Deck 11: Aggregateexpenditures

Question 1

The table shown displays the spending habits of three coworkers. Who has the highest MPC?

A) Mary
B) Chris
C) Steve
D) There is not enough information to answer this question.

Answer 1

Mary

Question 2

What is the equation for aggregate expenditure?

A) C + I + GDP
B) C + Inventory + G + NX
C) C + I + G + NX
D) C + I + G + Exports

Answer 2

C + I + G + NX

Question 3

Wealth can be held as:

A) checking accounts.
B) credit card accounts.
C) private jets.
D) student loans.

Answer 3

checking accounts.

Question 4

A(n) _______ relationship exists between expected future income and consumption.

A) negative
B) positive
C) indirect
D) constant

Question 5

Suppose Chen receives a promotion that earns him an additional $20,000 per year. If the MPC is 0.9, how much of the additional $20,000 that Chen earns will be spent?

A) $20,000
B) $2,500
C) $17,500
D) $18,000

Question 6

The table shown displays the spending habits of three coworkers Who has the lowest MPC?

A) Mary
B) Chris
C) Steve
D) There is not enough information to answer this question.

Question 7

The acronym MPC stands for:

A) marginal production cost.
B) marginal propensity to consume.
C) marginally perfect consumption.
D) macro possibility curve.

Question 8

20_. Suppose that John earns a disposable annual income of $50,000 and allocates $10,000 of this for necessities. Any additional income beyond that is both spent and saved. If John's MPC is 0.8, how much will he spend on non-necessities?

A) $10,000
B) $40,000
C) $32,000
D) $35,000

Question 9

Suppose a housing bubble inflates house prices to new records. What will happen to overall consumption in this economy?

A) It will decrease.
B) It will stay the same.
C) It will increase.
D) The impact on consumption is unclear.

Question 10

Which of the following could cause a decrease in consumption?

A) Income increases.
B) Interest rates increase.
C) Wealth increases.
D) Expected future income increases.

Question 11

If a person's MPC is 0.75 it means they will:

A) spend 75 cents of each new dollar they receive.
B) invest 75 cents of every new dollar they receive.
C) spend 25 cents and save 75 cents of each additional dollar they earn.
D) spend 25 percent of any additional money earned.

Question 12

Edgar, Angela, and Juan are coworkers who receive the same amount of money as a holiday bonus. Angela places most of her money in her 401k account and spends a small amount on stocking stuffers for her family. Edgar spends most of his money on a new smartwatch. Juan takes his wife out for a nice dinner and saves the remaining money. Who has the lowest marginal propensity to consume?

A) Angela
B) Juan
C) Edgar
D) There is not enough information to answer this question.

Question 13

Wealth can be thought of as:

A) the total of all assets less any debts.
B) the total of all assets held at any one point in time.
C) the income earned in a year.
D) the total of all current and expected assets.

Question 14

In general, households with lower wealth tend to have a(n) _______ MPC relative to wealthier households.

A) lower
B) higher
C) similar
D) identical

Question 15

Which of the following components has a negative or indirect relationship with consumption?

A) Expected future income
B) Real income
C) Wealth
D) Interest rates

Question 16

The marginal propensity to consume (MPC) is calculated as:

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

Question 17

Suppose Erin receives an inheritance worth $50,000. If her MPC is 0.75, how much of the additional $50,000 that Erin earns will be spent?

A) $50,000
B) $12,500
C) $37,500
D) $40,000

Question 18

Which of the following could cause an increase in consumption?

A) Income decreases.
B) Interest rates increase.
C) Wealth increases.
D) Expected future income decreases.

Question 19

Which of the following is not a primary determinant of consumption spending?

A) Interest rates on savings
B) Real income
C) Wealth
D) Rate of return on capital

Question 20

The four components of aggregate expenditure (AE) are:

A) consumption, investment, exports, and imports.
B) consumption, investment, government, and capital.
C) consumption, investment, government, and net exports.
D) consumption, internet, government, and capital.

Question 21

If the marginal propensity to consume is 0.9, it would mean that:

A) consumers spend $9 out of every $10 of additional disposable income.
B) consumers save $9 out of every $10 of additional disposable income.
C) consumers spend $1 out of every $10 of additional disposable income.
D) consumers spend $9.90 out of every $10 of additional disposable income.

Question 22

If a firm's business taxes decrease, we would expect investment spending to:

A) increase.
B) decrease.
C) remain constant.
D) There is not enough information to determine what would happen.

Question 23

Which of the following is not a determinant of investment spending?

A) Real income
B) Interest rates
C) Taxes
D) Expected profitability

Question 24

The marginal propensity to consume:

A) is the amount by which consumption increases when after-tax income increases by $1.
B) is closely linked to the multiplier effect of government spending.
C) is a value between 0 and 1.
D) All of these are true.

Question 25

Which of the following is a determinant of investment spending?

A) Real income
B) Expected future income
C) Taxes
D) Wealth

Question 26

If the marginal propensity to consume is 0.25, it would mean that:

A) $0.25 of an additional $1 of individuals' after-tax income is spent on consumption.
B) $0.25 of an additional $1 of individuals' after-tax income is saved.
C) $0.75 of an additional $1 of individuals' after-tax income is spent on consumption.
D) None of these are true.

Question 27

Which of the following would cause investment spending to decrease?

A) Real income increases.
B) Real interest rates increase.
C) A firm's revenues increase while their costs remain constant.
D) Expected future income increases.

Question 28

Economist John Maynard Keynes noted that one of the main contributors to the Great Depression in the 1930s was:

A) weak spending.
B) poor infrastructure for manufacturing.
C) a sharp decline in U.S. exports.
D) high interest rates.

Question 29

In economics, investment refers to:

A) stocks.
B) bonds.
C) physical capital.
D) mutual funds.

Question 30

During the Great Depression, unemployment was so bad that nearly _______ of the labor force was unemployed.

A) half
B) three quarters
C) a quarter
D) one-third

Question 31

Suppose that John earns a disposable annual income of $50,000 and allocates $10,000 of this for necessities. Any additional income beyond that is both spent and saved. If John's MPC is 0.8, how much money will he save?

A) $10,000
B) $40,000
C) $12,000
D) $8,000

Question 32

If the expected profitability of a business activity increases, we would expect investment spending to:

A) increase.
B) decrease.
C) remain constant.
D) There is not enough information to determine what would happen.

Question 33

A _______ relationship exists between the real interest rate and investment spending.

A) negative
B) positive
C) limited
D) constant

Question 34

Which of the following scenarios would cause investment to increase?

A) The Federal Reserve announces an increase in the interest rate.
B) Housing prices increase.
C) A free trade agreement increases overall exports.
D) The U.S. government announces a plan to tax the ad revenue of large tech companies.

Question 35

A(n) _______ relationship exists between profitability and investment spending.

A) negative
B) positive
C) indirect
D) constant

Question 36

Which of the following is a determinant of investment spending?

A) Disposable income
B) Expected future income
C) Expected profitability
D) Real income

Question 37

Which of the following scenarios would cause investment to decrease?

A) High foreign demand for government debt lowers interest rates.
B) Vermont starts taxing tech firms to fund water quality improvement initiatives.
C) The government announces that economists expect strong consumer confidence during the upcoming year.
D) 5G technology requires increasing cell phone tower coverage.

Question 38

A _______ relationship exists between business taxes and investment spending.

A) negative
B) positive
C) secondary
D) constant

Question 39

In a recession, the federal government may choose to increase spending in order to:

A) decrease real interest rates.
B) decrease the overall price level.
C) achieve full-employment GDP.
D) increase exports.

Question 40

During the Great Depression, the banking industry was crippled so badly that _______ of the banks failed.

A) nearly half
B) a quarter
C) almost all
D) a majority

Question 41

Consumer preference for foreign goods and services generally has a _______ relationship with aggregate expenditure.

A) negative
B) positive
C) skewed
D) constant

Question 42

If foreign income decreases, net exports will likely:

A) increase.
B) decrease.
C) remain constant.
D) There is not enough information to determine what will happen.

Question 43

If the domestic income of a nation's citizens decreases, net exports will likely:

A) increase.
B) decrease.
C) remain constant.
D) There is not enough information to determine what will happen.

Question 44

A government would choose to increase spending:

A) if households are growing wealthier
B) when interest rates increase.
C) to stimulate the economy.
D) when it expects tax revenues to increase.

Question 45

Foreign income is earned:

A) by a nation's firms when they operate abroad.
B) when a domestic citizen works abroad.
C) on investments made abroad.
D) by those living outside a country.

Question 46

If trade policies change, aggregate expenditure will likely:

A) increase.
B) decrease.
C) remain constant.
D) The effect on aggregate expenditure depends on the policy.

Question 47

If the domestic income of a nation's citizens increases, net exports will likely:

A) increase.
B) decrease.
C) remain constant.
D) There is not enough information to determine what will happen.

Question 48

Net exports equal:

A) imports minus exports.
B) imports minus investment.
C) exports minus imports.
D) exports minus investment.

Question 49

Which of the following scenarios would decrease the net exports component of aggregate expenditure?

A) The euro increases in value relative to other currencies.
B) A "Buy American" campaign reduces the amount of goods imported.
C) The United States experiences a recession.
D) A decrease in tariffs makes it less expensive to import goods into the United States.

Question 50

The real exchange rate is the:

A) value of goods in one nation relative to the value of a similar set of goods in another country.
B) rate at which people exchange goods and services in a domestic market.
C) rate at which firms in different nations would be willing to exchange goods.
D) value of goods in one nation relative to the value of the same set of goods in another country.

Question 51

Which component of aggregate expenditure is neutral to macroeconomic changes?

A) Consumption
B) Investment
C) Government
D) Net exports

Question 52

Which of the following is not a direct determinant of net export spending?

A) Domestic income
B) Foreign income
C) Interest rates
D) Exchange rates

Question 53

Which of the following scenarios would increase the net exports component of aggregate expenditure?

A) The dollar increases in value relative to other currencies.
B) Countries in the European Union experience a long period of economic growth.
C) A series of recalls for domestic automobiles shifts preferences towards foreign cars and trucks.
D) The United States experiences a long period of economic growth.

Question 54

Economist John Maynard Keynes noted that:

A) firms may not produce all they can at a given price, but rather what they can sell.
B) firms generally produce as much as they can at a given price.
C) government spending needs to be kept in check in order for the economy to operate efficiently.
D) household spending patterns don't really influence the health of the economy.

Question 55

Planned investment is the:

A) spending households engage in based on their forecasted budget.
B) amount that firms budget to spend on their workforces.
C) investment that a firm decides upon as a result of temporary market changes.
D) amount that firms budget for new capital resources and inventory accumulation.

Question 56

If consumers increase their preference for foreign goods and services, imports will likely:

A) increase.
B) decrease.
C) remain constant.
D) increase at first and then decrease.

Question 57

The real exchange rate generally has a _______ relationship with aggregate expenditure.

A) negative
B) positive
C) nonexistent
D) constant

Question 58

If consumers increase their preference for foreign goods and services, aggregate expenditure will likely:

A) increase.
B) decrease.
C) remain constant.
D) increase at first and then decrease.

Question 59

Which of the following is not an example of a transfer payment?

A) Social Security payments
B) Sales tax
C) Unemployment benefits
D) Workman's compensation

Question 60

A _______ relationship exists between domestic income and net export spending.

A) negative
B) positive
C) secondary
D) constant

Question 61

In the long run, unplanned inventory expenditure will:

A) equal zero, as planned inventories should equal actual inventories.
B) increase, as firms struggle to figure out what consumers want.
C) decrease, as firms are able to better match production with consumer preferences.
D) become positive, as firms tend to be optimistic about sales.

Question 62

Suppose that Christina has a disposable annual income of $50,000 and an MPC of 0.8. She allocates $10,000 of her income for necessities, and the remaining money is both spent and saved. Based on this information, what is Christina's autonomous consumption?

A) $10,000
B) $40,000
C) $32,000
D) $50,000

Question 63

An increase in interest rates would:

A) decrease autonomous spending.
B) increase spending dependent on income.
C) increase autonomous spending.
D) decrease spending dependent on income.

Question 64

In the equation PAE = A + bY, autonomous sources of spending are captured by:

A) b.
B) Y.
C) A.
D) PAE.

Question 65

Which of the following describes the relationship between production and inventories?

A) If planned inventories are greater than actual inventories, firms should increase production.
B) If planned inventories are less than actual inventories, firms should decrease production.
C) If planned inventories are less than actual inventories, firms should increase production.
D) If planned inventories are greater than actual inventories, firms should decrease production.

Question 66

A decrease in government spending would:

A) decrease autonomous spending.
B) increase spending dependent on income.
C) increase autonomous spending.
D) decrease spending dependent on income.

Question 67

Actual investment is the:

A) spending households engage in based on what they earn.
B) amount that firms spend on their workforces.
C) investment a firm makes into stocks and bonds to generate profit.
D) amount firms allocate to new capital resources and inventory accumulation.

Question 68

If PAE is greater than Y:

A) production will eventually decrease.
B) production will eventually increase.
C) there will be no change in aggregate production.
D) the government will intervene by decreasing taxes.

Question 69

When PAE is less than Y, inventories should:

A) increase.
B) decrease.
C) remain the same.
D) decrease slightly before sharply increasing.

Question 70

Which of the following would increase autonomous spending?

A) An increase in interest rates.
B) An increase in house prices.
C) A decrease in exports.
D) An increase in business taxes.

Question 71

Autonomous expenditure:

A) has a positive relationship with income.
B) is mostly controlled by the government.
C) is independent of the current level of income in the economy.
D) stays constant over time.

Question 72

If PAE is greater than Y, we expect:

A) inventories to increase.
B) inventories to decrease.
C) there will be no change in inventories.
D) the government will spend more than it has collected in taxes.

Question 73

The macroeconomic variable used to assess the equivalence of PAE and actual output (Y) is:

A) unemployment.
B) interest rates.
C) inventories.
D) capital expenditure.

Question 74

Which of the following terms is not a common alternative economists use to refer to GDP?

A) Net national income
B) Total output
C) National income
D) Aggregate expenditure

Question 75

If planned inventories are _______ actual inventories, then demand will be _______ than anticipated.

A) greater than; higher
B) less than; lower
C) equal to; higher
D) greater than; lower

Question 76

Autonomous expenditure is spending that:

A) is based on the rate of borrowing.
B) is determined by the government.
C) is not sensitive to the level of income in the economy.
D) occurs when income changes in the economy.

Question 77

In the equation PAE = A + bY, the independent part of the equation that depends on income is:

A) b.
B) Y.
C) A.
D) PAE.

Question 78

When PAE is less than Y, firms will:

A) decrease production.
B) increase production.
C) make no change in production.
D) increase labor.

Question 79

Which of the following does not influence autonomous spending?

A) Financial and housing wealth
B) Interest rates
C) Income
D) Export demand

Question 80

In the equation PAE = A + bY, the MPC is captured by:

A) b.
B) Y.
C) A.
D) PAE.