Deck 12: Aggregate Expenditure and Output in the Short Run

Question 1

Aggregate expenditure includes spending on

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

Answer 1

C + I + G + NX.

Question 2

Consumption spending refers to ________ spending on goods and services.

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

Answer 2

household

Question 3

Goods that have been produced but not yet sold are referred to as

A) understocks.
B) inventories.
C) pre-sold goods.
D) capital goods.

Answer 3

inventories.

Question 4

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.

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

Question 5

Macroeconomic equilibrium occurs when

A) aggregate expenditure = GDP.
B) aggregate expenditure = C+ I + G + net transfers.
C) aggregate income = planned inventories.
D) aggregate expenditure = planned inventories.

Question 6

The ________ model focuses on the relationship between total spending and real GDP in the short run,assuming the price level is constant.

A) supply and demand
B) national income
C) aggregate expenditure
D) business cycle

Question 7

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 aggregate expenditure?

A) $15 million
B) $23 million
C) $25 million
D) $27 million

Question 8

Consumption is $5 million,planned investment spending is $8 million,government purchases are $10 million,and net exports are equal to $2 million. If GDP during that same time period is equal to $23 million,what unplanned changes in inventories occurred?

A) There was an unplanned increase in inventories equal to $2 million.
B) There was no unplanned change in inventories.
C) There was an unplanned decrease in inventories equal to $2 million.
D) There was an unplanned decrease in inventories equal to $19 million.

Question 9

When aggregate expenditure is less than GDP,which of the following is true?

A) There was an unplanned increase in inventories.
B) Firms spent more on capital goods than they anticipated.
C) Households bought more new homes than they anticipated.
D) All of the above must be true when aggregate expenditure is less than GDP.

Question 10

Actual investment spending includes spending by consumers on

A) durable goods.
B) nondurable goods.
C) new houses.
D) services.

Question 11

The aggregate expenditure model focuses on the short-run relationship between ________ and ________.

A) real spending; real GDP
B) unemployment; inflation
C) nominal spending; nominal GDP
D) planned inventories; unplanned inventories

Question 12

Which of the following is not a component of aggregate expenditure?

A) consumption spending
B) planned investment spending
C) actual investment spending
D) government spending

Question 13

Which of the following is not one of the four main categories of spending identified by John Maynard Keynes?

A) consumption
B) planned investment
C) government purchases
D) transfer payments

Question 14

At macroeconomic equilibrium,total ________ equals total ________.

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

Question 15

Consumption spending is $5 million,planned investment spending is $8 million,actual investment spending is $8 million,government purchases are $10 million,and net export spending is $2 million. Based on this information,which of the following is true?

A) There was an unplanned change in inventories.
B) Aggregate expenditure is equal to GDP.
C) Aggregate expenditure is greater than GDP.
D) Aggregate expenditure is less than GDP.

Question 16

A decrease in ________ can put your job at risk if aggregate expenditures fall.

A) consumer confidence
B) the natural rate of unemployment
C) the inflation rate
D) the length of a business cycle

Question 17

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?

A) $15 million
B) $23 million
C) $25 million
D) $27 million

Question 18

An unplanned decrease in inventories results in

A) a decrease in planned investment.
B) an increase in planned investment.
C) actual investment that is greater than planned investment.
D) actual investment that is less than planned investment.

Question 19

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.

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

Question 20

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

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 21

Household wealth is defined as the value of a household's

A) assets minus the value of its liabilities.
B) assets plus the value of its liabilities.
C) assets.
D) liabilities.

Question 22

If economists forecast an increase in aggregate expenditure,which of the following is likely to occur?

A) GDP will rise.
B) GDP will fall.
C) Wages will fall.
D) Inventories will rise.

Question 23

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

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.

Question 24

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

Question 25

Into which category of aggregate expenditure would each of the following transactions fall?
a.Sandra MacMillian purchases a new Ford Focus.
b.The city of Richardson buys 5 new garbage trucks..
c.Adrian Garcia buys a newly constructed townhome.
d.A consumer in Latvia orders an iPhone from Apple.
e.Ford Motor Company buys 300 new iPhones from Apple.

Question 26

If firms sell what they expected to sell,which of the following will be true?

A) Aggregate expenditure will be greater than GDP.
B) There is no unplanned change in inventories.
C) Inventories will rise, and GDP and employment will fall.
D) Aggregate expenditure will be less than GDP.

Question 27

Consumption spending will ________ when disposable income ________.

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

Question 28

In a small economy in 2011,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?

A) Aggregate expenditure is always less than GDP in developed countries.
B) Firm investment in inventories was less than anticipated in 2011.
C) Firm investment in inventories was greater than anticipated in 2011.
D) Aggregate expenditure is always less than GDP in developing countries.

Question 29

Firms in a small economy anticipated that inventories would grow over the past year by $500,000. Over that year,inventories actually grew by only $400,000. This implies that

A) aggregate expenditure that year was greater than GDP that year.
B) there was an unplanned increase in inventories that year.
C) there was a planned increase in inventories that year.
D) aggregate expenditure that year was equal to GDP that year.

Question 30

If aggregate expenditure is greater than GDP,how will the economy reach macroeconomic equilibrium?

A) Inventories will decline, and GDP and employment will decline.
B) Inventories will rise, and GDP and employment will decline.
C) Inventories will decline, and GDP and employment will rise.
D) Inventories will rise, and GDP and employment will rise.

Question 31

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

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

Question 32

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

Question 33

If firms find that consumers are purchasing less than expected,which of the following would you expect?

A) Aggregate expenditure will likely be greater than GDP.
B) Aggregate expenditure will likely be less than GDP.
C) The economy will adjust to macroeconomic equilibrium as inventories rise, and production and employment rise.
D) The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment rise.

Question 34

If aggregate expenditure is less than GDP,then inventories rise and GDP falls.

Question 35

Which is the smallest component of aggregate expenditure?

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

Question 36

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

Question 37

Table 23-1

Refer to Table 23-1. Using the table above,compute aggregate expenditure and identify the macroeconomic equilibrium.

Question 38

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?

Question 39

The five most important variables that determine the level of ________ are disposable income,wealth,expected future income,price level,and interest rate.

A) consumption
B) government purchases
C) planned investment
D) net exports

Question 40

An increase in Social Security payments will

A) increase consumption spending.
B) increase investment spending.
C) increase government spending.
D) increase export spending.

Question 41

The consumption function describes the relationship between

A) consumption spending and national income.
B) consumption spending and aggregate income.
C) consumption spending and disposable income.
D) consumption spending and personal income.

Question 42

The marginal propensity to consume is defined as

A) consumption divided by disposable income.
B) disposable income divided by consumption.
C) the change in consumption divided by the change in disposable income.
D) the change in disposable income divided by the change in consumption.

Question 43

The change in consumption divided by the change in disposable income is equal to

A) the slope of the consumption function.
B) aggregate expenditure.
C) household saving.
D) real GDP.

Question 44

Which of the following will reduce consumer expenditures?

A) a decrease in interest rates
B) a general increase in housing prices
C) a decrease in expected future income
D) a decrease in the price level

Question 45

An example of assets that are included in ________ would be stocks,bonds,and savings accounts.

A) household wealth
B) household income
C) planned investment
D) consumer purchases

Question 46

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

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 47

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

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

Question 48

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?

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

Question 49

Increases in the price level will

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

Question 50

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

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

Question 51

________ is defined as national income + transfers - taxes.

A) Gross private domestic investment
B) GDP
C) Personal income
D) Disposable income

Question 52

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

A) disposable income; MPC
B) personal income; MPC
C) disposable income; MPS
D) personal income; MPS

Question 53

Table 23-2

Refer to Table 23-2.Given the consumption schedule in the table above,the marginal propensity to save is

A) 0.3.
B) 0.4.
C) 0.5.
D) 0.6.

Question 54

If the marginal propensity to save is 0.1,then a $10 million decrease in disposable income will

A) increase consumption by $9 million.
B) increase consumption by $1 million.
C) decrease consumption by $9 million.
D) decrease consumption by $1 million.

Question 55

Table 23-2

Refer to Table 23-2. Given the consumption schedule in the table above,the marginal propensity to consume is

A) 0.5.
B) 0.6.
C) 0.75.
D) 0.8.

Question 56

Economists Atif Mian and Amir Sufi believe that the sharp decline in consumption spending in 2008 occurred because falling housing prices resulted in ________ and lower consumer borrowing to finance spending.

A) lower housing wealth
B) higher interest rates
C) lower planned investment
D) unplanned decreases in inventories

Question 57

A decrease in the real interest rate will

A) cause consumers to spend less and save more.
B) most likely increase consumer's purchases of durable goods.
C) most likely increase the reward to savings.
D) most likely increase the cost of borrowing.

Question 58

If disposable income falls by $40 billion and consumption falls by $30 billion,then the slope of the consumption function is

A) 1.33.
B) 0.75.
C) 0.4.
D) 0.3.

Question 59

The decline in consumer spending during the 2007-2009 recession was due in part to a decrease in disposable income. The decline in consumption resulting from the decline in disposable income caused a ________ the aggregate expenditure curve.

A) movement up along
B) movement down along
C) downward shift of
D) upward shift of

Question 60

If disposable income increases by $500 million,and consumption increases by $400 million,then the marginal propensity to consume is

A) 1.25.
B) 0.8.
C) 0.6.
D) 0.4.

Question 61

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

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

Question 62

Investment spending will decrease when

A) the interest rate falls.
B) the corporate income tax decreases.
C) business cash flow decreases.
D) firms become more optimistic about earning future profits.

Question 63

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.

Question 64

Net exports usually ________ when the U.S.economy is in a recession and ________ when the U.S.economy is expanding.

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

Question 65

From 1983-2011,________ for the United States were negative.

A) planned inventories
B) net exports
C) unplanned inventories
D) transfer payments

Question 66

The difference between GDP and disposable income is

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

Question 67

Investment spending increases during ________,and decreases during ________.

A) an expansion; a recession
B) a recession; an expansion
C) a recession; a depression
D) a deflation; an inflation

Question 68

Which of the following is true?

A) National income = Consumption + Savings - Taxes
B) National income = Consumption - Savings - Taxes
C) National income = Consumption + Savings + Taxes
D) National income = Consumption - Savings + Taxes

Question 69

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

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

Question 70

During a(n)________ many firms experience reduced profits,which reduces ________ and investment spending.

A) expansion; business confidence
B) recession; cash flow
C) expansion; cash flow
D) recession; government spending

Question 71

An increase in the price level in the United States will reduce imports and increase exports.

Question 72

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

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

Question 73

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

A) zero.
B) 0.5.
C) 1.
D) 100.

Question 74

When Jack's income increases by $1,000,he spends an additional $850 dollars. This implies that his marginal propensity to save is 0.85.

Question 75

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

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

Question 76

If inflation in the United States is lower than inflation in other countries,what will be the effect on net exports for the United States?

A) Net exports will rise as U.S. exports increase.
B) Net exports will rise as U.S. imports increase.
C) Net exports will decrease as U.S. exports decrease.
D) Net exports will decrease as U.S. imports decrease.

Question 77

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

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 78

U.S.net export spending falls when

A) the price level in the United States falls relative to the price level in other countries.
B) the growth rate of U.S. GDP is faster than the growth rate of GDP in other countries.
C) the value of the U.S. dollar decreases relative to other currencies.
D) the inflation rate is lower in the United States relative to other countries.

Question 79

Lower interest rates increase both consumption and investment spending.

Question 80

The marginal propensity to consume measures the average amount of wealth that a consumer spends in a given period of time.