Question 1

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 a decrease 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 a decrease in the price level in the United States. C

Question 2

Table 23-13
 $$\begin{array} { | c | c | c | c | c | } 
\hline \text { Real GDP } & \text { Consumption } & \begin{array} { c } 
\text { Planned } \
\text { Investment }
\end{array} & \begin{array} { c } 
\text { Government } \
\text { Purchases }
\end{array} & \text { Net Exports } \
\hline \$ 500 & \$ 400 & \$ 100 & \$ 150 & - \$ 50 \
\hline 600 & 450 & 100 & 150 & - 50 \
\hline 700 & 500 & 100 & 150 & - 50 \
\hline 800 & 550 & 100 & 150 & - 50 \
\hline
\end{array}$$
-Refer to Table 23-13.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 investment spending declines by $50 billion,what will happen to equilibrium GDP?

Accepted Answer

a.Equilibrium real GDP is determined where aggregate expenditure = real GDP.The values for aggregate expenditure for each level of real GDP are given in the table below.They are found by adding together C + I + G + NX.The value where real GDP equals aggregate expenditure is $700 billion,and this is equilibrium.
 $$\begin{array} { | c | c | } 
\hline \text { Real GDP } & \begin{array} { c } 
\text { Aggregate } \
\text { Expenditure }
\end{array} \
\hline \$ 500 & \$ 600 \
\hline 600 & 650 \
\hline \mathbf { 7 0 0 } & \mathbf { 7 0 0 } \
\hline 800 & 750 \
\hline
\end{array}$$ b.The MPC is found by the formula $\frac { \Delta C } { \Delta Y }$ .In this case,?C = $50 billion and ?Y = $100 billion,so the MPC = $50 billion / $100 billion,or 0.5.
c.We must use the multiplier formula to calculate the new equilibrium level of GDP.First we calculate the multiplier which is :
Multiplier = $\frac { 1 } { 1 - M P C }$ = $\frac { 1 } { ( 1 - 0.5 ) }$ = $\frac { 1 } { 0.5 }$ = 2.
The change in equilibrium GDP = change in expenditure × multiplier = -$50 billion × 2 = -$100 billion.
New equilibrium GDP = old equilibrium GDP + change in equilibrium GDP = $700 billion - $100 billion = $600 billion.

Question 3

In the United States,spending on residential construction

Accepted Answer

A) rose slowly in the period just before the recession of 2007-2009,declined slowly during the recession,and recovered slowly thereafter. 
B) rose rapidly in the period just before the recession of 2007-2009,declined dramatically during the recession,and recovered rapidly thereafter. 
C) rose rapidly in the period just before the recession of 2007-2009,declined dramatically during the recession,and continued to decline slowly thereafter. 
D) rose rapidly in the period just before the recession of 2007-2009,declined dramatically during the recession,and recovered only slowly thereafter. 
A) rose slowly in the period just before the recession of 2007-2009,declined slowly during the recession,and recovered slowly thereafter. 
B) rose rapidly in the period just before the recession of 2007-2009,declined dramatically during the recession,and recovered rapidly thereafter. 
C) rose rapidly in the period just before the recession of 2007-2009,declined dramatically during the recession,and continued to decline slowly thereafter. 
D) rose rapidly in the period just before the recession of 2007-2009,declined dramatically during the recession,and recovered only slowly thereafter. D

Question 4

If the consumption function is defined as C = 5,500 + 0.9Y,what is the value of the multiplier?

Accepted Answer

A) 0.1 
B) 0.9 
C) 9 
D) 10 
A) 0.1 
B) 0.9 
C) 9 
D) 10

Question 5

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 6

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 7

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 8

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 9

How does an increase in government spending affect the aggregate expenditure line?

Accepted Answer

A) It shifts the aggregate expenditure line upward. 
B) It shifts the aggregate expenditure line downward. 
C) It increases the slope of the aggregate expenditure line. 
D) It decreases the slope of the aggregate expenditure line. 
A) It shifts the aggregate expenditure line upward. 
B) It shifts the aggregate expenditure line downward. 
C) It increases the slope of the aggregate expenditure line. 
D) It decreases the slope of the aggregate expenditure line.

Question 10

What impact does an increase in the price level in the United States have on net exports and why?

Accepted Answer

A) An increase in the price level decreases net exports because higher prices decrease the value of the dollar. 
B) An increase in the price level decreases net exports by increasing the relative cost of American goods. 
C) An increase in the price level increases net exports because higher prices lower the value of the dollar. 
D) An increase in the price level increases net exports because higher prices decrease American spending on imports. 
A) An increase in the price level decreases net exports because higher prices decrease the value of the dollar. 
B) An increase in the price level decreases net exports by increasing the relative cost of American goods. 
C) An increase in the price level increases net exports because higher prices lower the value of the dollar. 
D) An increase in the price level increases net exports because higher prices decrease American spending on imports.

Question 11

Which of the following is a reason why decreases in the price level result in a rise in aggregate expenditure?

Accepted Answer

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

Question 12

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 13

Table 23-11
 $$\begin{array} { | c | c | c | c | c | } 
\hline \text { Real GDP } & \text { Consumption } & \begin{array} { c } 
\text { Planned } \
\text { Investment }
\end{array} & \begin{array} { c } 
\text { Government } \
\text { Purchases }
\end{array} & \text { Net Exports } \
\hline \$ 5,000 & \$ 4,500 & \$ 350 & \$ 300 & \$ 50 \
\hline 6,000 & 5,300 & 350 & 300 & 50 \
\hline 7,000 & 6,100 & 350 & 300 & 50 \
\hline 8,000 & 6,900 & 350 & 300 & 50 \
\hline
\end{array}$$
-Refer to Table 23-11.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 14

If consumption is defined as C = 2,000 + 0.8Y,then the marginal propensity to save is 0.8.

Accepted Answer

A) True 
 B)False

Question 15

A general formula for the multiplier is

Accepted Answer

A)  $\frac { 1 } { ( 1 - M P S ) }$ . 
B)  $\frac { 1 } { ( M P C ) }$ . 
C)  $\frac { 1 } { ( 1 - M P C ) }$ . 
D)  $\frac { 1 } { ( M P S - 1 ) }$ . 
A)  $\frac { 1 } { ( 1 - M P S ) }$ . 
B)  $\frac { 1 } { ( M P C ) }$ . 
C)  $\frac { 1 } { ( 1 - M P C ) }$ . 
D)  $\frac { 1 } { ( M P S - 1 ) }$ .

Question 16

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 17

Article Summary
Gains in consumer spending and construction gave GDP a bigger boost than was forecast in the second quarter of 2015,growing at an annualized rate of 3.9 percent.Declining energy prices,rising home prices,and increased employment are being credited for much of the gain in consumer spending,which grew at an annualized rate of 3.6 percent.Increases in commercial and residential construction boosted business investment spending,which grew at an annual rate of 5.2 percent.Government spending also grew at an annual rate of 2.6 percent for the quarter.Economists cited the primary obstacle for continuing this growth pace in the third quarter is the need to reduce excess inventories.
-Refer to the Article Summary.The increase in GDP discussed in the article summary was due in part to increases in commercial and residential construction.Increases in commercial and residential construction will cause a(n)________ the aggregate expenditure curve.

Accepted Answer

A) movement up along 
B) movement down along 
C) downward shift of 
D) upward shift of 
A) movement up along 
B) movement down along 
C) downward shift of 
D) upward shift of

Question 18

Figure 23-2  
-Refer to Figure 23-2.Suppose that the level of GDP associated with point N is potential GDP.If the U.S.economy is currently at point K,

Accepted Answer

A) firms are operating above capacity. 
B) the economy is at full employment. 
C) the economy is in recession. 
D) the level of unemployment is equal to the natural rate. 
A) firms are operating above capacity. 
B) the economy is at full employment. 
C) the economy is in recession. 
D) the level of unemployment is equal to the natural rate.

Question 19

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 20

Which of the following leads to a decrease in real GDP?

Accepted Answer

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

Exam 23: Aggregate Expenditure and Output in the Short Run

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

In the United States,spending on residential construction

If the consumption function is defined as C = 5,500 + 0.9Y,what is the value of the multiplier?

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

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

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

An unplanned increase in inventories results from

How does an increase in government spending affect the aggregate expenditure line?

What impact does an increase in the price level in the United States have on net exports and why?

Which of the following is a reason why decreases in the price level result in a rise in aggregate expenditure?

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

If consumption is defined as C = 2,000 + 0.8Y,then the marginal propensity to save is 0.8.

A general formula for the multiplier is

U.S.net export spending rises when

Figure 23-2 -Refer to Figure 23-2.Suppose that the level of GDP associated with point N is potential GDP.If the U.S.economy is currently at point K,

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?

Which of the following leads to a decrease in real 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

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