Deck 8: Aggregate Expenditure and Output in the Short Run

Question 1

All of the following are components of aggregate expenditure except

A)consumption spending.
B)net export spending.
C)actual investment spending.
D)government spending.
E)planned investment spending.

Answer 1

actual investment spending.

Question 2

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.

A)total production; total income; real GDP
B)total spending; real GDP; total income
C)total spending; real GDP; the price level
D)total income; real GDP; the price level
E)total production; nominal GDP; unemployment

Answer 2

total spending; real GDP; the price level

Question 3

A decrease in consumer confidence can put your job at risk if

A)aggregate expenditures fall.
B)consumers expect their incomes to rise in the future.
C)aggregate expenditures rise.
D)consumers expect firms to increase investment in the future.
E)your firm produces inferior goods.

Answer 3

aggregate expenditures fall.

Question 4

At macroeconomic equilibrium

A)total investment equals total inventories.
B)total spending equals total production.
C)total consumption equals total production.
D)total taxes equal total transfers.
E)total exports equal total imports.

Question 5

Inventories refer to

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.
E)goods that have been sold but are waiting to be picked by customers.

Question 6

Household spending on goods and services is known as

A)consumption spending.
B)planned investment spending.
C)government purchases.
D)net exports.
E)household production.

Question 7

An unplanned increase in inventories results from

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.
E)consumers spending more than firms expected.

Question 8

Actual investment spending does not include

A)spending on consumer durable goods.
B)spending on new capital equipment.
C)spending on new houses.
D)changes in inventories.

Question 9

Consumption spending is $22 million, planned investment spending is $7 million, actual investment spending is $7 million, government purchases are $9 million, and net export spending is $3 million.Based on this information, which of the following is true?

A)There was an unplanned increase in inventories.
B)Aggregate expenditure is equal to GDP.
C)Aggregate expenditure is greater than GDP.
D)Aggregate expenditure is less than GDP.
E)There was an unplanned decrease in inventories.

Question 10

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

A)$22 billion
B)$26 billion
C)$23 billion
D)$27 billion
E)$29 billion

Question 11

As a result of the drop in the oil price and resulting drop in oil production in 2015, many Alberta companies including local Tim Hortons cut production and employment.The total amount of spending in the economy is known as

A)deficit spending.
B)planned investment spending.
C)aggregate expenditure.
D)equilibrium spending.
E)total production.

Question 12

All of the following are one of the four main categories of spending identified by John Maynard Keynes except

A)consumption.
B)net exports.
C)government purchases.
D)taxes.
E)investment.

Question 13

The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by

A)investment spending.
B)export spending.
C)government spending.
D)the level of aggregate expenditure.
E)household savings.

Question 14

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

A)There was an unplanned increase in inventories equal to $2 billion.
B)There was no unplanned change in inventories.
C)There was an unplanned decrease in inventories equal to $2 billion.
D)There was an unplanned decrease in inventories equal to $19 billion.
E)There was an unplanned increase in inventories of $3 billion.

Question 15

When aggregate expenditure = GDP

A)macroeconomic equilibrium occurs.
B)the federal budget is balanced.
C)net exports equal zero.
D)saving equals zero.
E)the economy is operating at the ideal level.

Question 16

If inventories decline by more than analysts predict they will decline, this implies that

A)actual investment spending was greater than planned investment spending.
B)actual investment spending was less than planned investment spending.
C)actual investment spending was equal to than planned investment spending.
D)there is no relationship between actual investment spending and planned investment spending.
E)planned investment fell.

Question 17

The aggregate expenditure model focuses on the ________ relationship between real spending and ________.

A)short-run; real GDP
B)short-run; inflation
C)long-run; real GDP
D)long-run; inflation

Question 18

Economists first began studying the relationship between changes in aggregate expenditures and changes in GDP

A)in the 1950s.
B)during the Great Depression.
C)at the end of the Civil War.
D)during the Industrial Revolution.
E)during the Great Recession.

Question 19

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 GDP?

A)$15 million
B)$23 million
C)$25 million
D)$27 million
E)$30 billion

Question 20

The formula for aggregate expenditure is

A)AE = C + I + G.
B)AE = C + I + G - NX.
C)AE = C + I + G + NX.
D)AE = C + I + depreciation - NX.
E)AE = C + I + G + NX - foreign direct investment.

Question 21

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

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

Question 22

If aggregate expenditure is more than GDP, then inventories fall and GDP rises.

Question 23

As a result of the oil price, revenues at many ________Tim Hortons locations ________, and it ________ the size of its workforce.

A)Ontario; fell; increased
B)Alberta; fell; decreased
C)Quebec; rose; increased
D)British Columbia; rose; decreased
E)PEI; fell; decreased.

Question 24

A decrease in ________ can put your job at risk if aggregate expenditures fall.

A)consumer confidence
B)the natural rate of unemployment
C)the inflation rate
D)the length of a business cycle
E)income taxation

Question 25

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

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

Question 26

Consumption spending refers to ________ spending on goods and services.

A)household
B)business
C)government
D)foreign
E)unplanned

Question 27

Firms in a small economy planned that inventories would grow over the past year by $300,000.Over that year, inventories actually grew by $400,000.This implies that

A)aggregate expenditure that year was less than GDP that year.
B)there was an unplanned decrease in inventories that year.
C)there was a planned decrease in inventories that year.
D)aggregate expenditure that year was equal to GDP that year.
E)consumer spending grew faster than expected.

Question 28

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

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.
E)Firms will see inventories rising.

Question 29

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

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.
E)Inventories will rise, GDP will rise, and unemployment will fall.

Question 30

Aggregate expenditure includes consumption spending, unplanned investment spending, government purchases, and net exports.

Question 31

During the Great Depression, economists first began studying the relationship between

A)changes in GDP and changes in interest rates.
B)changes in aggregate expenditures and changes in GDP.
C)changes in nominal GDP and changes in real GDP.
D)changes in stock prices and changes in price controls.
E)changes in unemployment and changes in inflation.

Question 32

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

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.
E)government spending grew unpredictably.

Question 33

In a small economy in 2017, aggregate expenditure was $800 million while GDP that year was $850 million.Which of the following can explain the difference between aggregate expenditure and GDP that year?

A)Aggregate expenditure is always less than GDP in developed countries.
B)Firm investment in inventories was less than anticipated in 2017.
C)Firm investment in inventories was greater than anticipated in 2017.
D)Aggregate expenditure is always less than GDP in developing countries.
E)Consumer spending was greater than expected.

Question 34

When aggregate expenditure is more than GDP, which of the following is true?

A)There was an unplanned decrease in inventories.
B)Firms spent less on capital goods than they planned.
C)Households bought fewer new homes than they planned.
D)All of the above must be true when aggregate expenditure is more than GDP.

Question 35

Why do economists care about aggregate expenditures?

Question 36

The key idea of the aggregate expenditure model is that in any particular year, the level of ________ is determined mainly by the level of aggregate expenditure.

A)frictional unemployment
B)export spending
C)government spending
D)GDP
E)structural unemployment

Question 37

Explain, in detail, how the adjustment to macroeconomic equilibrium occurs when spending is less than production.Be sure to discuss how inventories play a crucial role in the adjustment process.State what happens to GDP and employment during the adjustment process.

Question 38

If firms sell exactly what they expected to sell, all of the following will be true except

A)aggregate expenditure will be greater than GDP.
B)there is no unplanned change in inventories.
C)inventories will not change, and GDP and employment will remain stable.
D)aggregate expenditure will be equal to GDP.
E)unplanned investment will be zero.

Question 39

If planned investment is greater than actual investment, then aggregate expenditure is less than GDP.

Question 40

Table 8.1
Refer to Table 8.1.Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

Question 41

The aggregate expenditure model focuses on the short-run relationship between ________ and ________.

A)real spending; real GDP
B)unemployment; inflation
C)nominal spending; nominal GDP
D)planned inventories; unplanned inventories
E)nominal spending; and real savings

Question 42

Actual investment spending includes spending by consumers on

A)durable goods.
B)nondurable goods.
C)new houses.
D)services.
E)stocks and bonds.

Question 43

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

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 rise.
D)The economy will adjust to macroeconomic equilibrium as inventories fall and production and employment rise.
E)The unemployment rate will fall.

Question 44

If firms sell what they expected to sell, which of the following will be true?

A)Aggregate expenditure will be greater than GDP.
B)There will be no unplanned change in inventories.
C)Inventories will rise and GDP and employment will fall.
D)Aggregate expenditure will be less than GDP.
E)Employment will rise.

Question 45

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

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

Question 46

In a small economy in 2016, aggregate expenditure was $850 million while GDP that year was $800 million.Which of the following can explain the difference between aggregate expenditure and GDP that year?

A)Aggregate expenditure is always less than GDP in developed countries.
B)Firm investment in inventories was less than anticipated in 2016.
C)Firm investment in inventories was greater than anticipated in 2016.
D)Aggregate expenditure is always less than GDP in developing countries.
E)Aggregate expenditure does not account for consumer spending.

Question 47

Firms in a small economy anticipated that inventories would grow over the past year by $750,000, and over that year, inventories grew by exactly $750,000.This implies that

A)aggregate expenditure and GDP were equal 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 was greater than GDP that year.
E)there was an unanticipated rise in consumer spending.

Question 48

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

Question 49

Goods that have been produced but not yet sold are referred to as

A)understocks.
B)inventories.
C)pre-sold goods.
D)capital goods.
E)overhead costs.

Question 50

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?

A)$15 million
B)$23 million
C)$25 million
D)$27 million
E)$29 million

Question 51

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

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.
E)Inventories will rise, GDP will fall, and employment will rise.

Question 52

Firms in a small economy anticipated that inventories would grow over the past year by $500,000.Over that year, inventories actually grew by only $400,000.This implies that

A)aggregate expenditure that year was greater than GDP that year.
B)there was an unplanned increase in inventories that year.
C)there was a planned increase in inventories that year.
D)aggregate expenditure that year was equal to GDP that year.
E)there was a rise in the unemployment rate.

Question 53

Consumption spending is $5 million, planned investment spending is $8 million, actual investment spending is $8 million, government purchases are $10 million, and net export spending is $2 million. Based on this information, which of the following is true?

A)There was an unplanned change in inventories.
B)Aggregate expenditure is equal to GDP.
C)Aggregate expenditure is greater than GDP.
D)Aggregate expenditure is less than GDP.
E)Unemployment will rise.

Question 54

Macroeconomic equilibrium occurs when

A)aggregate expenditure = GDP.
B)aggregate expenditure = C+ I + G + net transfers.
C)aggregate income = planned inventories.
D)aggregate expenditure = planned inventories.
E)exports = imports.

Question 55

When aggregate expenditure is less than GDP, which of the following is true?

A)There was an unplanned increase in inventories.
B)Firms spent more on capital goods than they anticipated.
C)Households bought more new homes than they anticipated.
D)unemployment is likely to rise.
E)All of the above must be true when aggregate expenditure is less than GDP.

Question 56

An unplanned decrease in inventories results in

A)a decrease in planned investment.
B)an increase in planned investment.
C)actual investment that is greater than planned investment.
D)actual investment that is less than planned investment.
E)an increase in unemployment.

Question 57

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 GDP?

A)$15 million
B)$23 million
C)$25 million
D)$27 million
E)$29 million

Question 58

At macroeconomic equilibrium, total ________ equals total ________.

A)spending; production
B)investment; inventories
C)consumption; production
D)taxes; transfers
E)spending; savings

Question 59

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

A)consumption spending
B)planned investment spending
C)actual investment spending
D)government spending
E)net exports

Question 60

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 the same time period is equal to $23 million, what unplanned changes in inventories occurred?

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.
E)There was an unplanned decrease in inventories equal to $3 million.

Question 61

A/an ________ in taxes will decrease consumption spending, and a/an________ in transfer payments will increase consumption spending.

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

Question 62

Which of the following will cause a direct increase in consumption spending?

A)an increase in planned investment
B)an increase in government spending
C)an increase in disposable income
D)a decrease in net export spending
E)an increase in income taxes

Question 63

A stock market boom which causes stock prices to rise should cause

A)a decrease in consumption spending.
B)an increase in consumption spending.
C)a decrease in wealth.
D)a decrease in net export spending.
E)an increase in government spending.

Question 64

Increases in consumer confidence

A)decrease consumption in direct proportion to the increase in consumer confidence.
B)directly increase consumption.
C)tend to increase consumption spending.
D)increase consumption only when the overall price level decreases in the economy.
E)tend to increase household saving.

Question 65

Which of the following will raise consumer expenditures?

A)an increase in interest rates
B)a general decline in housing prices
C)an increase in expected future income
D)an increase in the price level
E)an increase in the unemployment rate

Question 66

Table 8.2
Refer to Table 8.2.Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

Question 67

If aggregate expenditure is less than GDP, then inventories rise and GDP falls.

Question 68

What is the main reason for changes in GDP in the short run?

Question 69

The Conference Board of Canada's Consumer Confidence Index measures

A)consumers' expectations about the future.
B)the confidence the public has in the federal government.
C)the confidence consumers have in banks.
D)the confidence Canadians have in their relationships.
E)the confidence Canadians have in the safety of the products they consume.

Question 70

What are inventories? What usually happens to inventories at the beginning of a recession, and what usually happens to inventories at the beginning of an expansion?

Question 71

Aggregate expenditure includes consumption spending, planned investment spending, government purchases, and net exports.

Question 72

Into which category of aggregate expenditure would each of the following transactions fall?
a.Sandra MacMillian purchases a new Toyota Corolla made in Cambridge, Ontario.
b.The city of Vancouver buys 5 new garbage trucks.
c.Adrian Garcia buys a newly constructed townhome in Winnipeg.
d.An airline in Latvia orders a new airplane from Bombardier.
e.Magna International buys 300 new BlackBerry phones.

Question 73

________ is defined as the value of a household's assets minus the value of its liabilities.

A)Household income
B)Household wealth
C)Personal household consumption
D)Planned household investment
E)Household financial planning

Question 74

Examples of assets that are included in household wealth would be

A)stocks, bonds, and savings accounts.
B)stocks, loans owed, and savings accounts.
C)stocks, bonds, and mortgages.
D)stocks, credit cards, and savings accounts.
E)stocks, bonds, and household appliances.

Question 75

The five most important variables that determine the level of consumption are

A)disposable income, wealth, expected future income, price level, and interest rate.
B)wealth, savings account balances, chequing account balances, stock portfolio balances, and bond portfolio balances.
C)government purchases, interest rates, income, taxes, and transfers.
D)government purchases, saving account balances, wealth, interest rates, portfolio balances.
E)disposable income, taxation, expected interest rates, price level, and corporate retained earnings.

Question 76

Decreases in the price level will

A)lower consumption because goods and services are less affordable.
B)raise consumption because goods and services are more affordable.
C)raise consumption because real wealth increases.
D)lower consumption because real wealth decreases.
E)leave consumption unchanged.

Question 77

________ describes the relationship between consumption spending and disposable income.

A)Household wealth
B)The liquidity trap
C)The consumption function
D)The paradox of thrift
E)The sales tax rate

Question 78

An increase in the real interest rate will

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.
E)most likely transfer wealth from lenders to borrowers.

Question 79

An increase in Canada Pension Plan contributions now will cause a

A)decrease consumption spending.
B)decrease investment spending.
C)decrease government spending.
D)decrease export spending.
E)decrease in future benefits.

Question 80

Which is the largest component of aggregate expenditure?

A)planned investment expenditures
B)consumption expenditures
C)government expenditures
D)net export expenditures
E)taxes