Deck 12: Aggregate Expenditure and Output in the Short Run

Question 1

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.

Answer 1

A

Question 2

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.

Answer 2

C

Question 3

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.

Answer 3

B

Question 4

Household spending on goods and services is known as

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

Question 5

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 6

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 7

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.

Question 8

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 9

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 10

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 11

As a result of slow economic growth following the recession of 2007-2009,many companies including Cisco Systems,Lockheed Martin,and Cracker Barrel Old Country Store cut production and employment as a result of the sluggish growth in the total amount of spending in the economy.The total amount of spending in the economy is known as

A)deficit spending.
B)planned investment spending.
C)aggregate expenditure.
D)equilibrium spending.

Question 12

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 13

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 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

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 16

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 17

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.

Question 18

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 19

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.

Question 20

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 21

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 22

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 23

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 24

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 25

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 26

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 27

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 28

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 29

Aggregate expenditure includes spending on

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

Question 30

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 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

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 33

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 34

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 35

In a small economy in 2013,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 2013.
C)Firm investment in inventories was greater than anticipated in 2013.
D)Aggregate expenditure is always less than GDP in developing countries.

Question 36

Consumption spending refers to ________ spending on goods and services.

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

Question 37

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 38

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 39

Actual investment spending includes spending by consumers on

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

Question 40

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 41

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 42

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 43

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 44

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 45

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

Question 46

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 47

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

Question 48

In a small economy in 2013,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 2013.
C)Firm investment in inventories was greater than anticipated in 2013.
D)Aggregate expenditure is always less than GDP in developing countries.

Question 49

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 50

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 51

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

Question 52

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 53

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 54

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

Question 55

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 56

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 57

At macroeconomic equilibrium,total ________ equals total ________.

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

Question 58

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 59

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 60

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

Question 61

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 62

________ 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 63

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 64

Which is the largest component of aggregate expenditure?

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

Question 65

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 66

________ 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 67

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 68

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

Question 69

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 70

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)4 percent.
B)12 percent.
C)25 percent.
D)65 percent.

Question 71

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 72

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 73

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 74

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 75

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

Question 76

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 77

A decrease in Social Security payments will

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

Question 78

Why do economists care about aggregate expenditures?

Question 79

Table 12-1

Refer to Table 12-1.Using the table above,compute aggregate expenditure and identify the macroeconomic equilibrium.

Question 80

Table 12-2

Refer to Table 12-2.Using the table above,compute aggregate expenditure and identify the macroeconomic equilibrium.