Question 1

Use the following to answer questions 
Exhibit: Aggregate Expenditures and Real GDP 1 
-(Exhibit: Aggregate Expenditures and Real GDP 1)
Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment.Suppose AE = C + IP, and IP is autonomous.What is the value of autonomous AE?

Accepted Answer

A) $1,500 billion 
B) $3,000 billion 
C) $4,500 billion 
D) $6,000 billion

Question 2

If the economy spends 80% of any increase in real GDP, then an increase in autonomous investment of $1 billion would result ultimately in an increase in equilibrium real GDP of

Accepted Answer

A) $0.8 billion. 
B) $1.0 billion. 
C) $1.8 billion. 
D) $5.0 billion.

Question 3

Use the following to answer questions 
Exhibit: Aggregate Expenditures and Real GDP 1 
-(Exhibit: Aggregate Expenditures and Real GDP 1)
Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment.Suppose AE = C + IP, and IP is autonomous.If the level of real GDP equals $5,000 billion, and if there are no changes in the consumption function or in planned investment, then we can expect that, in the next period, real GDP will

Accepted Answer

A) rise. 
B) remain unchanged. 
C) fall. 
D) fall, but only if there is an offsetting change in autonomous consumption.

Question 4

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 5

Use the following to answer questions 
Exhibit: Consumption Functions
Figure 13-3 
-An increase in the wealth of households, all other things unchanged, will

Accepted Answer

A) not affect the consumption function. 
B) shift the consumption function upward. 
C) shift the consumption function downward. 
D) cause a movement to the right along the consumption function.

Question 6

Use the following to answer questions 
Exhibit: Aggregate Expenditures and Real GDP 2 
-(Exhibit: Aggregate Expenditures and Real GDP 2)
Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment.Consider a simple economy where AE = C + IP, and IP is autonomous.What is the value of AE when Y = $12,000 billion?

Accepted Answer

A) $2,000 billion 
B) $8,000 billion 
C) $11,000 billion 
D) $12,000 billion

Question 7

A decrease in the price level, all other things unchanged, shifts the aggregate expenditures
curve upwards.

Accepted Answer

A) True 
 B)False

Question 8

Use the following to answer questions 
Exhibit: Aggregate Expenditures (AE)
in a Simplified Economy
 
-(Exhibit: Aggregate Expenditures (AE)
In a Simplified Economy)
Consider a simple economy that is made up of only two sectors, households and firms, and that investment is autonomous.Further, disposable personal income = real GDP.Suppose that actual real GDP in this economy is $300 billion in a particular period.We would expect to see

Accepted Answer

A) unintended reductions in inventory, planned investment will exceed actual investment. 
B) unintended reductions in inventory, planned investment will be less than actual investment. 
C) unintended increases in inventory, planned investment will exceed actual investment. 
D) unintended increases in inventory, planned investment will be less than actual investment.

Question 9

Use the following to answer questions 
Exhibit: Real GDP and the Multiplier
 
-(Exhibit: Real GDP and the Multiplier)
Holding everything else constant, if net exports fall by $400 billion, equilibrium real GDP will decrease

Accepted Answer

A) $1,000 billion. 
B) $800 billion. 
C) $500 billion 
D) $400 billion.

Question 10

Use the following to answer questions 
Exhibit: Consumption and Real GDP 
-Which of the following statements is false?

Accepted Answer

A) Two individuals who have the same current income but different permanent incomes are likely to make very similar savings decisions. 
B) An individual with a relatively low current income but a high permanent income might save little or nothing now, expecting to save for retirement and for bequests later. 
C) A person with a relatively low income now with no expectation of higher income later might try to save some now to provide for retirement or bequests later. 
D) A decision to save a certain amount determines how much will be available for future consumption.

Question 11

Let AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment,
G = Government Purchases.Consider a simple aggregate expenditures model, where
AE = C + IP + G and all components of aggregate expenditures except consumption are autonomous.All other things unchanged, a decrease in the price level

Accepted Answer

A) shifts the aggregate expenditures curve upwards. 
B) shifts the aggregate expenditures curve downwards. 
C) causes a movement up along a given aggregate expenditures curve. 
D) causes a movement down along a given aggregate expenditures curve.

Question 12

In graph that shows disposable income on the horizontal axis and consumption on the vertical axis, at every point on the 45-degree line,

Accepted Answer

A) the value of disposable income equals the sum of personal saving and consumption. 
B) the value of disposable income equals consumption. 
C) the value of disposable income equals personal saving. 
D) the value of disposable income and consumption equals 1.

Question 13

Aggregate expenditures that do not vary with real GDP are called autonomous aggregate
expenditures.

Accepted Answer

A) True 
 B)False

Question 14

Use the following to answer questions 
Exhibit: Consumption and Real GDP 
-(Exhibit: Consumption and Real GDP)
If real GDP is $4 trillion, consumption equals

Accepted Answer

A) 0.75 trillion. 
B) 1 trillion. 
C) 3 trillion. 
D) 4 trillion.

Question 15

In the aggregate expenditures model, if a $40 billion increase in autonomous investment leads to an increase in equilibrium real GDP of $100 billion at the initial price level, then the multiplier is 2.5.

Accepted Answer

A) True 
 B)False

Question 16

If real GDP increases from $2,000 to $2,500 and aggregate expenditures increase from $1,900 to $2,200, the slope of the aggregate expenditures curve is

Accepted Answer

A) 0.6. 
B) 0.7. 
C) 0.8. 
D) 0.9.

Question 17

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.Suppose government purchases rise by $100.As a result,

Accepted Answer

A) the aggregate expenditures curve shifts upward by $100. 
B) there is a movement along the aggregate expenditures curve from $1,600 to $1,700. 
C) the aggregate expenditures curve shifts upward by $100 * the multiplier. 
D) there is a movement along the aggregate expenditures curve from $1,600 to an amount equal to [$1,600 + ($100 * the multiplier)].

Question 18

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.If the consumption function is
C = $500 + 0.8Y, planned investment = $200, government purchases = $300,
Net exports = $100, and real GDP = $1,000, what is the amount of autonomous expenditures?

Accepted Answer

A) $500 
B) $1,000 
C) $1,100 
D) $1,900

Question 19

Use the following to answer questions 
Exhibit: Consumption and Real GDP 
-Suppose that your annual income has averaged $40,000 for the past 10 years and that you expect it will average $40,000 over the next 10 years.If your income this year increases to $50,000 and you increase your consumption expenditures by $10,000, then you are most likely acting according to the

Accepted Answer

A) transitory income theory of consumption. 
B) current income hypothesis. 
C) permanent income hypothesis. 
D) disposable personal income theory of consumption.

Question 20

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.

Exam 13: Consumption and the Aggregate Expenditures Model

If the economy spends 80% of any increase in real GDP, then an increase in autonomous investment of $1 billion would result ultimately in an increase in equilibrium real GDP of

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

Use the following to answer questions Exhibit: Consumption Functions Figure 13-3 -An increase in the wealth of households, all other things unchanged, will

A decrease in the price level, all other things unchanged, shifts the aggregate expenditures curve upwards.

Use the following to answer questions Exhibit: Real GDP and the Multiplier -(Exhibit: Real GDP and the Multiplier) Holding everything else constant, if net exports fall by $400 billion, equilibrium real GDP will decrease

Use the following to answer questions Exhibit: Consumption and Real GDP -Which of the following statements is false?

In graph that shows disposable income on the horizontal axis and consumption on the vertical axis, at every point on the 45-degree line,

Aggregate expenditures that do not vary with real GDP are called autonomous aggregate expenditures.

Use the following to answer questions Exhibit: Consumption and Real GDP -(Exhibit: Consumption and Real GDP) If real GDP is $4 trillion, consumption equals

In the aggregate expenditures model, if a $40 billion increase in autonomous investment leads to an increase in equilibrium real GDP of $100 billion at the initial price level, then the multiplier is 2.5.

If real GDP increases from $2,000 to $2,500 and aggregate expenditures increase from $1,900 to $2,200, the slope of the aggregate expenditures curve is

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