Deck 10: Aggregate Expenditure and Aggregate Demand

Question 1

Exhibit 10-1

In Exhibit 10-1,given that leakages must equal injections in equilibrium,which of the following is true?

A) S + NT + NX = G + I
B) S = I
C) C + S = G + I
D) S + NT = NX + G + I
E) the answer is indeterminate

Answer 1

S + NT = NX + G + I

Question 2

Aggregate expenditure means total or combined spending.

Answer 2

True

Question 3

Exhibit 10-2

At the equilibrium level of GDP in Exhibit 10-2,injections equal

A) $1.0 trillion
B) $1.5 trillion
C) $1.4 trillion
D) $1.2 trillion
E) $1.3 trillion

Answer 3

$1.3 trillion

Question 4

Exhibit 10-1

In Exhibit 10-1,the equilibrium level of income is

A) $5.4 trillion
B) where real GDP = total planned expenditures
C) where disposable income = total planned expenditures
D) $4.8 trillion
E) where the government has a balanced budget,which is at each level of income in this example

Question 5

Which of the following is not a part of planned aggregate spending?

A) consumption
B) investment
C) government expenditures
D) net exports
E) saving

Question 6

If there are no unintended changes in inventories,the economy is at its equilibrium level of real GDP demanded.

Question 7

Consumption plus saving equals disposable income at every level of real GDP demanded.

Question 8

Movement along the aggregate expenditure curve is caused by a change in the level of income.

Question 9

If an economy is in equilibrium when net taxes = $50 trillion,saving = $40 trillion,government purchases = $50 trillion,exports = $30 trillion,and imports = $10 trillion,then planned investment spending must equal

A) zero
B) $50
C) $10
D) $20
E) the answer is indeterminate

Question 10

Exhibit 10-2

At the equilibrium level of GDP in Exhibit 10-2,saving equals

A) $0.4 trillion
B) $0.6 trillion
C) $0.5 trillion
D) $0.2 trillion
E) $0.3 trillion

Question 11

Exhibit 10-2

At the equilibrium level of GDP in Exhibit 10-2,leakages equal

A) $1.4 trillion
B) $1.3 trillion
C) $1.5 trillion
D) $1.0 trillion
E) $1.1 trillion

Question 12

The aggregate expenditure line shows

A) real GDP on the horizontal axis and aggregate expenditure on the vertical axis
B) aggregate expenditure on the horizontal axis and real GDP on the vertical axis
C) consumption on the horizontal axis and aggregate expenditure on the vertical axis
D) aggregate expenditure on the horizontal axis and consumption on the vertical axis
E) investment on the horizontal axis and aggregate expenditure on the vertical axis

Question 13

In an economy without a government and without international transactions,aggregate expenditure at each level of income is equal to

A) consumption plus saving
B) planned investment plus saving
C) disposable income plus the price level
D) consumption plus planned investment
E) planned investment minus saving

Question 14

The equilibrium quantity of aggregate output occurs when

A) the economy reaches the full employment of labor
B) planned aggregate expenditure equals income generated from production
C) actual aggregate expenditures equal real GDP
D) inventories of goods and services are increasing
E) inventories of goods and services are decreasing

Question 15

Exhibit 10-1

In Exhibit 10-1,the marginal propensity to consume equals

A) 5/6
B) 4/5
C) 3/4
D) 1/2
E) 2/3

Question 16

Exhibit 10-2

In Exhibit 10-2,the equilibrium level of GDP is

A) $5.0 trillion
B) $5.5 trillion
C) $6.0 trillion
D) $6.5 trillion
E) $7.0 trillion

Question 17

Exhibit 10-1

In Exhibit 10-1,which of the variables are autonomous?

A) saving and consumption only
B) net taxes and government purchases only
C) net exports and government purchases only
D) consumption,investment,and net exports only
E) investment,net exports,net taxes,and government purchases

Question 18

Which of the following best describes aggregate expenditure?

A) C + I + G + (X - M)
B) C + S + G + (X - M)
C) C + I + G + (X + M)
D) C + I + T + (X - M)
E) C + I + T + (X + M)

Question 19

Exhibit 10-1

In Exhibit 10-1,the government's budget is

A) in surplus
B) in deficit
C) in balance
D) indeterminate from the information given
E) $0.5 trillion

Question 20

The aggregate expenditure line shows total planned spending at each

A) price level
B) income level
C) income level,holding the price level constant
D) price level,holding the level of income constant
E) interest rate,holding the price level constant

Question 21

Which of the following is assumed constant along the aggregate expenditure line?

A) the price level
B) consumption
C) unintended inventory adjustment
D) actual investment
E) real GDP

Question 22

If planned spending exceeds planned output,the result is

A) unintended inventory increases
B) a reduction in GDP
C) a decrease in imports
D) an increase in government purchases
E) unintended inventory reductions

Question 23

Exhibit 10-2

The marginal propensity to save (MPS)in Exhibit 10-2 equals

A) 0.80 or 4/5
B) 0.60 or 3/5
C) 0.40 or 2/5
D) 0.10 or 1/10
E) 0.20 or 1/5

Question 24

Exhibit 10-2

In Exhibit 10-2,which group of the following is considered autonomous with respect to income?

A) C,I,(X - M)
B) S,I,G,(X - M)
C) NT,C,G,(X - M)
D) NT,S,I,(X - M)
E) I,G,X

Question 25

Exhibit 10-2

In equilibrium in Exhibit 10-2,S + NT = I + G + (X - M)and is equal to

A) $1.1 trillion
B) $1.2 trillion
C) $1.3 trillion
D) $1.4 trillion
E) $1.5 trillion

Question 26

The economy will expand if

A) leakages exceed injections
B) injections exceed leakages
C) leakages equal injections
D) expenditures are less than output
E) saving exceeds investment

Question 27

In the income-expenditure framework,if planned aggregate expenditures are less than real GDP,

A) then saving must be larger than consumption
B) the price level will increase
C) inventories will increase
D) inventories will decrease
E) consumption will decrease

Question 28

Which of the following is illustrated by the distance between the aggregate expenditure line and the 45-degree line at each level of real GDP?

A) saving
B) unplanned inventory change
C) planned investment
D) marginal propensity to save
E) marginal propensity to consume

Question 29

Exhibit 10-2

The marginal propensity to consume (MPC)in Exhibit 10-2 equals

A) 0.20 or 1/5
B) 0.40 or 2/5
C) 0.80 or 4/5
D) 0.90 or 9/10
E) 0.60 or 3/5

Question 30

Exhibit 10-3

The MPC in the economy represented in Exhibit 10-3 is

A) 0
B) 0.2
C) 0.8
D) 0.9
E) 80

Question 31

At the equilibrium level of real GDP,unplanned inventory adjustment equals

A) planned investment
B) saving
C) zero
D) actual investment
E) consumption

Question 32

Suppose that at a particular level of real GDP,the unintended change in inventories is zero.Which of the following is true?

A) That level of real GDP is less than the equilibrium level of real GDP demanded.
B) That level of real GDP is greater than the equilibrium level of real GDP demanded.
C) That level of real GDP is the equilibrium level of real GDP demanded.
D) At that level of real GDP,there is no inflation.
E) At that level of real GDP,there is no saving.

Question 33

In the income-expenditure framework,if planned aggregate expenditures are greater than real GDP,

A) the price level will fall
B) consumption must fall
C) inventories will increase
D) inventories will decrease
E) consumption will decrease

Question 34

The economy will contract (shrink)if

A) leakages exceed injections
B) injections exceed leakages
C) injections equal leakages
D) expenditures exceed output
E) investment exceeds saving

Question 35

When current real production of goods and services (real GDP)is greater than planned aggregate expenditure

A) inventories of goods and services are rising
B) firms will increase production to replenish depleted inventories
C) businesses and households will increase planned aggregate spending because it is in their interest to promote employment
D) the price level will automatically rise to restore equilibrium in the economy
E) leakages must equal planned injections

Question 36

If output exceeds planned aggregate spending,the result is unintended inventory increases.

Question 37

Which of the following is not true at the equilibrium quantity of GDP demanded?

A) aggregate expenditure equals real GDP
B) planned investment equals actual investment
C) planned investment equals saving
D) planned investment is greater than unintended inventory adjustment
E) planned injections into the circular flow are less than planned leakages out of the flow

Question 38

If current aggregate expenditure equals current production,the economy is in equilibrium.

Question 39

Which of the following is not true?

A) When planned aggregate expenditure is greater than output,real GDP demanded will rise.
B) When planned aggregate expenditure is greater than output,real GDP demanded will fall.
C) When planned aggregate expenditure is increasing,disposable income and consumption are increasing.
D) When planned aggregate expenditure is increasing,consumption and saving are both increasing.
E) As long as planned aggregate expenditure is increasing,real GDP demanded does also.

Question 40

The aggregate expenditure line,along with the 45-degree line,determines equilibrium.This model is based on the assumption that

A) production is constant
B) production is constant and at the full employment level of GDP
C) producers are ready to supply whatever amount of output is demanded at the existing price level
D) producers will supply more at higher prices than they will at lower prices
E) producers will supply more at lower prices than they will at higher prices

Question 41

A decrease in autonomous investment will

A) shift the aggregate expenditure line upward
B) shift the aggregate expenditure line downward
C) result in an upward movement along the aggregate expenditure line
D) result in a downward movement along the aggregate expenditure line
E) decrease aggregate expenditures only at low levels of income

Question 42

That fraction of a change in disposable income that is consumed is called

A) autonomous consumption
B) induced consumption
C) the multiplier
D) the marginal propensity to consume
E) the marginal propensity to save

Question 43

On the aggregate expenditure graph,if autonomous saving increases by $15 billion,

A) the aggregate expenditure line shifts upward by $15 billion
B) planned investment increases by $15 billion
C) the aggregate expenditure line shifts downward by $15 billion
D) planned investment decreases by $15 billion
E) the equilibrium level of real GDP demanded decreases by $15 billion

Question 44

An increase in autonomous investment will

A) shift the aggregate expenditure line upward
B) shift the aggregate expenditure line downward
C) result in an upward movement along the aggregate expenditure line
D) result in a downward movement along the aggregate expenditure line
E) increase aggregate expenditures only at high levels of income

Question 45

Which of the following best describes the multiplier?

A) It shows the magnified change in planned aggregate spending that arises from a change in output.
B) It shows the magnified change in equilibrium output demanded that arises from a change in income.
C) It shows the magnified change in planned aggregate spending that arises from a change in equilibrium output.
D) It shows the magnified change in equilibrium output demanded that arises from a change in planned aggregate spending.
E) It shows the change in planned aggregate spending that arises from a change in real output.

Question 46

If households save $30 billion more at each level of income and the MPC = 0.9,the aggregate expenditure line will

A) not be affected
B) shift upward by $30 billion
C) shift downward by $30 billion
D) shift upward by $300 billion because of the multiplier
E) shift downward by $300 billion because of the multiplier

Question 47

If the economy is currently at equilibrium at $1 trillion and the MPC is 0.6,a $100 decrease in government purchases of goods and services will result in a new equilibrium at

A) $600 billion
B) $400 billion
C) $750 billion
D) $1.4 trillion
E) $1.6 trillion

Question 48

If autonomous investment expenditures decline because of higher interest rates

A) income increases
B) the rate of return declines
C) autonomous consumption declines
D) aggregate demand increases
E) aggregate demand decreases

Question 49

If investment increases by $100 and,as a result,GDP ultimately increases by $200,the multiplier equals

A) 1
B) 2
C) 3
D) 4
E) 5

Question 50

If people spend 2/3 of any extra income they receive,new autonomous spending of $10 causes equilibrium to increase by

A) $6.67
B) $16.67
C) $15.00
D) $30.00
E) $45.00

Question 51

If the mps is 0.25,the simple multiplier is

A) 25
B) 75
C) 5
D) 3/4
E) 4

Question 52

If the full employment level of income is $1200 billion and the present level of income is $1000 billion

A) an inflationary gap exists
B) autonomous expenditure is too low for a full employment equilibrium
C) autonomous expenditure is too high for a full employment equilibrium
D) a decrease in autonomous expenditure is required
E) government purchases of goods and services should be reduced

Question 53

The simple multiplier

A) when divided by consumption spending equals saving
B) is defined as 1.0 divided by the marginal propensity to save
C) is defined as 1.0 divided by the marginal propensity to consume
D) is equal to the MPS plus the MPC
E) is equal to the MPS minus the MPC

Question 54

Exhibit 10-3

The MPS in the economy represented in Exhibit 10-3 is

A) 0
B) 0.1
C) 0.2
D) 0.8
E) 20

Question 55

On the aggregate expenditure graph,if autonomous saving decreases by $15 billion,

A) the aggregate expenditure line shifts upward by $15 billion
B) planned investment increases by $15 billion
C) the aggregate expenditure line shifts downward by $15 billion
D) planned investment decreases by $15 billion
E) the equilibrium level of real GDP demanded decreases by $15 billion

Question 56

On the aggregate expenditure graph,if autonomous investment increases by $20 billion,

A) the aggregate expenditure line shifts upward by $20 billion
B) planned saving increases by $20 billion
C) the aggregate expenditure line shifts downward by $20 billion
D) planned saving decreases by $20 billion
E) the equilibrium level of real GDP demanded increases by $20 billion

Question 57

The larger the MPC,the greater the multiplier effect.

Question 58

If households save $40 billion less at each level of income and the MPC = 0.8,the aggregate expenditure line will

A) not be affected
B) shift upward by $40 billion
C) shift downward by $40 billion
D) shift upward by $200 billion because of the multiplier
E) shift downward by $200 billion because of the multiplier

Question 59

The larger the MPS,the smaller the multiplier effect.

Question 60

On the aggregate expenditure graph,if autonomous investment decreases by $10 billion,

A) the aggregate expenditure line shifts upward by $10 billion
B) planned saving increases by $10 billion
C) the aggregate expenditure line shifts downward by $10 billion
D) planned saving decreases by $10 billion
E) the equilibrium level of real GDP demanded increases by $10 billion

Question 61

If the marginal propensity to consume is 4/5,the simple multiplier is

A) 1/6
B) 6
C) 5/6
D) 6/5
E) 5

Question 62

If the spending multiplier is greater than 1.0,a $200 billion increase in autonomous investment will cause

A) equilibrium investment to increase by less than $200 billion
B) equilibrium investment to decrease by more than $200 billion
C) equilibrium real GDP demanded to increase by more than $200 billion
D) equilibrium real GDP demanded to decrease by less than $200 billion
E) equilibrium saving to decrease by more than $200 billion

Question 63

Exhibit 10-4
In Exhibit 10-4,assume the economy is in equilibrium with real GDP of $5 trillion dollars.If aggregate expenditure (AE)increases by $1 trillion,we would expect the economy's equilibrium real GDP to

A) increase by $1 trillion
B) increase by more than $1 trillion
C) increase by less than $1 trillion
D) decrease by $1 trillion
E) remain unchanged

Question 64

The larger the marginal propensity to save,other things constant,

A) the smaller the marginal propensity to consume
B) the larger the marginal propensity to consume
C) the larger the multiplier
D) the steeper the consumption function
E) the flatter the saving function

Question 65

If the simple multiplier is 10,the marginal propensity to save is

A) 1/10
B) 9/10
C) 1/9
D) 10/9
E) 9

Question 66

The smaller the marginal propensity to save,other things constant,

A) the smaller the marginal propensity to consume
B) the smaller the multiplier
C) the flatter the consumption function
D) the steeper the consumption function
E) the steeper the saving function

Question 67

The larger the marginal propensity to save,other things constant,

A) the larger the marginal propensity to consume
B) the smaller the multiplier
C) the larger the multiplier
D) the steeper the consumption function
E) the flatter the saving function

Question 68

If the marginal propensity to consume equals 0.9,the multiplier is

A) 1
B) 2
C) 5
D) 10
E) 12

Question 69

If the marginal propensity to save is 1/8,the value of the simple multiplier is

A) 8
B) 1/8
C) 2
D) 1/2
E) 4

Question 70

If the marginal propensity to consume is 3/4,the simple multiplier is

A) 3
B) 7
C) 4
D) 25
E) 3/10

Question 71

The smaller the marginal propensity to save,other things constant,

A) the smaller the marginal propensity to consume
B) the larger the marginal propensity to consume
C) the smaller the multiplier
D) the flatter the consumption function
E) the steeper the saving function

Question 72

Increases in the marginal propensity to consume,other things constant,

A) increase the value of the multiplier
B) decrease the value of the multiplier
C) never change the value of the multiplier
D) shift the aggregate expenditure curve downward
E) cause a downward movement along an aggregate expenditure curve

Question 73

The smaller the marginal propensity to save,other things constant,

A) the smaller the marginal propensity to consume
B) the smaller the multiplier
C) the flatter the consumption function
D) the flatter the saving function
E) the steeper the saving function

Question 74

If autonomous investment increases by $100 billion,equilibrium real GDP demanded will

A) increase by $100 billion
B) not change
C) increase by ($100 billion)/MPC
D) increase by $100 billion * MPC
E) increase by $100 billion/MPS

Question 75

The simple multiplier equals

A) the marginal propensity to consume
B) the marginal propensity to save
C) the reciprocal of the marginal propensity to save
D) the reciprocal of the marginal propensity to consume
E) one minus the marginal propensity to consume

Question 76

The smaller the marginal propensity to save,other things constant,

A) the smaller the marginal propensity to consume
B) the larger the multiplier
C) the smaller the multiplier
D) the flatter the consumption function
E) the steeper the saving function

Question 77

If the marginal propensity to consume is 4/5,the value of the simple multiplier is

A) 4
B) 1/5
C) 4/5
D) 5/4
E) 5

Question 78

The larger the marginal propensity to save,other things constant,

A) the larger the marginal propensity to consume
B) the larger the multiplier
C) the steeper the consumption function
D) the steeper the saving function
E) the flatter the saving function

Question 79

The larger the marginal propensity to save,other things constant,

A) the larger the marginal propensity to consume
B) the larger the multiplier
C) the steeper the consumption function
D) the flatter the consumption function
E) the flatter the saving function

Question 80

If the simple multiplier is 8,the marginal propensity to consume is

A) 1/8
B) 1/4
C) 4/5
D) 7/8
E) 8