Question 1

Use the following to answer questions .
Exhibit: Aggregate Expenditures Curve
Figure 13-6 
-(Exhibit: Aggregate Expenditures Curve) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases. Further, IP and G are autonomous. What is the level of autonomous aggregate expenditures at equilibrium real GDP?

Accepted Answer

A)  $800 billion 
B)  $1,000 billion 
C)  $1,600 billion 
D)  $3,200 billion

Question 2

Planned investment is

Accepted Answer

A)  equal to gross private domestic investment, less depreciation. 
B)  equal to gross private domestic investment. 
C)  the level of investment firms intend to make in a period. 
D)  the level of investment government will require firms to make in a period.

Question 3

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $12,000. What is the marginal propensity to consume?

Accepted Answer

A)  0.2 
B)  0.4 
C)  0.6 
D)  0.8

Question 4

Use the following to answer questions .
Exhibit: Aggregate Expenditures Curve
Figure 13-6 
-(Exhibit: Aggregate Expenditures Curve) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases. Further, IP and G are autonomous. If real GDP produced is $4,000, how will equilibrium be restored in the economy?

Accepted Answer

A)  Policymakers must conduct contractionary policies to move the economy toward its equilibrium real GDP. 
B)  Firms will reduce their output in subsequent periods, moving the economy toward its equilibrium real GDP. 
C)  The price level must rise to reduce aggregate expenditures and restore equilibrium. 
D)  The price level must fall to increase aggregate expenditures and restore equilibrium.

Question 5

Use the following to answer questions .
Exhibit: Real GDP and the Multiplier
 
-(Exhibit: Real GDP and the Multiplier) Suppose the equilibrium level of real GDP at the prevailing price is $500 billion below potential real GDP. All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?

Accepted Answer

A)  $150 billion 
B)  $200 billion 
C)  $400 billion 
D)  $500 billion

Question 6

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve increases, the multiplier

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains constant. 
D)  is undefined.

Question 7

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. The marginal propensity to consume is 0.75. Suppose the equilibrium level of real GDP at the prevailing price is $600 billion below potential real GDP. All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?

Accepted Answer

A)  $150 billion 
B)  $450 billion 
C)  $600 billion 
D)  $800 billion

Question 8

Personal saving equals

Accepted Answer

A)  gross domestic income − consumption. 
B)  personal disposable income − consumption. 
C)  gross domestic product − consumption. 
D)  personal disposable income − taxes − consumption.

Question 9

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to save is 0.1?

Accepted Answer

A)  1 
B)  4 
C)  5 
D)  10

Question 10

The amount of consumption at each level of disposable personal income, all other determinants of consumption unchanged, is shown by the

Accepted Answer

A)  aggregate demand curve. 
B)  consumption function. 
C)  price-consumption curve. 
D)  income curve.

Question 11

Use the following to answer questions .
Exhibit: Consumption Functions
Figure 13-3 
-(Exhibit: Consumption Functions) Upward shifts of the consumption function, for example from C0  to C1 to C2 demonstrate

Accepted Answer

A)  an increase in the marginal propensity to save. 
B)  increases in the amount of consumption for a given level of disposable income. 
C)  increases in the amount of disposable income available for consumption. 
D)  a decrease in the marginal propensity to save.

Question 12

If consumption is given by C = $10 billion + 0.5Y, and autonomous planned investment,government purchases, and net exports amount to $5 billion, then aggregate expenditures are $20 billion if Y = $10 billion.

Accepted Answer

A) True 
 B)False

Question 13

Suppose at each price level, autonomous aggregate expenditures fall by $80 billion. As a result, the aggregate expenditures curve shifts

Accepted Answer

A)  downward at each price level and results in a leftward shift in aggregate demand. 
B)  upward at each price level and results in a rightward shift in aggregate demand. 
C)  downward at each price level and results in a movement down along a given aggregate demand. 
D)  upward at each price level and results in a movement up along a given aggregate demand.

Question 14

In a graph with real GDP on the horizontal axis and aggregate expenditures on the vertical axis, autonomous aggregate expenditures are represented by

Accepted Answer

A)  a ray from the origin. 
B)  an upward sloping line with a positive vertical intercept. 
C)  a 45-degree line. 
D)  a horizontal line.

Question 15

The wealth effect is the tendency for

Accepted Answer

A)  changes in the price level to change nominal wealth and consumption. 
B)  changes in the price level to change real wealth and consumption. 
C)  household wealth to fluctuate with changes in the level of economic activity. 
D)  the marginal propensity to rise with increases in wealth.

Question 16

Personal saving is

Accepted Answer

A)  total income not spent on consumption. 
B)  disposable personal income not spent on consumption. 
C)  found by subtracting consumption from disposable personal income. 
D)  disposable income spent on investment.

Question 17

In the aggregate expenditures model, if aggregate expenditures are greater than real GDP,

Accepted Answer

A)  there will be unplanned decreases in inventories. 
B)  employment decreases. 
C)  aggregate output decreases. 
D)  actual real output is greater than equilibrium real output.

Question 18

Use the following to answer questions .
Exhibit: Consumption and Real GDP 
-(Exhibit: Consumption and Real GDP) If real GDP is $8 trillion, saving equals

Accepted Answer

A)  $4 trillion. 
B)  $3 trillion. 
C)  $2 trillion. 
D)  $1 trillion.

Question 19

The ratio of the change in equilibrium real GDP to the change in autonomous aggregate expenditures that produced it is the:

Accepted Answer

A)  multiplier. 
B)  current income. 
C)  permanent income. 
D)  marginal propensity to consume.

Question 20

According to the interest-rate effect, higher prices

Accepted Answer

A)  increase the value of money holdings which reduces consumption and investment spending. 
B)  decrease the value of money which decreases consumption and investment spending. 
C)  lower the real quantity of money, which causes interest rates to rise and investment to fall. 
D)  lead to higher interest rates which reduces investment spending.

Exam 13: Consumption and the Aggregate Expenditures Model

Planned investment is

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $12,000. What is the marginal propensity to consume?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve increases, the multiplier

Personal saving equals

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to save is 0.1?

The amount of consumption at each level of disposable personal income, all other determinants of consumption unchanged, is shown by the

Use the following to answer questions . Exhibit: Consumption Functions Figure 13-3 -(Exhibit: Consumption Functions) Upward shifts of the consumption function, for example from C₀ to C₁ to C₂demonstrate

If consumption is given by C = $10 billion + 0.5Y, and autonomous planned investment,government purchases, and net exports amount to $5 billion, then aggregate expenditures are $20 billion if Y = $10 billion.

Suppose at each price level, autonomous aggregate expenditures fall by $80 billion. As a result, the aggregate expenditures curve shifts

In a graph with real GDP on the horizontal axis and aggregate expenditures on the vertical axis, autonomous aggregate expenditures are represented by

The wealth effect is the tendency for

Personal saving is

In the aggregate expenditures model, if aggregate expenditures are greater than real GDP,

Use the following to answer questions . Exhibit: Consumption and Real GDP -(Exhibit: Consumption and Real GDP) If real GDP is $8 trillion, saving equals

The ratio of the change in equilibrium real GDP to the change in autonomous aggregate expenditures that produced it is the:

According to the interest-rate effect, higher prices

Exam 13: Consumption and the Aggregate Expenditures Model

Planned investment is

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $12,000. What is the marginal propensity to consume?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve increases, the multiplier

Personal saving equals

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to save is 0.1?

The amount of consumption at each level of disposable personal income, all other determinants of consumption unchanged, is shown by the

Use the following to answer questions . Exhibit: Consumption Functions Figure 13-3 -(Exhibit: Consumption Functions) Upward shifts of the consumption function, for example from C0 to C1 to C2 demonstrate

If consumption is given by C = $10 billion + 0.5Y, and autonomous planned investment,government purchases, and net exports amount to $5 billion, then aggregate expenditures are $20 billion if Y = $10 billion.

Suppose at each price level, autonomous aggregate expenditures fall by $80 billion. As a result, the aggregate expenditures curve shifts

In a graph with real GDP on the horizontal axis and aggregate expenditures on the vertical axis, autonomous aggregate expenditures are represented by

The wealth effect is the tendency for

Personal saving is

In the aggregate expenditures model, if aggregate expenditures are greater than real GDP,

Use the following to answer questions . Exhibit: Consumption and Real GDP -(Exhibit: Consumption and Real GDP) If real GDP is $8 trillion, saving equals

The ratio of the change in equilibrium real GDP to the change in autonomous aggregate expenditures that produced it is the:

According to the interest-rate effect, higher prices

Use the following to answer questions . Exhibit: Consumption Functions Figure 13-3 -(Exhibit: Consumption Functions) Upward shifts of the consumption function, for example from C₀ to C₁ to C₂demonstrate