Question 1

Investment spending will increase when

Accepted Answer

A)  the interest rate rises. 
B)  the corporate income tax increases. 
C)  business cash flow increases. 
D)  firms become more pessimistic about earning future profits.

Question 2

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.

Question 3

An increase in the price level in the United States will reduce exports and increase imports.

Accepted Answer

A) True 
 B)False

Question 4

As a result of slow economic growth in 2011,many companies including Cisco Systems,Lockheed Martin,and Cracker Barrel Old Country Store cut production and employment as a result of the sluggish growth in the total amount of spending in the economy.The total amount of spending in the economy is known as

Accepted Answer

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

Question 5

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

Accepted Answer

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

Question 6

Given Table 23-3 below,fill in the values for saving.Assume there are no taxes.
Table 23-3

Accepted Answer

The answer of Given Table 23-3 below,fill in the values...

Question 7

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.

Question 8

________ describes the relationship between consumption spending and disposable income.

Accepted Answer

A)  Household wealth 
B)  The liquidity trap 
C)  The consumption function 
D)  The paradox of thrift

Question 9

Increases in housing prices

Accepted Answer

A)  decrease consumption in direct proportion to the housing price increases. 
B)  directly increase consumption, as this increases household wealth. 
C)  have no independent effect on consumption. 
D)  decrease consumption only when the overall price level decreases in the economy.

Question 10

If planned aggregate expenditure is below potential GDP and planned aggregate expenditure equals GDP,then

Accepted Answer

A)  actual inventory investment will be less than planned inventory investment. 
B)  actual inventory investment will be greater than planned inventory investment. 
C)  the economy is in a recession. 
D)  the economy is at full employment.

Question 11

Which of the following will raise consumer expenditures?

Accepted Answer

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

Question 12

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 13

In a small economy in 2011,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?

Accepted Answer

A)  Aggregate expenditure is always less than GDP in developed countries. 
B)  Firm investment in inventories was less than anticipated in 2011. 
C)  Firm investment in inventories was greater than anticipated in 2011. 
D)  Aggregate expenditure is always less than GDP in developing countries.

Question 14

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.

Accepted Answer

The answer of Explain,in detail,how the adjustment to macroeconomic equilibrium...

Question 15

Ceteris paribus,how does a recession in the United States affect U.S.net exports?

Accepted Answer

The answer of Ceteris paribus,how does a recession in the...

Question 16

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

Accepted Answer

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

Question 17

Housing wealth is equal to

Accepted Answer

A)  the market value of a house minus the value of loans people have taken out to pay for the house. 
B)  the actual price paid for a house minus the current value of the house. 
C)  the actual price paid for a house minus the value of any outstanding loans taken out to pay for the house. 
D)  the current market value of the house should that house be sold within the next 30 days.

Exam 12: Aggregate Expenditure and Output in the Short Run