C)  increase government spending. 
D)  increase export spending.

Question 5

If planned investment is equal to actual investment, then aggregate expenditure is equal to GDP.

Accepted Answer

A) True 
 B)False

Question 6

Table 23-12
  
-Refer to Table 23-12. Using the table above, answer the following questions. The numbers in the table are in billions of dollars.
a. What is the equilibrium level of real GDP?
b. What is the MPC?
c. If potential GDP is $7,000 billion, is the economy at full employment? If not, what is the condition of the economy?
d. If the economy is not at full employment, by how much should government spending increase so that the economy can move to the full employment level of GDP?

Accepted Answer

a. Equilibrium real GDP is determined wh

Question 7

Table 23-10
  
-Refer to Table 23-10. 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 8

The ________ model focuses on the relationship between total spending and real GDP in the short run, assuming the price level is constant.

Accepted Answer

A)  supply and demand 
B)  national income 
C)  aggregate expenditure 
D)  business cycle 
A)  supply and demand 
B)  national income 
C)  aggregate expenditure 
D)  business cycle

Question 9

Inventories refer to

Accepted Answer

A)  goods which have been presold before they are produced. 
B)  goods that have been produced but not yet sold. 
C)  goods that have been planned but not yet produced. 
D)  goods that have been produced and sold in the same year. 
A)  goods which have been presold before they are produced. 
B)  goods that have been produced but not yet sold. 
C)  goods that have been planned but not yet produced. 
D)  goods that have been produced and sold in the same year.

Question 10

________ is defined as national income + transfers - taxes.

Accepted Answer

A)  Gross private domestic investment 
B)  GDP 
C)  Personal income 
D)  Disposable income 
A)  Gross private domestic investment 
B)  GDP 
C)  Personal income 
D)  Disposable income

Question 11

If the consumption function is defined as C = 7,250 + 0.8Y, what is the multiplier?

Accepted Answer

A)  0.2 
B)  0.8 
C)  1.25 
D)  5 
A)  0.2 
B)  0.8 
C)  1.25 
D)  5

Question 12

For all points below the 45-degree line, planned aggregate expenditure will be less than GDP.

Accepted Answer

A) True 
 B)False

Question 13

Figure 23-1  
-Refer to Figure 23-1. If the economy is at point L, what will happen?

Accepted Answer

A)  Inventories have fallen below their desired level, and firms decrease production. 
B)  Inventories have fallen below their desired level, and firms increase production. 
C)  Inventories have risen above their desired level, and firms decrease production. 
D)  Inventories have risen above their desired level, and firms increase production. 
A)  Inventories have fallen below their desired level, and firms decrease production. 
B)  Inventories have fallen below their desired level, and firms increase production. 
C)  Inventories have risen above their desired level, and firms decrease production. 
D)  Inventories have risen above their desired level, and firms increase production.

Question 14

A decrease in the price level in the United States will have what effect on the aggregate expenditure line?

Accepted Answer

A)  Aggregate expenditure will shift downward. 
B)  Aggregate expenditure will become steeper. 
C)  Aggregate expenditure will shift upward. 
D)  Aggregate expenditure will not be affected by an increase in the price level in the United States. 
A)  Aggregate expenditure will shift downward. 
B)  Aggregate expenditure will become steeper. 
C)  Aggregate expenditure will shift upward. 
D)  Aggregate expenditure will not be affected by an increase in the price level in the United States.

Question 15

During a(n) ________ many firms experience increased profits, which increases ________ and investment spending.

Accepted Answer

A)  expansion; government spending 
B)  recession; cash flow 
C)  expansion; cash flow 
D)  recession; business confidence 
A)  expansion; government spending 
B)  recession; cash flow 
C)  expansion; cash flow 
D)  recession; business confidence

Question 16

What is the difference between aggregate expenditure and consumption spending?

Accepted Answer

Aggregate expenditure represents the tot

Question 17

If consumption is defined as C = 2,400 + 0.9Y, then the marginal propensity to consume is 0.9.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

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

Accepted Answer

A)  0.1. 
B)  0.3. 
C)  0.6. 
D)  0.9. 
A)  0.1. 
B)  0.3. 
C)  0.6. 
D)  0.9.

Question 20

An increase in the real interest rate will

Accepted Answer

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

Exam 23: Aggregate Expenditure and Output in the Short Run

A decrease in the price level results in a(n) ________ in household consumption spending and a(n) ________ in investment spending.

If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium?

If the multiplier is 5, the marginal propensity to consume must be 0.8.

An increase in Social Security payments will

If planned investment is equal to actual investment, then aggregate expenditure is equal to GDP.

Table 23-10 -Refer to Table 23-10. Using the table above, calculate the unplanned change in inventories for each level of GDP, and explain what will happen to GDP?

The ________ model focuses on the relationship between total spending and real GDP in the short run, assuming the price level is constant.

Inventories refer to

________ is defined as national income + transfers - taxes.

If the consumption function is defined as C = 7,250 + 0.8Y, what is the multiplier?

For all points below the 45-degree line, planned aggregate expenditure will be less than GDP.

Figure 23-1 -Refer to Figure 23-1. If the economy is at point L, what will happen?

A decrease in the price level in the United States will have what effect on the aggregate expenditure line?

During a(n) ________ many firms experience increased profits, which increases ________ and investment spending.

What is the difference between aggregate expenditure and consumption spending?

If consumption is defined as C = 2,400 + 0.9Y, then the marginal propensity to consume is 0.9.

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

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

An increase in the real interest rate will

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

A decrease in the price level results in a(n) in household consumption spending and a(n) in investment spending.

During a(n) many firms experience increased profits, which increases and investment spending.