Question 1

Figure 8.1  Alt text for Figure 8.1: In figure 8.1, a graph comparing real GDP and real aggregate expenditure.
Long description for Figure 8.1: The x-axis is labelled, real GDP, Y (trillions of 2002 dollars).The y-axis is labelled, real aggregate expenditure, AE (trillions of 2002 dollars).A line, labelled Y = AE, originates at the vertex and slopes up to the top right corner.Another line, labelled AE1, begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Both these lines intersect at point K, approximately three quarters of the way along both lines.Point J is plotted a little less than half way along the line AE1, to the left of point K.Point L is plotted close to the right end of the line AE1, to the right of point K.
-Refer to Figure 8.1.If the economy is at a level of aggregate expenditure given by point K,

Accepted Answer

A) the economy is in equilibrium. 
B) production is greater than spending. 
C) production is less than spending. 
D) inventories will increase above their desired level. 
E) firms will have an incentive to increase production.

Question 2

In a small economy in 2016, aggregate expenditure was $850 million while GDP that year was $800 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 2016. 
C) Firm investment in inventories was greater than anticipated in 2016. 
D) Aggregate expenditure is always less than GDP in developing countries. 
E) Aggregate expenditure does not account for consumer spending.

Question 3

Why do economists care about aggregate expenditures?

Accepted Answer

The answer of Why do economists care about aggregate expenditures?...

Question 4

Consumer spending ________ and investment spending ________.

Accepted Answer

A) is very volatile and subject to fluctuations; follows a smooth trend 
B) follows a smooth trend; is more volatile and subject to fluctuations 
C) follows a smooth trend; is the most stable component of aggregate expenditure 
D) is very erratic; is also erratic; but less erratic than consumer spending

Question 5

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million.What is GDP?

Accepted Answer

A) $15 million 
B) $23 million 
C) $25 million 
D) $27 million 
E) $30 billion

Question 6

The five most important variables that determine the level of consumption are

Accepted Answer

A) disposable income, wealth, expected future income, price level, and interest rate. 
B) wealth, savings account balances, chequing account balances, stock portfolio balances, and bond portfolio balances. 
C) government purchases, interest rates, income, taxes, and transfers. 
D) government purchases, saving account balances, wealth, interest rates, portfolio balances. 
E) disposable income, taxation, expected interest rates, price level, and corporate retained earnings.

Question 7

Given Table 8.8 below, fill in the values for saving.Assume there are no taxes.
Table 8.8

Accepted Answer

The answer of Given Table 8.8 below, fill in the...

Question 8

For all points below the 45-degree line, planned aggregate expenditure will be less than GDP.

Accepted Answer

A) True 
 B)False

Question 9

Consumption spending will ________ when disposable income ________.

Accepted Answer

A) increase; increases 
B) increase; decreases 
C) decrease; increases 
D) change unpredictably; decreases

Question 10

John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending,

Accepted Answer

A) this may benefit the economy in the short run, but not in the long run. 
B) the economy will benefit in the short run and benefit by an even greater amount in the long run. 
C) this will have a major negative impact on the economy in both the short run and in the long run. 
D) this may benefit the economy in the long run, but could be counterproductive in the short run. 
E) there will be absolutely no impact on the economy in the short run or the long run.

Question 11

The sum of the marginal propensity to consume and the marginal propensity to save is always equal to

Accepted Answer

A) zero. 
B) 0.5. 
C) 0.75. 
D) 1. 
E) 100%.

Question 12

Increases in consumer confidence

Accepted Answer

A) decrease consumption in direct proportion to the increase in consumer confidence. 
B) directly increase consumption. 
C) tend to increase consumption spending. 
D) increase consumption only when the overall price level decreases in the economy. 
E) tend to increase household saving.

Question 13

The aggregate demand curve shows the relationship between the price level and the level of planned aggregate expenditure in the economy.

Accepted Answer

A) True 
 B)False

Question 14

If national income increases by $75 million and consumption increases by $15 million, the marginal propensity to consume is

Accepted Answer

A) 5. 
B) 0.80. 
C) 0.75. 
D) 0.20. 
E) 0.15.

Question 15

Table 8.2 
-Refer to Table 8.2.Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

Accepted Answer

The answer of Table 8.2 
-Refer to Table 8.2.Using the...

Question 16

An increase in the price level results in a(n)________ in household consumption spending and a(n)________ in investment spending.

Accepted Answer

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

Question 17

Firms in a small economy anticipated that inventories would grow over the past year by $750,000, and over that year, inventories grew by exactly $750,000.This implies that

Accepted Answer

A) aggregate expenditure and GDP were equal that year. 
B) there was an unplanned increase in inventories that year. 
C) there was an unplanned decrease in inventories that year. 
D) aggregate expenditure was greater than GDP that year. 
E) there was an unanticipated rise in consumer spending.

Question 18

If the marginal propensity to save is 0.25, then a $10,000 decrease in disposable income will

Accepted Answer

A) increase consumption by $7,500. 
B) increase consumption by $2,500. 
C) decrease consumption by $7,500. 
D) decrease consumption by $2,500.

Question 19

Would a larger multiplier lead to longer and more severe recessions or shorter and less severe recessions? Briefly explain.

Accepted Answer

The answer of Would a larger multiplier lead to longer...

Question 20

When Javier's income increases by $5,000, he spends an additional $3,750 dollars.This implies that his marginal propensity to consume is 0.75.

Accepted Answer

A) True 
 B)False

Exam 8: Aggregate Expenditure and Output in the Short Run

In a small economy in 2016, aggregate expenditure was $850 million while GDP that year was $800 million.Which of the following can explain the difference between aggregate expenditure and GDP that year?

Why do economists care about aggregate expenditures?

Consumer spending and investment spending .

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million.What is GDP?

The five most important variables that determine the level of consumption are

Given Table 8.8 below, fill in the values for saving.Assume there are no taxes. Table 8.8

For all points below the 45-degree line, planned aggregate expenditure will be less than GDP.

Consumption spending will when disposable income .

John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending,

The sum of the marginal propensity to consume and the marginal propensity to save is always equal to

Increases in consumer confidence

The aggregate demand curve shows the relationship between the price level and the level of planned aggregate expenditure in the economy.

If national income increases by $75 million and consumption increases by $15 million, the marginal propensity to consume is

Table 8.2 -Refer to Table 8.2.Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

An increase in the price level results in a(n) in household consumption spending and a(n) in investment spending.

Firms in a small economy anticipated that inventories would grow over the past year by $750,000, and over that year, inventories grew by exactly $750,000.This implies that

If the marginal propensity to save is 0.25, then a $10,000 decrease in disposable income will

Would a larger multiplier lead to longer and more severe recessions or shorter and less severe recessions? Briefly explain.

When Javier's income increases by $5,000, he spends an additional $3,750 dollars.This implies that his marginal propensity to consume is 0.75.

Exam 8: Aggregate Expenditure and Output in the Short Run

In a small economy in 2016, aggregate expenditure was $850 million while GDP that year was $800 million.Which of the following can explain the difference between aggregate expenditure and GDP that year?

Why do economists care about aggregate expenditures?

Consumer spending ________ and investment spending ________.

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million.What is GDP?

The five most important variables that determine the level of consumption are

Given Table 8.8 below, fill in the values for saving.Assume there are no taxes. Table 8.8

For all points below the 45-degree line, planned aggregate expenditure will be less than GDP.

Consumption spending will ________ when disposable income ________.

John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending,

The sum of the marginal propensity to consume and the marginal propensity to save is always equal to

Increases in consumer confidence

The aggregate demand curve shows the relationship between the price level and the level of planned aggregate expenditure in the economy.

If national income increases by $75 million and consumption increases by $15 million, the marginal propensity to consume is

Table 8.2 -Refer to Table 8.2.Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

An increase in the price level results in a(n) ________ in household consumption spending and a(n) ________ in investment spending.

Firms in a small economy anticipated that inventories would grow over the past year by $750,000, and over that year, inventories grew by exactly $750,000.This implies that

If the marginal propensity to save is 0.25, then a $10,000 decrease in disposable income will

Would a larger multiplier lead to longer and more severe recessions or shorter and less severe recessions? Briefly explain.

When Javier's income increases by $5,000, he spends an additional $3,750 dollars.This implies that his marginal propensity to consume is 0.75.

Consumer spending and investment spending .

Consumption spending will when disposable income .

An increase in the price level results in a(n) in household consumption spending and a(n) in investment spending.