Question 1

Consider the simplest macroeconomic model,with a closed economy and no government.If we assume that desired investment is autonomous with respect to national income,then the investment function (which graphs desired investment against actual national income)will be

Accepted Answer

A) negatively sloped. 
B) positively sloped and relatively steep. 
C) positively sloped and relatively flat. 
D) vertical. 
E) horizontal.

Question 2

Consider the following information concerning an economy with demand-determined output.There is no government or foreign trade.  TABLE 21-7
-Refer to Table 21-7.This economy's equilibrium level of national income is

Accepted Answer

A) 500. 
B) 600. 
C) 750. 
D) 1000. 
E) 1500.

Question 3

FIGURE 21-3
-Refer to Figure 21-3.A shift in the aggregate expenditure function from AE0 to AE1 could be caused by

Accepted Answer

A) a rise in the multiplier. 
B) a fall in the marginal propensity to consume. 
C) a rise in the marginal propensity to consume. 
D) an increase in desired investment expenditures. 
E) a decrease in desired investment expenditures.

Question 4

Desired consumption divided by disposable income is called the

Accepted Answer

A) average propensity to consume. 
B) average propensity to save. 
C) average propensity to spend. 
D) marginal propensity to save. 
E) total propensity to save.

Question 5

Consider a simple macro model with demand-determined output.If z is the marginal propensity to spend out of national income,Y is national income and A is autonomous expenditure,then the simple multiplier is equal to

Accepted Answer

A) z. 
B) 1 - z. 
C) 1/z. 
D) 1/(1 - z). 
E) Y/(1 - z).

Question 6

Consider a simple macro model with a constant price level and demand-determined output.If national income is above its equilibrium level,it is likely that inventories are ________,and so national income tends to ________.

Accepted Answer

A) accumulating; rise 
B) accumulating; fall 
C) being depleted; rise 
D) being depleted; fall 
E) constant; fall

Question 7

Which of the following correctly describes the meaning of the aggregate expenditure (AE)function?

Accepted Answer

A) The AE function relates the level of desired aggregate expenditure to the level of actual national income. 
B) The AE function relates the level of desired consumption expenditure to desired aggregate expenditure. 
C) The AE function relates the level of desired investment expenditure to desired aggregate expenditure. 
D) The AE function relates the level of nominal GDP to the level of real GDP. 
E) The AE function relates the level of aggregate demand to the price level.

Question 8

Consider the following information describing a closed economy with no government.Aggregate output is demand determined and the price level is constant.  TABLE 21-6
-Refer to Table 21-6.The simple multiplier in this economy is

Accepted Answer

A) 2.0. 
B) 2.5. 
C) 3.0. 
D) 4.0. 
E) 5.0.

Question 9

For firms or individual households,desired expenditure is

Accepted Answer

A) always greater than planned expenditure. 
B) always greater than actual expenditure. 
C) not relevant because human wants are unlimited. 
D) what they plan on spending,given the resources at their command. 
E) not a useful concept because it cannot be measured.

Question 10

The aggregate expenditure (AE)function is an upward-sloping curve that describes

Accepted Answer

A) the amount spent on an economy's output at each national income. 
B) what firms and households would like to spend at each level of national income. 
C) what an economy would like to spend,in the absence of income constraints,at each level of output. 
D) what is actually spent on an economy's output at each level of output. 
E) what is actually spent at each level of national income.

Question 11

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is between zero and one,the simple multiplier is

Accepted Answer

A) zero. 
B) a positive number between zero and one. 
C) one. 
D) a positive number greater than one but less than infinity. 
E) infinitely large.

Question 12

Undesired or unplanned inventory decumulation is likely to occur when

Accepted Answer

A) consumption exceeds investment. 
B) investment exceeds consumption. 
C) autonomous expenditure exceeds induced expenditure. 
D) desired aggregate expenditure exceeds actual aggregate expenditure. 
E) actual aggregate expenditure exceeds desired aggregate expenditure.

Question 13

In a simple macro model with the price level assumed to be constant,a change in firms' level of desired investment is predicted to influence equilibrium national income by

Accepted Answer

A) shifting the saving function. 
B) shifting the consumption function. 
C) shifting the aggregate expenditure function. 
D) causing movement along the investment function. 
E) shifting the 45-degree line.

Question 14

Suppose the price level is constant,output is demand-determined,and the economy is closed with no government.If the consumption function is C = (2/3)Y,then the simple multiplier is

Accepted Answer

A) 2/3. 
B) 1. 
C) 2. 
D) 3. 
E) Insufficient information to know.

Question 15

The slope of the aggregate expenditure (AE)function is always equal to the marginal propensity to

Accepted Answer

A) save. 
B) invest. 
C) import. 
D) spend. 
E) tax.

Question 16

In the simplest macroeconomic model,with a closed economy and no government,the aggregate expenditure (AE)function is the sum of

Accepted Answer

A) saving and desired investment. 
B) consumption and disposable income. 
C) desired consumption and desired investment. 
D) consumption and saving. 
E) actual consumption and actual investment.

Question 17

Investment expenditure is the ________ volatile component of GDP,and changes in investment are ________ associated with business-cycle fluctuations.

Accepted Answer

A) most; strongly 
B) most; weakly 
C) least; strongly 
D) least; weakly 
E) least; not

Question 18

FIGURE 21-1
-Refer to Figure 21-1.If disposable income is equal to Y3,desired consumption expenditure is equal to the vertical distance

Accepted Answer

A) Y3E. 
B) Y3D. 
C) Y3F. 
D) Y3. 
E) DE.

Question 19

Consider a simple macro model with demand-determined output.At the equilibrium level of national income,

Accepted Answer

A) consumers' purchases of goods and services equal firms' purchases of investment goods. 
B) firms will hold no inventories of raw materials or final goods. 
C) desired aggregate expenditures will equal total output. 
D) desired aggregate expenditures will equal total output minus inventory holdings. 
E) consumers' purchases of goods and services equals their saving.

Question 20

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3
-Refer to Table 21-3.The correct expression for the aggregate expenditure function for this economy is

Accepted Answer

A) AE = $760 billion 
B) AE = $300 billion + 0.9Y 
C) AE = $400 billion + 0.9Y 
D) AE = $400 billion + 0.1  . 
E) AE = $200 billion + 0.1  .

Exam 21: The Simplest Short-Run Macro Model

Consider the simplest macroeconomic model,with a closed economy and no government.If we assume that desired investment is autonomous with respect to national income,then the investment function (which graphs desired investment against actual national income) will be

Consider the following information concerning an economy with demand-determined output.There is no government or foreign trade. TABLE 21-7 -Refer to Table 21-7.This economy's equilibrium level of national income is

FIGURE 21-3 -Refer to Figure 21-3.A shift in the aggregate expenditure function from AE₀ to AE₁ could be caused by

Desired consumption divided by disposable income is called the

Consider a simple macro model with demand-determined output.If z is the marginal propensity to spend out of national income,Y is national income and A is autonomous expenditure,then the simple multiplier is equal to

Consider a simple macro model with a constant price level and demand-determined output.If national income is above its equilibrium level,it is likely that inventories are ,and so national income tends to .

Which of the following correctly describes the meaning of the aggregate expenditure (AE) function?

Consider the following information describing a closed economy with no government.Aggregate output is demand determined and the price level is constant. TABLE 21-6 -Refer to Table 21-6.The simple multiplier in this economy is

For firms or individual households,desired expenditure is

The aggregate expenditure (AE) function is an upward-sloping curve that describes

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is between zero and one,the simple multiplier is

Undesired or unplanned inventory decumulation is likely to occur when

In a simple macro model with the price level assumed to be constant,a change in firms' level of desired investment is predicted to influence equilibrium national income by

Suppose the price level is constant,output is demand-determined,and the economy is closed with no government.If the consumption function is C = (2/3) Y,then the simple multiplier is

The slope of the aggregate expenditure (AE) function is always equal to the marginal propensity to

In the simplest macroeconomic model,with a closed economy and no government,the aggregate expenditure (AE) function is the sum of

Investment expenditure is the volatile component of GDP,and changes in investment are associated with business-cycle fluctuations.

FIGURE 21-1 -Refer to Figure 21-1.If disposable income is equal to Y₃,desired consumption expenditure is equal to the vertical distance

Consider a simple macro model with demand-determined output.At the equilibrium level of national income,

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 -Refer to Table 21-3.The correct expression for the aggregate expenditure function for this economy is

Exam 21: The Simplest Short-Run Macro Model

Consider the simplest macroeconomic model,with a closed economy and no government.If we assume that desired investment is autonomous with respect to national income,then the investment function (which graphs desired investment against actual national income) will be

Consider the following information concerning an economy with demand-determined output.There is no government or foreign trade. TABLE 21-7 -Refer to Table 21-7.This economy's equilibrium level of national income is

FIGURE 21-3 -Refer to Figure 21-3.A shift in the aggregate expenditure function from AE0 to AE1 could be caused by

Desired consumption divided by disposable income is called the

Consider a simple macro model with demand-determined output.If z is the marginal propensity to spend out of national income,Y is national income and A is autonomous expenditure,then the simple multiplier is equal to

Consider a simple macro model with a constant price level and demand-determined output.If national income is above its equilibrium level,it is likely that inventories are ________,and so national income tends to ________.

Which of the following correctly describes the meaning of the aggregate expenditure (AE) function?

Consider the following information describing a closed economy with no government.Aggregate output is demand determined and the price level is constant. TABLE 21-6 -Refer to Table 21-6.The simple multiplier in this economy is

For firms or individual households,desired expenditure is

The aggregate expenditure (AE) function is an upward-sloping curve that describes

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is between zero and one,the simple multiplier is

Undesired or unplanned inventory decumulation is likely to occur when

In a simple macro model with the price level assumed to be constant,a change in firms' level of desired investment is predicted to influence equilibrium national income by

Suppose the price level is constant,output is demand-determined,and the economy is closed with no government.If the consumption function is C = (2/3) Y,then the simple multiplier is

The slope of the aggregate expenditure (AE) function is always equal to the marginal propensity to

In the simplest macroeconomic model,with a closed economy and no government,the aggregate expenditure (AE) function is the sum of

Investment expenditure is the ________ volatile component of GDP,and changes in investment are ________ associated with business-cycle fluctuations.

FIGURE 21-1 -Refer to Figure 21-1.If disposable income is equal to Y3,desired consumption expenditure is equal to the vertical distance

Consider a simple macro model with demand-determined output.At the equilibrium level of national income,

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 -Refer to Table 21-3.The correct expression for the aggregate expenditure function for this economy is

FIGURE 21-3 -Refer to Figure 21-3.A shift in the aggregate expenditure function from AE₀ to AE₁ could be caused by

Consider a simple macro model with a constant price level and demand-determined output.If national income is above its equilibrium level,it is likely that inventories are ,and so national income tends to .

Investment expenditure is the volatile component of GDP,and changes in investment are associated with business-cycle fluctuations.

FIGURE 21-1 -Refer to Figure 21-1.If disposable income is equal to Y₃,desired consumption expenditure is equal to the vertical distance