Deck 23: Aggregate Expenditure and Output in the Short Run

Question 1

Inventories refer to

A) goods which have been presold before they are produced.
B) goods that have been produced but not yet sold.
C) goods that have been planned but not yet produced.
D) goods that have been produced and sold in the same year.

Answer 1

B

Question 2

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

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.

Answer 2

A

Question 3

If inventories decline by more than analysts predict they will decline, this implies that

A) actual investment spending was greater than planned investment spending.
B) actual investment spending was less than planned investment spending.
C) actual investment spending was equal to than planned investment spending.
D) there is no relationship between actual investment spending and planned investment spending.

Answer 3

B

Question 4

Each of the following is one of the four main categories of spending identified by John Maynard Keynes except

A) consumption.
B) net exports.
C) government purchases.
D) taxes.

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?

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

Question 6

The aggregate expenditure model focuses on the ________ relationship between real spending and ________.

A) short-run; real GDP
B) short-run; inflation
C) long-run; real GDP
D) long-run; inflation

Question 7

Actual investment spending does not include

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

Question 8

At macroeconomic equilibrium,

A) total investment equals total inventories.
B) total spending equals total production.
C) total consumption equals total production.
D) total taxes equal total transfers.

Question 9

The recession of 2007-2009 resulted in falling revenues and large layoffs for a vast number of companies. By 2017, unemployment ________ and spending ________ in the economy.

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

Question 10

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.

A) total production; total income; real GDP
B) total spending; real GDP; total income
C) total spending; real GDP; the price level
D) total income; real GDP; the price level

Question 11

The formula for aggregate expenditure is

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

Question 12

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 $27 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 13

The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by

A) investment spending.
B) export spending.
C) government spending.
D) the level of aggregate expenditure.

Question 14

When aggregate expenditure = GDP,

A) macroeconomic equilibrium occurs.
B) the federal budget is balanced.
C) net exports equal zero.
D) saving equals zero.

Question 15

An unplanned increase in inventories results from

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

Question 16

Consumption spending is $16 million, planned investment spending is $4 million, unplanned investment spending is $2 million, government purchases are $6 million, and net export spending is $1 million. What is aggregate expenditure?

A) $22 million
B) $26 million
C) $27 million
D) $29 million

Question 17

Consumption spending is $22 million, planned investment spending is $7 million, actual investment spending is $7 million, government purchases are $9 million, and net export spending is $3 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 18

All of the following are components of aggregate expenditure except

A) consumption spending.
B) net export spending.
C) actual investment spending.
D) government spending.

Question 19

Economists first began studying the relationship between changes in aggregate expenditures and changes in GDP

A) in the 1950s.
B) during the Great Depression.
C) at the end of the Civil War.
D) during the Industrial Revolution.

Question 20

Household spending on goods and services is known as

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

Question 21

If firms sell exactly what they expected to sell, all of the following will be true except

A) aggregate expenditure will be greater than GDP.
B) there is no unplanned change in inventories.
C) inventories will not change, and GDP and employment will remain stable.
D) aggregate expenditure will be equal to GDP.

Question 22

Firms in a small economy planned that inventories would grow over the past year by $500,000. Over that year, inventories did grow by exactly $500,000. This implies that

A) aggregate expenditure that year was equal to GDP 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 that year was greater than GDP that year.

Question 23

Actual investment spending includes spending by consumers on

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

Question 24

Actual investment will equal planned investment only when

A) there is an unplanned increase in inventories.
B) there is an unplanned decrease in inventories.
C) there is no unplanned change in inventories.
D) companies have no inventories.

Question 25

If firms find that consumers are purchasing more 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 fall.
D) The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment fall.

Question 26

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 27

Consumption spending refers to ________ spending on goods and services.

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

Question 28

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

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

Question 29

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

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

Question 30

If aggregate expenditure is less 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

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

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

Question 32

The components of aggregate expenditure are

A) consumption, actual investment, and net exports.
B) actual investment, planned investment, and depreciation.
C) consumption, planned investment, government purchases, and net exports.
D) government purchases, imports, exports, and planned investment.

Question 33

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

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 34

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 35

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 36

In a small economy in 2018, aggregate expenditure was $800 million while GDP that year was $850 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 2018.
C) Firm investment in inventories was greater than anticipated in 2018.
D) Aggregate expenditure is always less than GDP in developing countries.

Question 37

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 38

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 39

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 40

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 41

If aggregate expenditure is more than GDP, then inventories fall and GDP rises.

Question 42

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 43

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 44

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 45

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 46

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 47

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 48

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 49

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

Question 50

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

Question 51

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 52

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 53

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

Question 54

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 55

At macroeconomic equilibrium, total ________ equals total ________.

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

Question 56

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 57

If planned investment is greater than actual investment, then aggregate expenditure is less than GDP.

Question 58

In a small economy in 2018, 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 2018.
C) Firm investment in inventories was greater than anticipated in 2018.
D) Aggregate expenditure is always less than GDP in developing countries.

Question 59

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 60

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 61

An increase in the real interest rate will

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

Question 62

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 63

Table 23-1

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

Question 64

________ is defined as the value of a household's assets minus the value of its liabilities.

A) Household income
B) Household wealth
C) Personal household consumption
D) Planned household investment

Question 65

A stock market boom which causes stock prices to rise should cause

A) a decrease in consumption spending.
B) an increase in consumption spending.
C) a decrease in wealth.
D) a decrease in net export spending.

Question 66

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

A) disposable income, wealth, expected future income, price level, and interest rate.
B) wealth, savings account balances, checking 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.

Question 67

A decrease in Social Security payments will

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

Question 68

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

Question 69

Which is the largest component of aggregate expenditure?

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

Question 70

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

A) An increase; an increase
B) A decrease; an increase
C) An increase; a decrease
D) A decrease; a decrease

Question 71

The Apple iPhone is sold in a box labeled "Made in China," but a study by economists at the Asian Development Bank found that the actual percentage of the price of the iPhone accounted for by the only work done in China, which is assembly, is

A) less than 4 percent.
B) 12 percent.
C) 25 percent.
D) more than 65 percent.

Question 72

Decreases in the price level will

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 73

Which of the following will cause a direct increase in consumption spending?

A) an increase in planned investment
B) an increase in government spending
C) an increase in disposable income
D) a decrease in net export spending

Question 74

The Apple iPhone is sold in a box labeled "Made in China." A study by economists at the Asian Development Bank found the value of the iPhone components China ________ U.S. firms is ________ the value of assembling the iPhones in Chinese factories.

A) exports to; equal to
B) exports to; greater than
C) imports from; less than
D) imports from; greater than

Question 75

Table 23-2

Refer to Table 23-2. Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

Question 76

Why do economists care about aggregate expenditures?

Question 77

Examples of assets that are included in household wealth would be

A) stocks, bonds, and savings accounts.
B) stocks, loans owed, and savings accounts.
C) stocks, bonds, and mortgages.
D) stocks, credit cards, and savings accounts.

Question 78

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

Question 79

Explain, in detail, how the adjustment to macroeconomic equilibrium occurs when spending is less than production. Be sure to discuss how inventories play a crucial role in the adjustment process. State what happens to GDP and employment during the adjustment process.

Question 80

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.