Deck 14: Aggregate Expenditure Multiplier

Question 1

The components of aggregate expenditure that make up the largest share of induced expenditure are

A) consumption and imports.
B) consumption and exports.
C) imports and exports.
D) investment and government expenditure on goods and services.
E) consumption and government expenditure on goods and services.

Answer 1

A

Question 2

Which of the following increases as a result of an increase in real GDP?
I) autonomous expenditure
Ii) induced expenditure
Iii) potential GDP

A) i only
B) ii only
C) iii only
D) ii and iii
E) i, ii, and iii

Answer 2

B

Question 3

Induced expenditures are defined as that part of

A) aggregate expenditure that responds to changes in real GDP.
B) real GDP that does not respond to changes in aggregate expenditure.
C) aggregate expenditure that does not respond to changes in real GDP.
D) autonomous expenditure that responds to changes in real GDP.
E) autonomous expenditure that does not respond to changes in real GDP.

Answer 3

A

Question 4

Autonomous expenditure is expenditure that is

A) influenced by real GDP.
B) influenced by the interest rate.
C) not influenced by real GDP.
D) not influenced by the interest rate.
E) not influenced by the price level.

Question 5

Autonomous expenditure includes

A) investment, government expenditure for goods and services, and imports.
B) consumption expenditures, investment, and exports.
C) consumption expenditure, investment, and imports.
D) investment, government expenditure on goods and services, and exports.
E) consumption expenditure, investment, and net taxes.

Question 6

Induced expenditure is any expenditure that

A) is fixed for all levels of real GDP.
B) is fixed for all price levels.
C) is fixed for all levels of the interest rate.
D) changes when real GDP changes.
E) changes when the interest rate changes.

Question 7

Aggregate expenditure is equal to

A) C + I + G.
B) C + I + G - NX.
C) C - I - G - NX.
D) C + I + G + NX.
E) Y + C + I + G + NX.

Question 8

Actual aggregate expenditure

A) always equals GDP but not necessarily income.
B) always equals income and GDP.
C) might not equal income or GDP.
D) always equals income but not necessarily GDP.
E) must always equal aggregate planned expenditure.

Question 9

What is the key difference between the aggregate expenditure model and the aggregate demand/aggregate supply model?

A) the aggregate expenditure model examines monetary policy whereas the aggregate demand/aggregate supply model does not
B) monetary and real factors interact in the aggregate demand/aggregate supply model
C) the aggregate expenditure model assumes that the price level is fixed
D) the aggregate demand/aggregate supply model assumes that the price level is fixed
E) the aggregate expenditure model assumes that real GDP is fixed

Question 10

Which of the following is not a part of aggregate expenditure?

A) government expenditure
B) imports
C) investment
D) taxes
E) exports

Question 11

During 2010, a country has consumption expenditures of $3.0 trillion, investment expenditures of $1.5 trillion, government expenditure of $1.5 trillion, exports of $1.0 trillion, and imports of $1.5 trillion.Aggregate expenditure for the country is

A) $5.5 trillion.
B) $6.0 trillion.
C) $7.0 trillion.
D) $8.5 trillion.
E) $6.5 trillion.

Question 12

In order to analyze the factors that determine the quantity of real GDP demanded, in the aggregate expenditure model we assume that

A) the unemployment level is fixed.
B) the inflation rate is assumed to equal the natural unemployment rate.
C) the natural rate of unemployment is fixed.
D) the price level is fixed.
E) real GDP does not change.

Question 13

Which aggregate expenditure categories are influenced by the level of real GDP?

A) investment and government expenditures on goods and services
B) consumption and investment
C) imports and exports
D) consumption and imports
E) consumption and government expenditures on goods and services

Question 14

Which of the following variables is fixed in the aggregate expenditure model?

A) price level
B) consumption
C) output
D) investment
E) real GDP

Question 15

Disposable income equals aggregate income

A) minus net taxes.
B) minus saving.
C) minus saving and minus net taxes.
D) plus saving minus net taxes.
E) plus net taxes.

Question 16

The components of aggregate expenditure that are not influenced by GDP are known as

A) unplanned expenditure.
B) induced expenditure.
C) planned expenditure.
D) autonomous expenditure.
E) fixed expenditure.

Question 17

The quantity of U.S.exports is determined by

A) U.S.GDP.
B) U.S.consumption expenditure.
C) political factors.
D) aggregate incomes in the rest of the world.
E) U.S.aggregate expenditure.

Question 18

The consumption function shows the relationship between

A) consumption expenditure and disposable income.
B) inventory levels and real GDP.
C) consumption expenditure and planned income.
D) consumption expenditure and planned inventory investment.
E) consumption expenditure and the price level.

Question 19

Induced expenditure includes

A) consumption expenditure, government expenditure on goods and services, and imports.
B) investment, consumption expenditures, and exports.
C) consumption expenditure and imports.
D) consumption expenditure and exports.
E) consumption expenditure and government expenditure on goods and services.

Question 20

Which components of aggregate expenditure change as a result of real GDP changing?

A) consumption expenditure and imports
B) consumption expenditure and investment
C) consumption expenditure, investment, and exports
D) consumption expenditure, investment, and government expenditure on goods and services
E) consumption expenditure and government expenditure on goods and services

Question 21

On a graph of the consumption function, where the consumption function crosses the 45 degree line,

A) disposable income is zero.
B) the maximum level of disposable income is earned.
C) there is no saving and no dissaving.
D) there are no tax payments.
E) induced consumption equals zero.

Question 22

On a graph of the consumption function, where the consumption function is below the 45 degree line, there is

A) saving.
B) dissaving.
C) zero disposable income.
D) maximum disposable income.
E) no induced consumption.

Question 23

If your planned consumption expenditure is $600 per month and your disposable income is $500 per month, your

A) autonomous consumption must be zero per month.
B) dissaving is $100 per month.
C) autonomous consumption is -$100 per month.
D) saving is $100 per month.
E) induced consumption is $600.

Question 24

A movement along the consumption function shows the change in consumption expenditure as a result of a change in

A) disposable income.
B) the price level.
C) the interest rate.
D) saving.
E) net taxes.

Question 25

$$\begin{array} { c c } \begin{array} { c } \text { Disposable income } \\\text { (trillions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Consumption expenditure } \\\text { (trillions of 2005 dollars) }\end{array} \\\hline 0.0 & 1.8 \\1.0 & 2.6 \\2.0 & 3.2 \\3.0 & 4.0 \\4.0 & 5.8 \\\hline\end{array}$$

-The above table has data from the nation of Atlantica.Based on these data, at what point does saving equal zero.

A) none, dissavings is present at all of the above points
B) none, savings is present at all of the above points
C) Between disposable income of $0.0 and $1.8 trillion
D) Between disposable income of $4.0 trillion and $5.8 trillion.
E) Between disposable income of $2.0 trillion and $3.2 trillion.

Question 26

The slope of the consumption function is

A) equal to the MPC and is less than 1.
B) equal to the MPC and is greater than 1.
C) equal to the MPC and is equal to 1.
D) not equal to the MPC and is equal to 1.
E) not equal to the MPC and is less than 1.

Question 27

The relationship between disposable income and consumption is

A) positive.
B) negative.
C) nonexistent.
D) U-shaped.
E) not stable because it depends on whether the economy is in equilibrium or not.

Question 28

The amount of consumption expenditure that takes place when income is zero is

A) equal to zero.
B) equal to saving.
C) called autonomous consumption.
D) called induced consumption.
E) called zero-based consumption.

Question 29

Consumption expenditure exceeds disposable income

A) never.
B) when there is positive saving.
C) when there is dissaving.
D) always.
E) only when the economy is in equilibrium.

Question 30

As a household's disposable income increases, its autonomous expenditures ________ and its induced expenditures ________.

A) increase; do not change
B) decrease; do not change
C) do not change; increase by a smaller amount than the increase in income
D) do not change; increase by an amount equal to the increase in income
E) increase; increase by a smaller amount than the increase in income

Question 31

As disposable income ________ planned consumption expenditure ________ by a ________ amount.

A) increases; increases; smaller
B) decreases; increases; smaller
C) increases; increases; larger
D) decreases; increases; larger
E) increases; decreases; smaller

Question 32

When disposable income is zero, consumption expenditure is

A) equal to autonomous consumption.
B) also zero.
C) negative.
D) equal to induced consumption expenditure.
E) None of the above answers is correct.

Question 33

When disposable income increases,

A) the consumption function shifts upward.
B) there is a movement upward along the consumption function but the consumption function does not shift.
C) there is no movement along the consumption function and the consumption function does not shift.
D) the consumption function shifts downward.
E) there is a movement downward along the consumption function but the consumption function does not shift.

Question 34

If disposable income decreases during a recession, there is

A) a downward shift in the consumption function.
B) movement downward along the consumption function.
C) no change in consumption expenditures.
D) an upward shift in the consumption function.
E) movement upward along the consumption function.

Question 35

$$\begin{array} { c c } \begin{array} { c } \text { Disposable income } \\\text { (trillions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Consumption expenditure } \\\text { (trillions of 2005 dollars) }\end{array} \\\hline 0.0 & 1.8 \\1.0 & 2.6 \\2.0 & 3.2 \\3.0 & 4.0 \\4.0 & 5.8 \\\hline\end{array}$$

-The above table has data from the nation of Atlantica.Based on these data, when disposal income equals $3.0 trillion,

A) savings equals $4.0 trillion.
B) savings equals $1.trillion.
C) dissavings equals $4.0 trillion.
D) dissavings equals $1.0 trillion.
E) savings equals $3.0 trillion.

Question 36

When disposable income increases, consumption expenditure

A) also increases, but by less.
B) does not change.
C) also increases and by an equal amount.
D) decreases by the same amount.
E) also increases and by more.

Question 37

In the range of disposable income where the consumption function lies above the 45° line,

A) disposable income is negative.
B) saving is negative.
C) saving is positive.
D) disposable income equals planned expenditures.
E) induced consumption is zero.

Question 38

$$\begin{array} { c c } \begin{array} { c } \text { Disposable income } \\\text { (trillions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Consumption expenditure } \\\text { (trillions of 2005 dollars) }\end{array} \\\hline 0.0 & 1.8 \\1.0 & 2.6 \\2.0 & 3.2 \\3.0 & 4.0 \\4.0 & 5.8 \\\hline\end{array}$$

-The above table has data from the nation of Atlantica.Based on these data, autonomous consumption is

A) $1.8 trillion.
B) $2.6 trillion.
C) $3.2 trillion.
D) $4.0 trillion.
E) $5.8 trillion.

Question 39

As disposable income ________ planned consumption expenditure ________.

A) increases; decreases
B) decreases; increases
C) decreases; remains the same, since it is autonomous expenditure
D) increases; increases
E) increases; changes only if net taxes also change

Question 40

When consumption expenditure is ________ disposable income, saving is ________.

A) less than; positive
B) greater than; positive
C) equal to; positive
D) equal to; negative
E) less than; negative

Question 41

When Joe's disposable income is $50,000, his consumption expenditure is $45,000, and when his disposable income is $60,000, his consumption expenditure is $53,000.Joe's marginal propensity to consume is

A) 100.
B) 0.80.
C) 1.25
D) 80.
E) $8,000.

Question 42

$$\begin{array} { c c } \begin{array} { c } \text { Disposable income } \\\text { (trillions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Consumption expenditure } \\\text { (trillions of 2005 dollars) }\end{array} \\\hline 0.0 & 1.5 \\2.0 & 3.0 \\4.0 & 4.5 \\6.0 & 6.0 \\8.0 & 7.5 \\\hline\end{array}$$

-The above table has data from the nation of Atlantica.Based on these data, the amount of autonomous consumption is

A) $1.5 trillion.
B) $1.0 trillion.
C) $0.5 trillion.
D) $7.5 trillion.
E) $6.0 trillion.

Question 43

$$\begin{array} { c c } \begin{array} { c } \text { Disposable income } \\\text { (trillions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Consumption expenditure } \\\text { (trillions of 2005 dollars) }\end{array} \\\hline 0.0 & 1.5 \\2.0 & 3.0 \\4.0 & 4.5 \\6.0 & 6.0 \\8.0 & 7.5 \\\hline\end{array}$$

-The above table has data from the nation of Atlantica.Based on these data, at what point does saving equal zero.

A) none, dissavings occurs at all of the above points
B) none, savings occurs at all of the above points
C) Between disposable income of $0.0 and $1.5 trillion.
D) Between disposable income of $8.0 trillion and $7.5 trillion.
E) At disposable income of $6.0.

Question 44

The figure above shows a nation's consumption function.If disposable income is $4 trillion, then the MPC is ________ and saving is ________.

A) positive; positive
B) positive; negative
C) negative; positive
D) negative; negative
E) positive; zero

Question 45

In the figure above, when disposable income equals $8 trillion,

A) consumption expenditure is greater than disposable income, so consumers are dissaving.
B) consumption expenditure is less than disposable income, so consumers are dissaving.
C) consumption expenditure is greater than disposable income, so consumers are saving.
D) consumption expenditure is less than disposable income, so consumers are saving.
E) consumption expenditure is less than disposable income but it is not possible to determine if consumers are saving or dissaving.

Question 46

When disposable income is $8 trillion, consumption expenditure is $5 trillion; when disposable income is $5 trillion, consumption expenditure is $3 trillion.The MPC is

A) (5/8 + 3/5) = 1.225.
B) (5 + 3) ÷ (8 + 5) = 0.615.
C) (5 - 3) ÷ (8 - 5) = 0.667.
D) (5 + 3) ÷ (8 - 5) = 2.667.
E) (8 - 5) ÷ (5 - 3) = 1.333.

Question 47

The figure above shows a nation's consumption function.If disposable income is $2 trillion, then the MPC is ________ and saving is ________.

A) positive; positive
B) positive; negative
C) negative; positive
D) negative; negative
E) positive; zero

Question 48

The consumption function shows that when disposable income increases by one dollar, consumption expenditure

A) increases by one dollar.
B) increases by more than a dollar.
C) increases by less than a dollar.
D) does not change.
E) decreases by less than a dollar.

Question 49

The marginal propensity to consume equals

A) consumption expenditure divided by disposable income.
B) consumption expenditure divided by the change in disposable income.
C) the change in consumption expenditure divided by the change in disposable income.
D) the change in consumption expenditure divided by disposable income.
E) the change in autonomous consumption divided by the change in induced consumption.

Question 50

The smaller the amount saved out of a change in disposable income, the

A) smaller the MPC.
B) more horizontal the consumption function.
C) larger the MPC.
D) smaller is autonomous consumption.
E) more net taxes affect consumption.

Question 51

The fraction of a change in disposable income that is spent on consumption is the

A) marginal propensity to consume.
B) marginal buying power of money.
C) expected future disposable income.
D) marginal dissaving ratio.
E) marginal propensity to dissave.

Question 52

The MPC is equal to the

A) change in consumption expenditure divided by the change in disposable income that brought it about.
B) change in consumption expenditure divided by the total disposable income that brought it about.
C) level of consumption expenditure divided by the level of total disposable income that brought it about.
D) level of consumption divided by the change in disposable income that brought it about.
E) change in disposable income divided by the change in consumption expenditure.

Question 53

In the figure above, when disposable income equals $4 trillion,

A) consumption expenditure is greater than disposable income, so consumers are dissaving.
B) consumption expenditure is less than disposable income, so consumers are dissaving.
C) consumption expenditure is greater than disposable income, so consumers are saving.
D) consumption expenditure is less than disposable income, so consumers are saving.
E) consumption expenditure is greater than disposable income but it is not possible to determine if consumers are saving or dissaving.

Question 54

Jane supports herself at college by working in a bookstore earning $300 a month, which she spends entirely every month.If she gets a salary increase of $100 a month, she spends $90 more dollars on consumption expenditure.Jane's MPC is equal to

A) 1.00.
B) 0.90.
C) $90.
D) 0.10.
E) 0.50.

Question 55

The marginal propensity to consume is

A) another name for consumption expenditure.
B) disposable income minus consumption expenditure.
C) the change in disposable income minus the change in consumption expenditure.
D) the change in consumption expenditure divided by the change in disposable income that brought it about.
E) another name for autonomous consumption expenditure.

Question 56

$$\begin{array} { c c } \begin{array} { c } \text { Disposable income } \\\text { (trillions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Consumption expenditure } \\\text { (trillions of 2005 dollars) }\end{array} \\\hline 0.0 & 1.5 \\2.0 & 3.0 \\4.0 & 4.5 \\6.0 & 6.0 \\8.0 & 7.5 \\\hline\end{array}$$

-The above table has data from the nation of Atlantica.Based on these data, when disposable income equals 8.0 there is

A) dissavings of $7.5 trillion.
B) savings of $15.5 trillion.
C) dissavings of $15.5 trillion.
D) dissavings of $0.5 trillion.
E) savings of $0.5 trillion.

Question 57

In the figure above, what is the MPC?

A) 0.50
B) 0.75
C) 0.80
D) 0.90
E) 1.00

Question 58

The figure above shows a nation's consumption function.The amount of autonomous consumption expenditure is

A) $0.
B) $1 trillion.
C) $2 trillion.
D) $3 trillion.
E) more than $3 trillion.

Question 59

$$\begin{array} { c c } \begin{array} { c } \text { Disposable income } \\\text { (trillions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Consumption expenditure } \\\text { (trillions of 2005 dollars) }\end{array} \\\hline 0.0 & 1.5 \\2.0 & 3.0 \\4.0 & 4.5 \\6.0 & 6.0 \\8.0 & 7.5 \\\hline\end{array}$$

-The above table has data from the nation of Atlantica.Based on these data, when disposable income equals 2.0 there is

A) dissavings of $1.0 trillion.
B) savings of $1.0 trillion.
C) dissavings of $5.0 trillion
D) dissavings of $5.0 trillion.
E) savings of $3.0 trillion

Question 60

$$\begin{array} { c c } \begin{array} { c } \text { Disposable income } \\\text { (trillions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Consumption expenditure } \\\text { (trillions of 2005 dollars) }\end{array} \\\hline 0.0 & 1.5 \\2.0 & 3.0 \\4.0 & 4.5 \\6.0 & 6.0 \\8.0 & 7.5 \\\hline\end{array}$$

-The above table has data from the nation of Atlantica.Based on these data, what is marginal propensity to consume?

A) 0.75
B) 0.50
C) 1.33
D) 1.00
E) 1.50

Question 61

When the real interest rate falls, there is

A) an increase in the slope of the consumption function.
B) an upward shift of the consumption function.
C) a downward shift of the consumption function.
D) a decrease in the slope of the consumption function.
E) a movement upward along the consumption function.

Question 62

A decrease in wealth ________ consumption expenditure and ________.

A) increases; shifts the consumption function upward
B) decreases; shifts the consumption function downward
C) increases; shifts the consumption function downward
D) decreases; shifts the consumption function upward
E) decreases; results in a movement downward along the consumption function

Question 63

When the real interest rate falls, the consumption function

A) shifts upward.
B) does not shift and there is no movement along the consumption function.
C) shifts downward.
D) does not shift and there is a movement upward along the consumption function.
E) does not shift and there is a movement downward along the consumption function.

Question 64

If your MPC is 0.5, then when your disposable income increases by $100, your consumption expenditure increases by

A) $5.
B) $200.
C) $100.
D) $50.
E) $95.

Question 65

A rise in the real interest rate ________ consumption expenditure and ________.

A) increases; shifts the consumption function upward
B) decreases; shifts the consumption function downward
C) increases; shifts the consumption function downward
D) decreases; shifts the consumption function upward
E) decreases; results in a movement downward along the consumption function

Question 66

If the marginal propensity to consume is ________, then a $2 trillion increase in disposable income increase consumption expenditure by $1.2 trillion. If the marginal propensity to consume is ________, then a $2 trillion increase in disposable income increases consumption expenditures by $1.6 trillion

A) 0.6; 0.8
B) 1.2; 1.6
C) 1.67; 2.25
D) 6.0; 8.0
E) 0.6; 0.8

Question 67

When the real interest rate rises, there is

A) an upward movement along the consumption function.
B) a downward movement along the consumption function.
C) an upward shift of the consumption function.
D) a downward shift of the consumption function.
E) neither a shift of the consumption function or a movement along the consumption function.

Question 68

$$\begin{array} { c c } \begin{array} { c } \text { Disposable income } \\\text { (trillions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Consumption expenditure } \\\text { (trillions of 2005 dollars) }\end{array} \\\hline 0.0 & 1.5 \\2.0 & 3.0 \\4.0 & 4.5 \\6.0 & 6.0 \\8.0 & 7.5 \\\hline\end{array}$$

-The above table has data from the nation of Media.Based on these data, the marginal propensity to consume is

A) 0.25.
B) 0.67.
C) 0.75.
D) 1.33.
E) 1.50.

Question 69

In Germany, expected future income increased during 2010.This increase lead to

A) a movement upward along the consumption function.
B) a movement downward along the consumption function.
C) an upward shift of the consumption function.
D) a downward shift of the consumption function.
E) no movement along the consumption function and no shift of the consumption function.

Question 70

Other things remaining the same, ________ in U.S.real GDP results in ________ in U.S.imports.

A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; no change
E) an increase; a decrease followed by no change

Question 71

________ shifts the consumption function upward.

A) A decrease in the marginal propensity to consume
B) An increase in the real interest rate
C) An increase in expected future disposable income
D) An increase in disposable income
E) An increase in the price level

Question 72

An increase in expected future disposable income ________ consumption expenditure and ________.

A) increases; shifts the consumption function upward
B) decreases; shifts the consumption function downward
C) increases; shifts the consumption function downward
D) decreases; shifts the consumption function upward
E) increases; results in a movement upward along the consumption function

Question 73

Jack Nelson, a supervisor in the hardware department at Sears, received a $3,000 increase in his annual disposable income.Suppose his marginal propensity to consume is 0.80.How much of the $3,000 increase will Jack spend on consumption?

A) $2,750
B) $2,500
C) $2,400
D) $2,200
E) $3,000.

Question 74

When the economy enters an expansion of a business cycle, households become more optimistic about future disposable income.The increase in optimism leads to

A) a shift upward of the consumption function.
B) an increase in consumption expenditures.
C) no change in the level of consumption expenditures.
D) a movement upward along the consumption function.
E) a movement downward along the consumption function.

Question 75

As real U.S.GDP increases, U.S.income increases and so

A) U.S.imports decrease.
B) U.S.exports decrease.
C) U.S.imports increase.
D) U.S.exports increase.
E) investment increases.

Question 76

When U.S.real GDP increases, U.S.imports

A) decrease by the same amount.
B) increase by the same amount.
C) increase by less than the change in real GDP.
D) decrease by less than the change in real GDP.
E) increase by more than the change in real GDP.

Question 77

If the real interest rate increases, there is

A) a movement upward along the consumption function.
B) a movement downward along consumption function.
C) an upward shift of the consumption function.
D) a downward shift of the consumption function.
E) a change in the slope of the consumption function.

Question 78

$$\begin{array} { c c } \begin{array} { c } \text { Disposable income } \\\text { (trillions of 2005 dollars) }\end{array} & \begin{array} { c } \text { Consumption expenditure } \\\text { (trillions of 2005 dollars) }\end{array} \\\hline 0.0 & 1.5 \\2.0 & 3.0 \\4.0 & 4.5 \\6.0 & 6.0 \\8.0 & 7.5 \\\hline\end{array}$$

-The above table has data from the nation of Media.Based on these data, when disposable income is $8.0 trillion, saving is

A) -$0.5 trillion.
B) -$1.5 trillion.
C) $0.5 trillion.
D) $1.5 trillion.
E) $7.5 trillion.

Question 79

What is the value of the MPC if $66 out of every $100 increase in disposable income is consumed?

A) 0.66
B) $166
C) 0.34
D) $34
E) More information is needed to determine the MPC.

Question 80

If disposable income increases from $5 trillion to $6 trillion and, as a result, consumption expenditure increases from $7 trillion to $7.8 trillion, the MPC is

A) 1.0.
B) 0.8.
C) 5 ÷ 7 = 0.71.
D) 6 ÷ 7.8 = 0.77.
E) 6 ÷ 7 = 0.86.