Deck 12: Aggregate Expenditure Multiplier

Question 1

Aggregate expenditure is equal to

A) C + I + G - NX.
B) C - I - G - NX.
C) C + I + G.
D) Y + C + I + G + NX.
E) C + I + G + NX.

Answer 1

C + I + G + NX.

Question 2

As a household's disposable income increases, its autonomous expenditures ________ and its induced expenditures ________.

A) decrease; do not change
B) do not change; increase by a smaller amount than the increase in income
C) do not change; increase by an amount equal to the increase in income
D) increase; do not change
E) increase; increase by a smaller amount than the increase in income

Answer 2

do not change; increase by a smaller amount than the increase in income

Question 3

If your planned consumption expenditure is $600 per month and your disposable income is $500 per month, your

A) dissaving is $100 per month.
B) saving is $100 per month.
C) autonomous consumption is -$100 per month.
D) autonomous consumption must be zero per month.
E) induced consumption is $600.

Answer 3

dissaving is $100 per month.

Question 4

In the figure above, when disposable income equals $20 trillion,

A) consumption expenditure is less than disposable income, so consumers are dissaving.
B) consumption expenditure is greater than disposable income, so consumers are dissaving.
C) consumption expenditure is greater than disposable income, so consumers are saving.
D) consumption expenditure is less than disposable income, so consumers are saving.
E) consumption expenditure is less than disposable income but it is not possible to determine whether consumers are saving or dissaving.

Question 5

If disposable income decreases during a recession, there is

A) an upward shift in the consumption function.
B) a downward shift in the consumption function.
C) no change in consumption expenditures.
D) movement upward along the consumption function.
E) movement downward along the consumption function.

Question 6

The above table has data from the nation of Atlantica. Based on these data, when disposable income equals 8.0 there is

A) savings of $0.5 trillion.
B) dissavings of $15.5 trillion.
C) dissavings of $7.5 trillion.
D) dissavings of $0.5 trillion.
E) savings of $15.5 trillion.

Question 7

The slope of the consumption function is

A) equal to the MPC and is equal to 1.
B) equal to the MPC and is greater than 1.
C) equal to the MPC and is less than 1.
D) not equal to the MPC and is less than 1.
E) not equal to the MPC and is equal to 1.

Question 8

Jane supports herself at university by working in a bookstore earning $300 a month, which she spends entirely every month. If she gets a salary increase of $100 a month, she spends $90 more dollars on consumption expenditure. Jane's MPC is equal to

A) 0.10.
B) $90.
C) 1.00.
D) 0.50.
E) 0.90.

Question 9

The above table has data from the nation of Atlantica. Based on these data, the amount of autonomous consumption is

A) $7.5 trillion.
B) $1.0 trillion.
C) $0.5 trillion.
D) $6.0 trillion.
E) $1.5 trillion.

Question 10

In the figure above, what is the MPC?

A) 0.50
B) 1.00
C) 0.75
D) 0.90
E) 0.80

Question 11

The marginal propensity to consume equals

A) consumption expenditure divided by the change in disposable income.
B) the change in autonomous consumption divided by the change in induced consumption.
C) consumption expenditure divided by disposable income.
D) the change in consumption expenditure divided by the change in disposable income.
E) the change in consumption expenditure divided by disposable income.

Question 12

Consumption expenditure exceeds disposable income

A) only when the economy is in equilibrium.
B) when there is dissaving.
C) never.
D) when there is positive saving.
E) always.

Question 13

The above table has data from the nation of Atlantic. Based on these data, at what point does saving equal zero?

A) None, dissavings occurs at all of the above points.
B) None, savings occurs at all of the above points.
C) Between disposable income of $8.0 trillion and $7.5 trillion.
D) Between disposable income of $0.0 and $1.5 trillion.
E) At disposable income of $6.0 trillion.

Question 14

In the figure above, when disposable income equals $10 trillion,

A) consumption expenditure is less than disposable income, so consumers are saving.
B) consumption expenditure is greater than disposable income, so consumers are dissaving.
C) consumption expenditure is greater than disposable income but it is not possible to determine if consumers are saving or dissaving.
D) consumption expenditure is greater than disposable income, so consumers are saving.
E) consumption expenditure is less than disposable income, so consumers are dissaving.

Question 15

When disposable income increases, consumption expenditure

A) does not change.
B) also increases, and by an equal amount.
C) also increases, and by more.
D) decreases by the same amount.
E) also increases, but by less.

Question 16

During 2018, a country has consumption expenditures of $3.0 trillion, investment expenditures of $1.5 trillion, government expenditure of $1.5 trillion, exports of $1.0 trillion, and imports of $1.5 trillion. Aggregate expenditure for the country is

A) $7.0 trillion.
B) $5.5 trillion.
C) $8.5 trillion.
D) $6.0 trillion.
E) $6.5 trillion.

Question 17

The consumption function shows the relationship between

A) consumption expenditure and the price level.
B) consumption expenditure and planned income.
C) consumption expenditure and disposable income.
D) inventory levels and real GDP.
E) consumption expenditure and planned inventory investment.

Question 18

The above table has data from the nation of Atlantica. Based on these data, what is the marginal propensity to consume?

A) 1.00
B) 1.50
C) 0.50
D) 1.33
E) 0.75

Question 19

The above table has data from the nation of Atlantica. Based on these data, when disposable income equals $2.0 trillion there is

A) savings of $1.0 trillion.
B) dissavings of $1.0 trillion.
C) savings of $3.0 trillion.
D) dissavings of $3.0 trillion.
E) dissavings of $5.0 trillion.

Question 20

What is the key difference between the aggregate expenditure model and the aggregate demand/aggregate supply model?

A) The aggregate demand/aggregate supply model assumes that the price level is fixed.
B) The aggregate expenditure model assumes that real GDP is fixed.
C) The aggregate expenditure model examines monetary policy, whereas the aggregate demand/aggregate supply model does not.
D) The aggregate expenditure model assumes that the price level is fixed.
E) Monetary and real factors interact in the aggregate demand/aggregate supply model.

Question 21

What is the value of the MPC if $66 out of every $100 increase in disposable income is consumed?

A) 0.34
B) $166
C) $34
D) 0.66
E) More information is needed to determine the MPC.

Question 22

When the real interest rate rises, there is

A) an upward movement along the consumption function.
B) a downward movement along the consumption function.
C) neither a shift of the consumption function nor a movement along the consumption function.
D) an upward shift of the consumption function.
E) a downward shift of the consumption function.

Question 23

Which components of aggregate expenditure change as a result of real GDP changing?

A) Consumption expenditure and imports
B) Consumption expenditure, investment and exports
C) Consumption expenditure and investment
D) Consumption expenditure, investment, and government expenditure on goods and services
E) Consumption expenditure and government expenditure on goods and services

Question 24

Autonomous expenditure is expenditure that is

A) not influenced by the interest rate.
B) not influenced by the price level.
C) influenced by real GDP.
D) not influenced by real GDP.
E) influenced by the interest rate.

Question 25

The above table presents data from the nation of Pacifica. Aggregate planned expenditure equals $7.5 trillion when real GDP equals

A) $8.5 trillion.
B) $7.5 trillion.
C) $4.0 trillion.
D) $8.0 trillion.
E) $6.0 trillion.

Question 26

The AE curve illustrates the relationship between

A) the quantity of real GDP demanded and the price level.
B) the interest rate and aggregate planned expenditure.
C) real GDP and the interest rate.
D) aggregate planned expenditure and real GDP.
E) real GDP and actual expenditure.

Question 27

Which of the following is NOT included in aggregate expenditure?

A) Government expenditure
B) Net exports
C) Consumption expenditure
D) Taxes
E) Investment

Question 28

When disposable income is $8 trillion, consumption expenditure is $5 trillion; when disposable income is $5 trillion, consumption expenditure is $3 trillion. The MPC is

A) (5 + 3) ÷ (8 + 5) = 0.615.
B) (5 - 3) ÷ (8 - 5) = 0.667.
C) (5 + 3) ÷ (8 - 5) = 2.667.
D) (5/8 + 3/5) = 1.225.
E) (8 - 5) ÷ (5 - 3) = 1.333.

Question 29

Induced expenditures are defined as that part of

A) autonomous expenditure that responds to changes in real GDP.
B) aggregate expenditure that responds to changes in real GDP.
C) autonomous expenditure that does not respond to changes in real GDP.
D) real GDP that does not respond to changes in aggregate expenditure.
E) aggregate expenditure that does not respond to changes in real GDP.

Question 30

A rise in the real interest rate ________ consumption expenditure and ________.

A) decreases; shifts the consumption function upward
B) decreases; results in a movement downward along the consumption function
C) increases; shifts the consumption function upward
D) increases; shifts the consumption function downward
E) decreases; shifts the consumption function downward

Question 31

When disposable income increases from $400 billion to $500 billion, consumption expenditure increases from $320 billion to $400 trillion. The MPC is

A) $6.8 trillion.
B) 0.60.
C) 1.00.
D) 0.68.
E) 0.80.

Question 32

The above table presents data from the nation of Pacifica. When real GDP equals $2.0 trillion, aggregate planned expenditure equals

A) $5.00 trillion.
B) $3.75 trillion.
C) $4.00 trillion.
D) $5.50 trillion.
E) $6.00 trillion.

Question 33

For each one dollar increase in real GDP, aggregate planned expenditure

A) increases by more than a dollar.
B) increases by less than a dollar.
C) is unaffected.
D) increases only if autonomous expenditure increases.
E) increases by one dollar.

Question 34

Other things remaining the same, ________ in Australian real GDP results in ________ in Australian imports.

A) an increase; a decrease
B) a decrease; an increase
C) an increase; an increase
D) an increase; a decrease followed by no change
E) a decrease; no change

Question 35

In Germany, expected future income increased during 2014. This increase led to

A) a downward shift of the consumption function.
B) no movement along the consumption function and no shift of the consumption function.
C) a movement upward along the consumption function.
D) a movement downward along the consumption function.
E) an upward shift of the consumption function.

Question 36

Autonomous expenditure includes

A) investment, government expenditure on goods and services, and exports.
B) consumption expenditure, investment and net taxes.
C) consumption expenditures, investment and exports.
D) investment, government expenditure for goods and services, and imports.
E) consumption expenditure, investment and imports.

Question 37

The above table has data from the nation of Media. Based on these data, the marginal propensity to consume is

A) 0.67.
B) 1.33.
C) 0.25.
D) 0.75.
E) 1.50.

Question 38

When the economy enters an expansion of a business cycle, households become more optimistic about expected future disposable income. The increase in optimism leads to

A) a shift upward of the consumption function.
B) a movement downward along the consumption function.
C) a movement upward along the consumption function.
D) an increase in consumption expenditures.
E) no change in the level of consumption expenditures.

Question 39

The above table has data from the nation of Media. Based on these data, when disposable income is $8.0 trillion, saving is

A) $1.5 trillion.
B) $0.5 trillion.
C) -$0.5 trillion.
D) $7.5 trillion.
E) -$1.5 trillion.

Question 40

If the marginal propensity to import is ________, then a $2 trillion increase in disposable income would increase import expenditure by $0.2 trillion. If the marginal propensity to import is ________, then a $2 trillion increase in disposable income would increase import expenditure by $0.6 trillion.

A) 1.0; 3.0
B) 0.6; 2.0
C) 0.2; 0.6
D) 0.1; 0.3
E) 0.3; 0.1

Question 41

When GDP = $2.5 trillion, C = $1.0 trillion, I = $0.6 trillion, G = $0.4 trillion, and NX = $0, then

A) equilibrium expenditure = $2.0 trillion.
B) aggregate planned expenditure = $1.6 trillion.
C) aggregate planned expenditure = $2.5 trillion.
D) unplanned inventory change = -$0.5 trillion.
E) unplanned inventory change = $0.5 trillion.

Question 42

The table above gives data for the nation of Mosh. If real GDP is $10 trillion, then

A) firms decrease production because inventories exceed their target levels.
B) firms increase production because inventories are less than their target levels.
C) firms decrease production because inventories are less than their target levels.
D) the economy has reached equilibrium and no change in production will occur.
E) We need more information to determine whether firms increase, decrease or do not change their production.

Question 43

The above table gives data for the nation of Mouseville. There are no imports into or exports from Mouseville. Unplanned inventory changes equal $50 billion when real GDP equals

A) $900 billion.
B) $300 billion.
C) $700 billion.
D) $500 billion.
E) $800 billion.

Question 44

The equilibrium level of aggregate planned expenditure is found where

A) there is no saving and no dissaving.
B) the price level is rising at a constant rate.
C) autonomous expenditure equals equilibrium expenditure.
D) aggregate planned expenditure equals real GDP.
E) net exports is zero.

Question 45

The table above gives data for the nation of Mosh. In Mosh, equilibrium expenditure equals

A) $4 trillion.
B) $9 trillion.
C) $6 trillion.
D) $10 trillion.
E) $7 trillion.

Question 46

The above table gives data for the nation of Mouseville. There are no imports into or exports from Mouseville. Unplanned inventory changes are zero when real GDP equals

A) $500 billion.
B) $900 billion.
C) $300 billion.
D) $700 billion.
E) $800 billion.

Question 47

If aggregate planned expenditure equals GDP, then

A) the change in firms' inventories must be negative.
B) the change in firms' inventories must be positive.
C) actual aggregate expenditure might be greater than, equal to or less than real GDP.
D) there must be no change in firms' inventories.
E) the change in firms' inventories must be equal to the planned change.

Question 48

In the aggregate expenditure (AE) model, when real GDP exceeds aggregate planned expenditure, actual inventories ________ planned inventories and real GDP ________.

A) exceed; increases
B) exceed; does not change
C) exceed; decreases
D) are less than; increases
E) are less than; decreases

Question 49

When aggregate planned expenditure exceeds real GDP, there are unplanned ________ in inventories, and firms ________ production, so that real GDP ________.

A) decreases; increase; increases
B) decreases; decrease; increases
C) decreases; decrease; decreases
D) increases; increase; increases
E) increases; decrease; decreases

Question 50

The table above gives data for the nation of Mosh. If real GDP is $6 trillion, then

A) firms decrease production because inventories exceed their target levels.
B) firms increase production because inventories exceed their target levels.
C) firms increase production because inventories are less than their target levels.
D) the economy has reached equilibrium and no change in production will occur.
E) We need more information to determine whether firms increase, decrease or do not change their production.

Question 51

If the level of real GDP is $14 trillion while aggregate planned expenditure is $15 trillion, then

A) real GDP increases and planned expenditure decreases reaching equilibrium in the middle.
B) inventories fall more than planned, leading firms to increase production.
C) inventories rise more than planned, leading firms to increase production.
D) inventories rise more than planned, leading firms to cut production.
E) aggregate planned expenditure decreases to reach the equilibrium of $14 trillion.

Question 52

The table above gives data for the nation of Mosh. If we graphed these data, we would see that when GDP equals

A) $4 trillion, the AE curve intersects the 45° line.
B) $6 trillion, the AE curve is below the 45° line.
C) $9 trillion, the AE curve intersects the 45° line.
D) $10 trillion, the 45° line is above the AE curve.
E) $10 trillion, the AE curve intersects the 45° line.

Question 53

The above table gives data for the nation of Mouseville. There are no imports into or exports from Mouseville. The equilibrium level of real GDP is

A) $700 billion.
B) $900 billion.
C) $800 billion.
D) $500 billion.
E) $100 billion.

Question 54

When the change in unplanned inventories is positive, then

A) real GDP is larger than aggregate planned expenditure.
B) real GDP equals aggregate planned expenditure.
C) planned inventories will increase in order to return to equilibrium.
D) real GDP is less than aggregate planned expenditure.
E) economic growth will occur as the economy returns to equilibrium.

Question 55

The above table gives data for the nation of Mouseville. There are no imports into or exports from Mouseville. Aggregate planned expenditure is less than actual expenditure if real GDP is

A) less than $800 billion.
B) more than $800 billion.
C) less than $700 billion.
D) $800 billion.
E) more than $700 billion.

Question 56

When aggregate planned expenditure is less than GDP,

A) the economy definitely is at its equilibrium expenditure and firms do not change production.
B) the economy definitely is at its equilibrium expenditure but, even so, firms decrease production.
C) the economy might be at its equilibrium expenditure and, if it is, firms do not change their production.
D) firms increase production until the economy reaches equilibrium expenditure.
E) firms decrease production until the economy reaches equilibrium expenditure.

Question 57

The above table gives data for the nation of Mouseville. There are no imports into or exports from Mouseville. If real GDP is equal to $400 billion then,

A) aggregate expenditure is $450 billion.
B) unplanned inventory is -$200 billion.
C) aggregate expenditure is equal to consumption expenditure.
D) unplanned inventory is $200 billion.
E) unplanned inventory is -$300 billion.

Question 58

When aggregate planned expenditure exceeds real GDP,

A) real GDP decreases.
B) an unplanned increase in inventories occurs.
C) firms decrease production.
D) an unplanned decrease in inventories occurs.
E) real GDP remains at its equilibrium level.

Question 59

In the aggregate expenditure (AE) model, the economy is driven to its equilibrium by changes in

A) government expenditures on goods and services that are the result of changes in real GDP.
B) investment that are the result of changes in real GDP.
C) autonomous expenditures that are the result of changes in real GDP.
D) induced expenditures that are the result of changes in real GDP.
E) net taxes that are the result of changes in real GDP.

Question 60

A country reports that unplanned inventories increased during 2014. The increase in unplanned inventories leads to

A) consumers increasing their consumption expenditure, which increases GDP.
B) firms decreasing production, which decreases GDP.
C) firms increasing production, which increases GDP.
D) actual aggregate expenditure being different than real GDP.
E) the government decreasing production, which decreases GDP.

Question 61

Increases in autonomous expenditure induce ________ in aggregate expenditure thereby making the multiplier ________.

A) a decrease; less than one
B) further increases; less than one
C) further increases; greater than one
D) further increases; unnecessary
E) a decrease; greater than one

Question 62

In the above figure, equilibrium expenditure is equal to

A) $5 trillion.
B) $15 trillion.
C) $20 trillion.
D) $10 trillion.
E) None of the above answers is correct

Question 63

When the multiplier is ________, an autonomous decrease in investment of $200 billion decreases equilibrium real GDP by $400 billion. When the multiplier is ________, an autonomous decrease in investment of $200 billion decreases equilibrium real GDP by $800 billion.

A) 2.0; 4.0
B) 0.4; 0.2
C) $400 billion; $800 billion
D) 4.0; 8.0
E) 0.2; 0.4

Question 64

If autonomous spending decreases, then

A) the expenditure multiplier means that equilibrium expenditure decreases by a larger amount.
B) equilibrium expenditure does not change.
C) equilibrium expenditure decreases by the same amount.
D) the expenditure multiplier means that equilibrium expenditure increases by a larger amount.
E) the expenditure multiplier means that equilibrium expenditure increases by a smaller amount.

Question 65

An economy has no imports or income taxes. The MPC is 0.75 and real GDP is $120 billion. Businesses increase investment by $4 billion. The new level of real GDP is

A) $140 billion.
B) $132 billion.
C) $136 billion.
D) $124 billion.
E) $128 billion.

Question 66

If an increase of $10 billion in investment results in an increase in equilibrium expenditure of $40 billion, the multiplier equals

A) $10 billion × $40 billion = $400 billion.
B) $10 billion - $40 billion = -$30 billion.
C) $10 billion ÷ $40 billion = 0.25.
D) $40 billion ÷ $10 billion = 4.
E) $40 billion - $10 billion = $30 billion.

Question 67

If the MPC is 0.6 and there are no imports or income taxes, the multiplier is

A) 1.7.
B) 6.
C) 0.4.
D) 0.6.
E) 2.5.

Question 68

In an economy with no income taxes or imports, if the multiplier is 5, what does the MPC equal?

A) 0.9
B) 0.4
C) 0.8
D) 0.5
E) 0.2

Question 69

In an economy in with no income taxes or imports, the multiplier equals

A) .
B) .
C) .
D) .
E) .

Question 70

The table above gives data for the nation of Mosh. If real GDP is $9 trillion, then unplanned inventory change equals

A) $5.5 trillion.
B) 0.
C) $5 trillion.
D) $9 trillion.
E) $1.25 trillion.

Question 71

The above table contains information about the nation of Syldavia. There are no income taxes or imports in this nation. The equilibrium expenditure is

A) $15 billion.
B) $30 billion.
C) $10 billion.
D) $20 billion.
E) $25 billion.

Question 72

The figure above shows two aggregate expenditure lines.
In the figure above, what is the size of the multiplier?

A) 4.0
B) 0.25
C) $2 trillion
D) $0.5 trillion
E) More information is needed to determine the size of the multiplier.

Question 73

The expenditure multiplier is typically

A) negative.
B) greater than 1.
C) equal to 1.
D) less than 1 but greater than 0.
E) greater than 10.

Question 74

As a result of an initial increase in investment of $200 billion, real GDP increased by $800 billion. Given this information, the expenditure multiplier equals

A) 2.
B) 6.
C) 4.
D) 1/4.
E) $800 billion.

Question 75

The above table contains information about the nation of Syldavia. There are no income taxes or imports in this nation. The expenditure multiplier is equal to

A) 10.
B) 2.
C) 1.25.
D) 5.
E) 0.8.

Question 76

A $1.5 trillion increase in investment leads equilibrium expenditure to increase from $7.0 trillion to $10.5 trillion. In this case, the expenditure multiplier is

A) 7.00.
B) 10.5.
C) 2.33.
D) 4.67.
E) 1.50.

Question 77

In the figure above, if real GDP is $20 trillion, aggregate planned expenditure is ________ $20 trillion and unplanned inventory changes are ________.

A) less than; positive
B) less than; negative
C) equal to; negative
D) equal to; positive
E) equal to; equals to zero

Question 78

In the figure above, if real GDP is $10 trillion, aggregate planned expenditure is

A) equal to $10 trillion and there are no unplanned inventory changes.
B) less than $10 trillion and unplanned inventory changes are positive.
C) more than $10 trillion and unplanned inventory changes are negative.
D) equal to $10 trillion and unplanned inventory changes are negative.
E) equal to $10 trillion and unplanned inventory changes are positive.

Question 79

The expenditure multiplier measures the change in

A) autonomous spending that results from a change in equilibrium expenditure.
B) equilibrium expenditure that results from a change in autonomous expenditure.
C) the price level that results from a change in real GDP.
D) consumption expenditure for a given change in disposable income.
E) equilibrium expenditure from a change in induced consumption.

Question 80

The figure above shows two aggregate expenditure lines.
In the figure above, what would happen to the size of the multiplier if marginal income tax rates were increased?

A) The multiplier would fall in value and might become negative.
B) The multiplier would fall in value but would not become negative.
C) The multiplier would rise in value.
D) The multiplier would not change in value.
E) More information is needed to determine the effect on the size of the multiplier.