Question 1

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

Accepted Answer

A decrease in aggregate expenditure means that there is less spending in the economy. This is likely to result in a decrease in overall output, leading to a fall in GDP.

Question 2

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

Accepted Answer

If aggregate expenditure (AE) is more than GDP, it means that there is higher demand for goods and services than the level of production. This results in businesses selling off their inventories to meet the demand. This decrease in inventories contributes to the increase in GDP, as the calculation of GDP includes inventory investment. Therefore, when AE exceeds GDP, inventories fall and GDP rises.

Question 3

As a result of the oil price, revenues at many ________Tim Hortons locations ________, and it ________ the size of its workforce.

Accepted Answer

Alberta is an oil-rich province in Canada, and the question mentions the oil price affecting Tim Hortons locations. Therefore, it is reasonable to assume that Tim Hortons locations in Alberta were impacted by the falling oil price. The question also states that revenues fell, which would lead to a decrease in the size of the workforce, making B the correct answer.

Question 4

A decrease in ________ can put your job at risk if aggregate expenditures fall.

Accepted Answer

If consumer confidence decreases, individuals may be less likely to spend money, leading to a decrease in aggregate expenditures. This can negatively impact businesses and potentially result in layoffs or job losses.

Question 5

The ________ model focuses on the relationship between total spending and real GDP in the short run, assuming the price level is constant.

Accepted Answer

The aggregate expenditure model (also known as the Keynesian cross model) focuses on the relationship between total spending (consumption, investment, government spending, and net exports) and real GDP in the short run, assuming the price level is constant. This model forms the basis of Keynesian economics and emphasizes the importance of government intervention in the economy to address fluctuations in aggregate demand.

Question 6

Consumption spending refers to ________ spending on goods and services.

Accepted Answer

Consumption spending refers to spending by households on goods and services. This includes spending on items such as groceries, clothing, housing, entertainment, and healthcare.

Question 7

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

Accepted Answer

When inventories grow more than planned, it implies that firms sold less than they expected, meaning aggregate expenditure was less than the GDP.

Question 8

If firms find that consumers are purchasing more than expected, which of the following would you expect?

Accepted Answer

When consumers purchase more than expected, aggregate expenditure exceeds GDP, leading to a decrease in inventories, prompting firms to increase production and employment to meet demand.

Question 9

If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium?

Accepted Answer

When aggregate expenditure is less than GDP, it means that the total spending in the economy is less than what the economy is producing. This leads to an accumulation of unsold goods, causing inventories to rise. Businesses respond by reducing production, which leads to a decline in GDP and employment.

Question 10

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

Accepted Answer

Aggregate expenditure includes consumption spending, planned investment spending, government purchases, and net exports, not unplanned investment spending.

Question 11

During the Great Depression, economists first began studying the relationship between

Accepted Answer

During the Great Depression, economists studied the relationship between changes in aggregate expenditures (the total amount of spending in the economy) and changes in GDP (the total value of goods and services produced in the economy). This led to the development of Keynesian economics, which emphasized the role of government spending in stimulating economic growth during a recession.

Question 12

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

Accepted Answer

If the firms in the small economy planned that inventories would grow over the past year by $500,000, and inventories did grow by exactly $500,000, then this means that there was no unplanned change in inventories. Therefore, planned investment equals actual investment. In a closed economy (with no net exports or imports), aggregate expenditure can be calculated as follows:

Aggregate expenditure = Consumption + Investment + Government spending

Since we are only given information about investment, we cannot determine the values of the other components of aggregate expenditure. However, we know that planned investment (which is the same as actual investment in this case) is a component of GDP (Gross Domestic Product). Therefore, if planned investment equals actual investment, then aggregate expenditure that year was equal to GDP that year.

Question 13

In a small economy in 2017, 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?

Accepted Answer

The difference between aggregate expenditure and GDP can be explained by firm investment in inventories being greater than anticipated. When firms produce more goods than are sold (i.e., aggregate expenditure is less than the output), the unsold goods add to inventories, causing GDP (which includes the value of these inventories) to be higher than aggregate expenditure.

Question 14

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

Accepted Answer

When aggregate expenditure is more than GDP, it means that total spending in the economy is higher than the value of goods and services produced. This suggests that there was an unplanned decrease in inventories as businesses sold more than they expected, indicating that they will need to restock to meet future demand. However, it does not necessarily mean that firms spent less on capital goods or that households bought fewer new homes.

Question 15

Why do economists care about aggregate expenditures?

Accepted Answer

The answer of Why do economists care about aggregate expenditures?...

Question 16

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.

Accepted Answer

The key idea of the aggregate expenditure model is that the level of GDP (gross domestic product) in any particular year is mainly determined by the level of aggregate expenditure. This model suggests that the total spending in the economy (consumption, investment, government spending, and net exports) determines the level of output and income in the economy.

Question 17

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.

Accepted Answer

The answer of Explain, in detail, how the adjustment to...

Question 18

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

Accepted Answer

If firms sell exactly what they expected to sell, there will be no unplanned change in inventories. This means that the planned expenditure and output will be equal, which is also known as GDP. Hence, aggregate expenditure will be equal to GDP (choice D) and inventories will not change, and GDP and employment will remain stable (choice C). Unplanned investment will be zero (choice E) because there is no unexpected change in inventories. However, aggregate expenditure cannot be greater than GDP (choice A) because they are the same thing.

Question 19

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

Accepted Answer

The answer of If planned investment is greater than actual...

Question 20

Table 8.1 
-Refer to Table 8.1.Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

Accepted Answer

The answer of Table 8.1 
-Refer to Table 8.1.Using the...

Quiz 8: Aggregate Expenditure and Output in the Short Run