Question 1

The larger the MPC, the smaller the value of the multiplier.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is true?

Accepted Answer

A)  National income = Consumption + Savings - Taxes 
B)  National income = Consumption - Savings - Taxes 
C)  National income = Consumption + Savings + Taxes 
D)  National income = Consumption - Savings + Taxes 
A)  National income = Consumption + Savings - Taxes 
B)  National income = Consumption - Savings - Taxes 
C)  National income = Consumption + Savings + Taxes 
D)  National income = Consumption - Savings + Taxes

Question 3

Investment spending increases during ________, and decreases during ________.

Accepted Answer

A)  an expansion; a recession 
B)  a recession; an expansion 
C)  a recession; a depression 
D)  a deflation; an inflation 
A)  an expansion; a recession 
B)  a recession; an expansion 
C)  a recession; a depression 
D)  a deflation; an inflation

Question 4

National income =

Accepted Answer

A)  Consumption + Saving - Taxes 
B)  Consumption - Saving - Taxes 
C)  Consumption - Saving +Taxes 
D)  Consumption + Saving + Taxes 
A)  Consumption + Saving - Taxes 
B)  Consumption - Saving - Taxes 
C)  Consumption - Saving +Taxes 
D)  Consumption + Saving + Taxes

Question 5

The aggregate demand curve shows the relationship between the price level and the level of planned aggregate expenditure in the economy.

Accepted Answer

A) True 
 B)False

Question 6

A general formula for the multiplier is

Accepted Answer

A)    . 
B)    . 
C)    . 
D)    . 
A)    . 
B)    . 
C)    . 
D)    .

Question 7

Firms in a small economy planned that inventories would grow over the past year by $500,000. Over that year, inventories did grow by exactly $500,000. This implies that

Accepted Answer

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

Question 8

Consumption spending is $16 million, planned investment spending is $4 million, unplanned investment spending is $2 million, government purchases are $6 million, and net export spending is $1 million. What is aggregate expenditure?

Accepted Answer

A)  $22 million 
B)  $26 million 
C)  $27 million 
D)  $29 million 
A)  $22 million 
B)  $26 million 
C)  $27 million 
D)  $29 million

Question 9

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 $200 billion. If the MPC is 0.8, then what is the distance between N and L or by how much did government spending change?

Accepted Answer

A)  $16 billion 
B)  $40 billion 
C)  $200 billion 
D)  $1,000 billion 
A)  $16 billion 
B)  $40 billion 
C)  $200 billion 
D)  $1,000 billion

Question 10

Figure 23-1  
-Refer to Figure 23-1. At point L in the figure above, which of the following is true?

Accepted Answer

A)  Aggregate expenditure is greater than GDP. 
B)  The economy has achieved macroeconomic equilibrium. 
C)  Actual inventories are greater than planned inventories. 
D)  GDP will be increasing. 
A)  Aggregate expenditure is greater than GDP. 
B)  The economy has achieved macroeconomic equilibrium. 
C)  Actual inventories are greater than planned inventories. 
D)  GDP will be increasing.

Question 11

Why do economists care about aggregate expenditures?

Accepted Answer

Increases and decreases in aggregate exp

Question 12

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

Accepted Answer

A)  The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate. 
B)  The larger the MPC, the smaller the multiplier. 
C)  The multiplier is the ratio of the change in spending to the change in GDP. 
D)  The multiplier makes the economy less sensitive to changes in autonomous expenditure. 
A)  The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate. 
B)  The larger the MPC, the smaller the multiplier. 
C)  The multiplier is the ratio of the change in spending to the change in GDP. 
D)  The multiplier makes the economy less sensitive to changes in autonomous expenditure.

Question 13

Into which category of aggregate expenditure would each of the following transactions fall?
a. Sandra MacMillian purchases a new Ford Focus.
b. The city of Richardson buys 5 new garbage trucks.
c. Adrian Garcia buys a newly constructed townhome.
d. A consumer in Latvia orders an iPhone from Apple.
e. Ford Motor Company buys 300 new iPhones from Apple.

Accepted Answer

a. Consumption
b. Go

Question 14

If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is

Accepted Answer

A)  0.9. 
B)  0.8. 
C)  0.75. 
D)  0.6. 
A)  0.9. 
B)  0.8. 
C)  0.75. 
D)  0.6.

Question 15

The slope of the consumption function is equal to

Accepted Answer

A)  the change in consumption divided by the change in disposable income. 
B)  the change in consumption divided by the change in personal income. 
C)  the change in disposable income divided by the change in consumption. 
D)  the change in national income divided by the change in consumption. 
A)  the change in consumption divided by the change in disposable income. 
B)  the change in consumption divided by the change in personal income. 
C)  the change in disposable income divided by the change in consumption. 
D)  the change in national income divided by the change in consumption.

Question 16

Which of the following correctly describes how an increase in the price level affects consumption spending?

Accepted Answer

A)  An increase in the price level raises real wealth, which causes consumption to increase. 
B)  An increase in the price level decreases the amount of money a household needs to buy goods and raises the interest rate, which causes consumption to increase. 
C)  An increase in the price level increases the amount of money a household needs to buy goods and raises the interest rate, which causes consumption to increase. 
D)  An increase in the price level lowers real wealth, which causes consumption to decrease. 
A)  An increase in the price level raises real wealth, which causes consumption to increase. 
B)  An increase in the price level decreases the amount of money a household needs to buy goods and raises the interest rate, which causes consumption to increase. 
C)  An increase in the price level increases the amount of money a household needs to buy goods and raises the interest rate, which causes consumption to increase. 
D)  An increase in the price level lowers real wealth, which causes consumption to decrease.

Question 17

Table 23-4
  
-Refer to Table 23-4. Given the consumption schedule in the table above, the marginal propensity to save is

Accepted Answer

A)  0.3. 
B)  0.4. 
C)  0.5. 
D)  0.6. 
A)  0.3. 
B)  0.4. 
C)  0.5. 
D)  0.6.

Question 18

If consumption is defined as C = 4,500 + 0.75Y, then the marginal propensity to save is 0.25.

Accepted Answer

A) True 
 B)False

Question 19

The ratio of the increase in ________ to the increase in ________ is called the multiplier.

Accepted Answer

A)  equilibrium nominal GDP; autonomous expenditure 
B)  equilibrium real GDP; autonomous expenditure 
C)  autonomous expenditure; equilibrium real GDP 
D)  induced expenditure; equilibrium real GDP 
A)  equilibrium nominal GDP; autonomous expenditure 
B)  equilibrium real GDP; autonomous expenditure 
C)  autonomous expenditure; equilibrium real GDP 
D)  induced expenditure; equilibrium real GDP

Question 20

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 aggregate expenditure?

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

Exam 23: Aggregate Expenditure and Output in the Short Run

The larger the MPC, the smaller the value of the multiplier.

Which of the following is true?

Investment spending increases during ________, and decreases during ________.

National income =

The aggregate demand curve shows the relationship between the price level and the level of planned aggregate expenditure in the economy.

A general formula for the multiplier is

Firms in a small economy planned that inventories would grow over the past year by $500,000. Over that year, inventories did grow by exactly $500,000. This implies that

Consumption spending is $16 million, planned investment spending is $4 million, unplanned investment spending is $2 million, government purchases are $6 million, and net export spending is $1 million. What is aggregate expenditure?

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 $200 billion. If the MPC is 0.8, then what is the distance between N and L or by how much did government spending change?

Figure 23-1 -Refer to Figure 23-1. At point L in the figure above, which of the following is true?

Why do economists care about aggregate expenditures?

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

If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is

The slope of the consumption function is equal to

Which of the following correctly describes how an increase in the price level affects consumption spending?

Table 23-4 -Refer to Table 23-4. Given the consumption schedule in the table above, the marginal propensity to save is

If consumption is defined as C = 4,500 + 0.75Y, then the marginal propensity to save is 0.25.

The ratio of the increase in ________ to the increase in ________ is called the multiplier.

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 aggregate expenditure?

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

Investment spending increases during , and decreases during .

The ratio of the increase in to the increase in is called the multiplier.