Question 1

A rising price level decreases consumption by decreasing the real value of household wealth.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) this will increase investment spending in the short run and expand the economy in the long run. 
B) the economy will benefit in the short run but the effect will not last into 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) they may make themselves worse off by causing aggregate expenditure to fall,thereby pushing the economy into a recession.

Question 3

The difference between GDP and disposable income is

Accepted Answer

A) national income. 
B) actual investment spending. 
C) net taxes. 
D) unplanned investment spending.

Question 4

Table 23-1
 $$\begin{array} { | c | c | c | c | c | } 
\hline \text { Real GDP } & \text { Consumption } & \begin{array} { c } 
\text { Planned } \
\text { Investment }
\end{array} & \begin{array} { c } 
\text { Government } \
\text { Purchases }
\end{array} & \text { Net Exports } \
\hline \$ 4,000 & \$ 2,800 & \$ 550 & \$ 600 & \$ 250 \
\hline 4,500 & 3,200 & 550 & 600 & 250 \
\hline 5,000 & 3,600 & 550 & 600 & 250 \
\hline 5,500 & 4,000 & 550 & 600 & 250 \
\hline
\end{array}$$
-Refer to Table 23-1.Using the table above,compute aggregate expenditure and identify the macroeconomic equilibrium.

Accepted Answer

The answer of Table 23-1
 \[\begin{array} { | c |...

Question 5

Figure 23-3 
-Refer to Figure 23-3.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP2 to GDP1.If the MPC is 0.8,then what is the change in GDP?

Accepted Answer

A) -$4 million 
B) -$5 million 
C) -$25 million 
D) -$40 million

Question 6

At macroeconomic equilibrium,total ________ equals total ________.

Accepted Answer

A) spending;production 
B) investment;inventories 
C) consumption;production 
D) taxes;transfers

Question 7

The formula for aggregate expenditure is

Accepted Answer

A) AE = C + I + G. 
B) AE = C + I + G - NX. 
C) AE = C + I + G + NX. 
D) AE = C + I + depreciation - NX.

Question 8

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.

Question 9

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 10

Equations for C,I,G,and NX are given below.If the equilibrium level of GDP is $32,000,what will the new equilibrium level of GDP be if government spending increases to 2,500? C = 5,000 + (MPC)Y
I = 1,500
G = 2,000
NX = -500

Accepted Answer

A) $32,500 
B) $34,000 
C) $38,000 
D) $42,000

Question 11

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 12

If planned aggregate expenditure equals GDP,the economy is in macroeconomic equilibrium.

Accepted Answer

A) True 
 B)False

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 the marginal propensity to save is 0.35,the multiplier is 2.86.

Accepted Answer

A) True 
 B)False

Question 15

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.

Question 16

The formula for the multiplier is (1 - MPC).

Accepted Answer

A) True 
 B)False

Question 17

Decreases in the price level will

Accepted Answer

A) lower consumption because goods and services are less affordable. 
B) raise consumption because goods and services are more affordable. 
C) raise consumption because real wealth increases. 
D) lower consumption because real wealth decreases.

Question 18

If planned investment is equal to actual investment,then aggregate expenditure is equal to GDP.

Accepted Answer

A) True 
 B)False

Question 19

Figure 23-3 
-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 20

An increase in aggregate expenditure has what result on equilibrium GDP?

Accepted Answer

A) Equilibrium GDP rises. 
B) Equilibrium GDP is not affected by an increase in aggregate expenditure. 
C) Equilibrium GDP falls. 
D) Equilibrium GDP may rise or fall depending on the size of the increase in aggregate expenditure relative to the initial level of GDP.

Exam 23: Aggregate Expenditure and Output in the Short Run

A rising price level decreases consumption by decreasing the real value of household wealth.

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

The difference between GDP and disposable income is

Figure 23-3 -Refer to Figure 23-3.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP2 to GDP1.If the MPC is 0.8,then what is the change in GDP?

At macroeconomic equilibrium,total equals total .

The formula for aggregate expenditure is

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

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

Equations for C,I,G,and NX are given below.If the equilibrium level of GDP is $32,000,what will the new equilibrium level of GDP be if government spending increases to 2,500? C = 5,000 + (MPC) Y I = 1,500 G = 2,000 NX = -500

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

If planned aggregate expenditure equals GDP,the economy is in macroeconomic equilibrium.

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 the marginal propensity to save is 0.35,the multiplier is 2.86.

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?

The formula for the multiplier is (1 - MPC).

Decreases in the price level will

If planned investment is equal to actual investment,then aggregate expenditure is equal to GDP.

Figure 23-3 -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?

An increase in aggregate expenditure has what result on equilibrium GDP?