Question 1

Which of the following leads to a decrease in real GDP?

Accepted Answer

A) an increase in government spending 
B) an increase in the inflation rate in other countries, relative to inflation in Canada 
C) an increase in interest rates 
D) households having increasingly optimistic expectations about future income 
E) an increase imports

Question 2

All of the following are true statements about the multiplier, except

Accepted Answer

A) the multiplier rises as the MPC rises. 
B) the smaller the MPS, the larger the multiplier. 
C) the multiplier is a value between zero and one. 
D) the multiplier effect occurs when autonomous expenditure changes. 
E) the multiplier effect is caused by induced consumption.

Question 3

If planned aggregate expenditure is greater than total production,

Accepted Answer

A) actual inventories will equal planned inventories. 
B) firms will experience an unplanned increase in inventories. 
C) GDP will increase. 
D) the economy is in equilibrium. 
E) governments are likely to experience growing budget deficits.

Question 4

________ consumption is consumption that does not depend upon the level of GDP.

Accepted Answer

A) Autonomous 
B) Induced 
C) Voluntary 
D) Disposable 
E) Household

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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. 
E) the economy is in an expansion.

Question 7

An increase in taxes will ________ consumption spending, and a decrease in transfer payments will ________ consumption spending.

Accepted Answer

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

Question 8

Actual investment spending does not include

Accepted Answer

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

Question 9

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

Accepted Answer

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.

Question 10

Which of the following leads to an increase real GDP?

Accepted Answer

A) a decrease in government spending 
B) a decrease in the inflation rate in other countries, relative to the inflation in the United States 
C) a decrease in interest rates 
D) households have increasingly pessimistic expectations about future income 
E) an increase in imports

Question 11

When we graph consumption as a function of ________ rather than as a function of disposable income, the slope of this consumption function is ________.

Accepted Answer

A) national income; the MPC 
B) personal income; (MPC - MPS) 
C) national income; the MPS 
D) personal income; the MPS 
E) national savings; the MPS

Question 12

Which is the largest component of aggregate expenditure?

Accepted Answer

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

Question 13

When Jack's income increases by $5,000, he spends an additional $4,000 dollars.This implies that his marginal propensity to consume is 1.25.

Accepted Answer

A) True 
 B)False

Question 14

If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then

Accepted Answer

A) the multiplier is 0.125. 
B) the multiplier is 3.5. 
C) the multiplier is 8. 
D) the multiplier is 14.3. 
E) the multiplier is 50.

Question 15

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. 
E) changes in unemployment and changes in inflation.

Question 16

If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years, then

Accepted Answer

A) investment spending will fall. 
B) investment spending will rise. 
C) investment spending will remain unaffected. 
D) investment spending will rise and then fall. 
E) investment spending growth smoothly.

Question 17

Investment spending ________ during a recession, and ________ during an expansion.

Accepted Answer

A) declines; increases 
B) increases; declines 
C) increases; increases 
D) declines; declines

Question 18

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

Accepted Answer

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 19

On the 45-degree line diagram, the 45-degree line shows points where real aggregate expenditure equals

Accepted Answer

A) unplanned investment. 
B) planned investment. 
C) real GDP. 
D) nominal GDP. 
E) potential GDP.

Question 20

If planned aggregate expenditure is less than real GDP, some firms will experience unplanned increases in inventories.

Accepted Answer

A) True 
 B)False

Exam 8: Aggregate Expenditure and Output in the Short Run

Which of the following leads to a decrease in real GDP?

All of the following are true statements about the multiplier, except

If planned aggregate expenditure is greater than total production,

________ consumption is consumption that does not depend upon the level of GDP.

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

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

An increase in taxes will consumption spending, and a decrease in transfer payments will consumption spending.

Actual investment spending does not include

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

Which of the following leads to an increase real GDP?

When we graph consumption as a function of rather than as a function of disposable income, the slope of this consumption function is .

Which is the largest component of aggregate expenditure?

When Jack's income increases by $5,000, he spends an additional $4,000 dollars.This implies that his marginal propensity to consume is 1.25.

If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then

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

If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years, then

Investment spending during a recession, and during an expansion.

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

On the 45-degree line diagram, the 45-degree line shows points where real aggregate expenditure equals

If planned aggregate expenditure is less than real GDP, some firms will experience unplanned increases in inventories.