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.

Accepted Answer

Actual investment spending refers to spending on new capital equipment, new houses, and changes in inventories. Spending on consumer durable goods is considered consumption spending, not investment spending.

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.

Accepted Answer

The formula for aggregate expenditure is AE = C + I + G + NX, which includes consumption (C), investment (I), government spending (G), and net exports (NX).

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.

Accepted Answer

Economists began studying the relationship between changes in aggregate expenditures and changes in GDP more intensively during the Great Depression, as they sought to understand and respond to the economic crisis of that era.

Question 4

Household spending on goods and services is known as
A)consumption spending.
B)planned investment spending.
C)government purchases.
D)net exports.

Accepted Answer

Consuming goods and services involves spending money on them, which makes it consumption spending. Planned investment spending is spending on capital goods by firms, government purchases are purchases made by the government, and net exports are the difference between the value of exports and the value of imports.

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

Accepted Answer

Aggregate expenditure is the sum of consumption spending, planned investment spending, unplanned investment spending, government purchases, and net export spending. Thus, aggregate expenditure = $16 million + $4 million + $2 million + $6 million + $1 million = $27 million. Therefore, the best choice is C.

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.

Accepted Answer

Aggregate expenditure is equal to the sum of consumption spending, planned investment spending, government purchases, and net export spending. In this case, aggregate expenditure would be $22 million + $7 million + $9 million + $3 million = $41 million. Since this is the same as the given GDP, it means that aggregate expenditure is equal to GDP. There is no information provided to determine if there was an unplanned change in inventories.

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.

Accepted Answer

The answer of If inventories decline by more than analysts...

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.

Accepted Answer

The key idea of the aggregate expenditure model is that the level of GDP is determined mainly by the level of aggregate expenditure, which includes consumption spending, investment spending, government spending, and net exports. Therefore, choice D is the best answer. Although the other options (investment spending, export spending, and government spending) are important components of aggregate expenditure, they alone do not determine the level of GDP.

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

Accepted Answer

The aggregate expenditure model focuses on the short-run relationship between real spending and real GDP. It shows how changes in spending by households, businesses, government, and foreign buyers can impact the overall level of economic activity in the short run. It does not directly focus on inflation, which is more closely tied to the long-run relationship between prices and the money supply.

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.

Accepted Answer

At macroeconomic equilibrium, total spending (which includes consumption, investment, government spending and net exports) will equal total production (GDP). This is because for every good that is produced, someone else must be spending money on that good. Therefore, total spending must equal total production. Option A is incorrect because total investment and total inventories may not be equal at equilibrium - Inventories will only be equal to planned inventory levels, which may not always coincide with actual investment. Option C is incorrect because consumption may not necessarily be equal to production if there are net exports or government spending. Option D is incorrect as total taxes may not necessarily be equal to total transfers at equilibrium (the government may have a budget surplus or deficit).

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.

Accepted Answer

The total amount of spending in the economy is known as aggregate expenditure.

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.

Accepted Answer

An unplanned increase in inventories occurs when actual investment in inventories is greater than planned investment. This means that a business has produced more goods than it had planned to sell, resulting in an excess of inventory.

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.

Accepted Answer

The answer of Consumption is $5 million,planned investment spending is...

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.

Accepted Answer

When aggregate expenditure equals GDP, it means that the total spending in the economy (consumption, investment, government spending, and net exports) is equal to the total income (GDP) generated by production. This is called macroeconomic equilibrium, where there is no tendency for output or income to change, and the economy is in a stable state.

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.

Accepted Answer

The components of aggregate expenditure are consumption spending, government spending, investment spending, and net export spending. Actual investment spending is a subcategory of investment spending, so it is not a separate component.

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

Accepted Answer

The aggregate expenditure model focuses on the relationship between total spending and real GDP in the short run, assuming the price level is constant. This model is used to analyze the components of total spending and how they interact with output and income levels in the economy.

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.

Accepted Answer

Inventories refer to goods that have been produced but not yet sold. They are typically held by a business until they can be sold and generate revenue. Option A refers to pre-sold goods, which would not be considered inventory until they are produced. Option C refers to planned goods, which may or may not end up being produced and would not be considered inventory until they are actually produced. Option D refers to goods that have already been sold and would not be considered inventory.

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

Accepted Answer

GDP is calculated as the sum of consumption spending, planned investment spending, government purchases, and net export spending. Unplanned investment spending is not included in this calculation. Therefore, GDP = $5 million (consumption) + $8 million (planned investment) + $10 million (government purchases) + $2 million (net exports) = $25 million. However, the correct calculation should include both planned and unplanned investments, making the total GDP = $5 million + $8 million (planned) + $2 million (unplanned) + $10 million + $2 million = $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.

Accepted Answer

A decrease in consumer confidence can cause a reduction in aggregate expenditures as consumers may reduce their spending on goods and services. This, in turn, can lead to a decrease in the demand for goods and services produced by firms, potentially leading to job losses.

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.

Accepted Answer

The four main categories of spending identified by John Maynard Keynes are consumption, investment, government purchases, and net exports. Taxes are not a category of spending, but rather a means of financing government purchases and transfer payments.

Quiz 12: Aggregate Expenditure and Output in the Short Run

Actual investment spending does not include

The formula for aggregate expenditure is

Economists first began studying the relationship between changes in aggregate expenditures and changes in GDP

Household spending on goods and services is known as

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?

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?

If inventories decline by more than analysts predict they will decline,this implies that

The key idea of the aggregate expenditure model is that in any particular year,the level of GDP is determined mainly by

The aggregate expenditure model focuses on the relationship between real spending and .

At macroeconomic equilibrium,

An unplanned increase in inventories results from

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?

When aggregate expenditure = GDP,

All of the following are components of aggregate expenditure except

The aggregate expenditure model focuses on the relationship between and in the short run,assuming is constant.

Inventories refer to

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 decrease in consumer confidence can put your job at risk if

Each of the following is one of the four main categories of spending identified by John Maynard Keynes except