Question 1

________ describes the relationship between consumption spending and disposable income.

Accepted Answer

A)  Household wealth 
B)  The liquidity trap 
C)  The consumption function 
D)  The paradox of thrift 
A)  Household wealth 
B)  The liquidity trap 
C)  The consumption function 
D)  The paradox of thrift

Question 2

If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP,then

Accepted Answer

A)  the multiplier is 0.125. 
B)  the multiplier is 3.5. 
C)  the multiplier is 8. 
D)  the multiplier is 50. 
A)  the multiplier is 0.125. 
B)  the multiplier is 3.5. 
C)  the multiplier is 8. 
D)  the multiplier is 50.

Question 3

Macroeconomic equilibrium can occur at any point on the 45-degree line.

Accepted Answer

A) True 
 B)False

Question 4

When net exports equal zero,the economy is in macroeconomic equilibrium.

Accepted Answer

A) True 
 B)False

Question 5

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 6

If disposable income falls by $50 billion and consumption falls by $40 billion,then the slope of the consumption function is

Accepted Answer

A)  1.20. 
B)  0.80. 
C)  0.70. 
D)  0.10. 
A)  1.20. 
B)  0.80. 
C)  0.70. 
D)  0.10.

Question 7

If economists forecast a decrease in aggregate expenditure,which of the following is likely to occur?

Accepted Answer

A)  GDP will rise. 
B)  GDP will fall. 
C)  Wages will rise. 
D)  Inventories will fall. 
A)  GDP will rise. 
B)  GDP will fall. 
C)  Wages will rise. 
D)  Inventories will fall.

Question 8

On the 45-degree line diagram,for points that lie below the 45-degree line,

Accepted Answer

A)  planned aggregate expenditure is greater than GDP. 
B)  planned aggregate expenditure is less than GDP. 
C)  planned aggregate expenditure is equal to GDP. 
D)  planned aggregate expenditure is less than aggregate income. 
A)  planned aggregate expenditure is greater than GDP. 
B)  planned aggregate expenditure is less than GDP. 
C)  planned aggregate expenditure is equal to GDP. 
D)  planned aggregate expenditure is less than aggregate income.

Question 9

If the MPC is 0.5,then a $10 million increase in disposable income will increase consumption by

Accepted Answer

A)  $2 million. 
B)  $5 million. 
C)  $15 million 
D)  $50 million. 
A)  $2 million. 
B)  $5 million. 
C)  $15 million 
D)  $50 million.

Question 10

Economists think that the marginal propensity to consume for the U.S.economy is somewhere around 0.9.Based on our simple multiplier formula,this would imply that the multiplier for the United States should be around 10.However,economists agree that the spending multiplier is closer to 2.What might explain this supposed anomaly?

Accepted Answer

The formula for the multiplier,M = @#IMG-DLM& ,is

Question 11

Housing wealth is equal to

Accepted Answer

A)  the market value of a house minus the value of loans people have taken out to pay for the house. 
B)  the actual price paid for a house minus the current value of the house. 
C)  the actual price paid for a house minus the value of any outstanding loans taken out to pay for the house. 
D)  the current market value of the house should that house be sold within the next 30 days. 
A)  the market value of a house minus the value of loans people have taken out to pay for the house. 
B)  the actual price paid for a house minus the current value of the house. 
C)  the actual price paid for a house minus the value of any outstanding loans taken out to pay for the house. 
D)  the current market value of the house should that house be sold within the next 30 days.

Question 12

If consumption is defined as C = 1,350 + 0.6Y,then the marginal propensity to consume is 0.6.

Accepted Answer

A) True 
 B)False

Question 13

From 1983-2011,net exports for the United States

Accepted Answer

A)  grew and then declined. 
B)  were negative. 
C)  were positive. 
D)  increased as exports rose above imports. 
A)  grew and then declined. 
B)  were negative. 
C)  were positive. 
D)  increased as exports rose above imports.

Question 14

Consumption is $5 million,planned investment spending is $8 million,government purchases are $10 million,and net exports are equal to $2 million.If GDP during that same time period is equal to $27 million,what unplanned changes in inventories occurred?

Accepted Answer

A)  There was an unplanned increase in inventories equal to $2 million. 
B)  There was no unplanned change in inventories. 
C)  There was an unplanned decrease in inventories equal to $2 million. 
D)  There was an unplanned decrease in inventories equal to $19 million. 
A)  There was an unplanned increase in inventories equal to $2 million. 
B)  There was no unplanned change in inventories. 
C)  There was an unplanned decrease in inventories equal to $2 million. 
D)  There was an unplanned decrease in inventories equal to $19 million.

Question 15

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 16

Following three years of negative growth,restaurant sales in the United States were expected to increase 3.6 percent in 2011.If the increase in restaurant sales increases aggregate expenditure,

Accepted Answer

A)  unplanned investment will decrease. 
B)  planned investment will decrease. 
C)  planned aggregate expenditure will be less than real GDP. 
D)  real GDP will be less than nominal GDP. 
A)  unplanned investment will decrease. 
B)  planned investment will decrease. 
C)  planned aggregate expenditure will be less than real GDP. 
D)  real GDP will be less than nominal GDP.

Question 17

Investment spending ________ during a recession,and ________ during an expansion.

Accepted Answer

A)  declines; increases 
B)  increases; declines 
C)  increases; increases 
D)  declines; declines 
A)  declines; increases 
B)  increases; declines 
C)  increases; increases 
D)  declines; declines

Question 18

Ceteris paribus,how does a recession in the United States affect U.S.net exports?

Accepted Answer

As GDP decreases in the United States du

Question 19

An increase in the price level in the United States will shift the aggregate expenditure line upward.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 23: Aggregate Expenditure and Output in the Short Run

________ describes the relationship between consumption spending and disposable income.

If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP,then

Macroeconomic equilibrium can occur at any point on the 45-degree line.

When net exports equal zero,the economy is in macroeconomic equilibrium.

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

If disposable income falls by $50 billion and consumption falls by $40 billion,then the slope of the consumption function is

If economists forecast a decrease in aggregate expenditure,which of the following is likely to occur?

On the 45-degree line diagram,for points that lie below the 45-degree line,

If the MPC is 0.5,then a $10 million increase in disposable income will increase consumption by

Housing wealth is equal to

If consumption is defined as C = 1,350 + 0.6Y,then the marginal propensity to consume is 0.6.

From 1983-2011,net exports for the United States

Consumption is $5 million,planned investment spending is $8 million,government purchases are $10 million,and net exports are equal to $2 million.If GDP during that same time period is equal to $27 million,what unplanned changes in inventories occurred?

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

Following three years of negative growth,restaurant sales in the United States were expected to increase 3.6 percent in 2011.If the increase in restaurant sales increases aggregate expenditure,

Investment spending ________ during a recession,and ________ during an expansion.

Ceteris paribus,how does a recession in the United States affect U.S.net exports?

An increase in the price level in the United States will shift the aggregate expenditure line upward.

The marginal propensity to save is defined as

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 during a recession,and during an expansion.