Question 1

If the consumption function is defined as C = 7,250 + 0.8Y,what is the autonomous level of consumption expenditure?

Accepted Answer

A)  $5,800 
B)  $7,250 
C)  $9,062.50 
D)  $9,700

Question 2

Figure 23-2
 
-Refer to Figure 23-2.Suppose that the level of GDP associated with point K is potential GDP.If the U.S.economy is currently at point N,

Accepted Answer

A)  firms are operating below capacity. 
B)  the economy is at full employment. 
C)  the economy is in an expansion. 
D)  the level of unemployment is above the natural rate.

Question 3

Refer to Figure 23-3. Suppose that government spending increases,shifting up the aggregate expenditure line. GDP increases from GDP₁ to GDP₂,and this amount is $200 billion. If the MPC is 0.8,then what is the distance between N and L or by how much did government spending change?

Accepted Answer

A)  $16 billion 
B)  $40 billion 
C)  $200 billion 
D)  $1,000 billion

Question 4

The decrease in consumer spending during the 2007-2009 recession was due in part to falling home values.This reason for the decline in consumer spending is most closely related to which of the following variables that determine the level of consumption?

Accepted Answer

A)  the interest rate 
B)  current disposable income 
C)  household wealth 
D)  the price level

Question 5

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?

Accepted Answer

The answer of What are inventories? What usually happens to...

Question 6

Which of the following will increase aggregate expenditure in the United States?

Accepted Answer

A)  an increase in the value of the dollar 
B)  an increase in the price level 
C)  an increase in interest rates 
D)  an increase in government purchases

Question 7

Purchases of information processing equipment and software ________ during the 2007-2009 recession.

Accepted Answer

A)  rose by 3 percent 
B)  remained stable 
C)  declined by 9 percent 
D)  declined by 75 percent

Question 8

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

Accepted Answer

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.

Question 9

A stock market crash which causes stock prices to fall should cause

Accepted Answer

A)  a decrease in consumption spending. 
B)  an increase in consumption spending. 
C)  an increase in wealth. 
D)  no change in consumption spending.

Question 10

If the consumption function is defined as C = 7,250 + 0.8Y,what is the multiplier?

Accepted Answer

A)  0.2 
B)  0.8 
C)  1.25 
D)  5

Question 11

Autonomous expenditure is a type of expenditure that does not depend on

Accepted Answer

A)  wealth. 
B)  expectations. 
C)  rates. 
D)  GDP.

Question 12

Consumption spending refers to ________ spending on goods and services.

Accepted Answer

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

Question 13

Intel is the world's largest semiconductor manufacturer and a major supplier of the microprocessors and memory chips found in most personal computers.During the recession of 2007-2009,Intel's revenues ________ and it ________ the size of its workforce.

Accepted Answer

A)  fell; increased 
B)  fell; decreased 
C)  rose; increased 
D)  rose; decreased

Question 14

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

Accepted Answer

The answer of What is the main reason for changes...

Question 15

If consumption is defined as C = 4,500 + 0.75Y,then the marginal propensity to save is 0.25.

Accepted Answer

A) True 
 B)False

Question 16

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.

Accepted Answer

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

Question 17

On the 45-degree line diagram,for points that lie above the 45-degree line,

Accepted Answer

A)  planned aggregate expenditure is greater than GDP. 
B)  planned aggregate expenditure is less than GDP. 
C)  planned aggregate expenditure is equal to GDP. 
D)  planned aggregate expenditure is less than aggregate income.

Question 18

________ spending follows a smooth trend whereas,________ spending is more volatile and subject to fluctuations.

Accepted Answer

A)  Consumer; government 
B)  Consumer; investment 
C)  Investment; consumer 
D)  Government; consumer

Question 19

If the MPC is 0.95,then a $10 million increase in disposable income will

Accepted Answer

A)  increase consumption by $200 million. 
B)  increase consumption by $9.5 million. 
C)  decrease consumption by $105 million 
D)  increase consumption by $950 million.

Question 20

If the marginal propensity to consume is 0.6,the marginal propensity to save is

Accepted Answer

A)  0.4. 
B)  0.6. 
C)  1. 
D)  1.5.

Exam 12: Aggregate Expenditure and Output in the Short Run