Deck 11: B: The Aggregate Expenditures Model

Question 1

During the recession of 2008-2009, both after-tax consumption and government expenditures declined.

Answer 1

False

Question 2

Exports are added to, and imports are subtracted from, aggregate expenditures in moving from a closed to an open economy.

Answer 2

True

Question 3

Refer to the diagram below.The equilibrium condition for a private closed economy is I_g = S.

Answer 3

True

Question 4

Refer to the above diagram.The equilibrium condition for a private open economy is S + M = I_g + X.

Question 5

For given data the aggregate expenditures-domestic output and the saving-investment approaches will yield the same equilibrium level of GDP.

Question 6

A recessionary expenditure gap in a mixed open economy can be measured as the extent to which aggregate expenditures fall short of those required to achieve the full-employment GDP.

Question 7

For an open mixed economy the equilibrium level of GDP is determined where S_a + I_g + X = T +G.

Question 8

Refer to the above diagram.In equilibrium net exports are positive.

Question 9

If the MPC is.9, a $20 billion increase in a lump-sum tax will reduce GDP by $200 billion.

Question 10

The recessionary expenditure gap is the amount by which the equilibrium GDP and the full-employment GDP differ.

Question 11

If government decreases its purchases by $20 billion and the MPC is 0.8, equilibrium GDP will decrease by $100 billion.

Question 12

The S_a + M + T schedule has a negative slope.

Question 13

The equilibrium level of GDP always coincides with the full-employment GDP.

Question 14

Equal increases in government expenditures and tax collections will leave the equilibrium GDP unchanged.

Question 15

A lump-sum tax causes the after-tax consumption schedule to be flatter than the before-tax consumption schedule.

Question 16

During the recession of 2008-2009 the federal government undertook various policies intended to stimulate private spending and investment.

Question 17

In reality, if a nation imposes tariffs, then the final result will be that net exports and GDP will decrease.

Question 18

Refer to the above diagram.The equilibrium level of GDP for this private open economy is Y₃.

Question 19

Refer to the above diagram.International trade has an expansionary effect on this economy.

Question 20

A $10 billion decrease in taxes will increase the equilibrium GDP by more than would a $10 billion increase in government expenditures.

Question 21

The equilibrium GDP is the level of domestic output:

A)where consumption equals saving.
B)where actual investment equals consumption.
C)which is sustainable.
D)where full employment exists.

Question 22

Refer to the above information.If the real interest rate is 20 percent, the equilibrium level of GDP will be:

A)$100
B)$200
C)$300
D)$400

Question 23

Refer to the above information.When the real interest rate is 10 percent, unplanned changes in inventories are equal to:

A)$40
B)-$30.
C)$20
D)-$60.

Question 24

Refer to the above diagrams.Curve A:

A)is an investment schedule and curve B is a consumption of fixed capital schedule.
B)is an investment demand curve and curve B is an investment schedule.
C)and B are totally unrelated.
D)shifts to the left when curve B shifts upward.

Question 25

All else equal, a large decline in the real interest rate will shift the:

A)investment-demand curve leftward.
B)investment-demand curve rightward.
C)investment schedule upward.
D)investment schedule downward.

Question 26

For a private closed economy aggregate expenditures consist of:

A)C + Ig.
B)C - Ig.
C)C + S.
D)C - S.

Question 27

Refer to the above diagrams.Other things equal, an interest rate decrease will:

A)shift curve A to the right and shift curve B upward.
B)shift curve A to the left and shift curve B downward.
C)leave curve A in place but shift curve B downward.
D)leave curve A in place but shift curve A upward.

Question 28

In the aggregate expenditures model, it is assumed that the planned investment:

A)automatically changes in response to changes in the current level of real domestic output.
B)changes by less in percentage terms than changes in the level of real domestic output.
C)does not respond to changes in interest rates.
D)does not change when the level of real domestic output changes.

Question 29

In a private closed economy (a) the marginal propensity to save is 0.25, (b) consumption equals income when consumption is $120 billion, and (c) the level of investment is $40 billion.What is the equilibrium level of income?

A)$280 billion
B)$320 billion
C)$262 billion
D)$198 billion

Question 30

Refer to the below data.Equilibrium Y = (GDP) is: The letters Y, C, and, I are used to represent GDP, consumption, and, investment respectively.

A)$100
B)$200
C)$300
D)$400

Question 31

Refer to the above data.If gross investment is $120, the equilibrium level of GDP will be:

A)$380
B)$370
C)$360
D)$400

Question 32

Which of the following will cause the investment schedule to shift downward?

A)an increase in the real interest rate
B)a decline in wage rates
C)a significant decline in the real interest rate
D)a new technological advance which cuts the price of steel by one-half

Question 33

Refer to the data below.If gross investment is $10 at all levels of GDP, the equilibrium GDP will be: The following schedule contains data for a private closed economy.All figures are in billions.

A)$300
B)$220
C)$260
D)$180

Question 34

Refer to the above information.If the real interest rate is 9 percent, the equilibrium level of GDP will be:

A)$600
B)$500
C)$400
D)$300

Question 35

The level of aggregate expenditures in the private closed economy is determined by the:

A)expenditures of consumers and businesses.
B)intersection of the saving schedule and the 45-degree line.
C)equality of the MPC and MPS.
D)intersection of the saving and consumption schedules.

Question 36

Refer to the above information.In this economy a 3 percentage point decrease in the interest rate will:

A)increase equilibrium GDP by $200.
B)increase equilibrium GDP by $100.
C)increase equilibrium GDP by $50.
D)decrease equilibrium GDP by $50.

Question 37

Refer to the above diagrams.Other things equal, Curve B will shift upward when:

A)the level of GDP increases.
B)the interest rate increases.
C)curve A shifts to the left.
D)curve A shifts to the right.

Question 38

The relationship between investment and GDP is shown by the:

A)consumption of fixed capital schedule.
B)saving schedule.
C)investment schedule.
D)consumption schedule.

Question 39

Refer to the above diagrams.Other things equal, an interest rate increase will:

A)shift curve A to the right and shift curve B upward.
B)shift curve A to the left and shift curve B downward.
C)leave curve A in place but shift curve B downward.
D)leave curve A in place but shift curve A upward.

Question 40

Refer to the above diagram for a private closed economy.The equilibrium level of GDP is:

A)$400
B)$300
C)$250
D)$375

Question 41

Refer to the above diagram for a private closed economy.In this economy, aggregate expenditures:

A)do not change as GDP increases.
B)increase by $2 for every $5 increase in GDP.
C)increase by $2 for every $4 increase in GDP.
D)increase by $2 for every $3 increase in GDP.

Question 42

In the aggregate expenditures model, equilibrium GDP in a private closed economy is indicated by:

A)the equality of saving and planned investment.
B)the intersection of aggregate expenditures and the 45-degree line.
C)the absence of unplanned changes in inventories.
D)all of the above.

Question 43

Refer to the above diagram for a private closed economy.At the $300 level of GDP:

A)aggregate expenditures and GDP are equal.
B)consumption is $250 and planned investment is $50.
C)saving equals investment.
D)all of the above are true.

Question 44

Refer to the above diagram for a private closed economy.In this economy investment:

A)decreases as GDP increases.
B)increases as GDP increases.
C)is $40 billion at all levels of GDP.
D)is $60 billion at all levels of GDP.

Question 45

In a private closed economy, aggregate expenditures will equal GDP where:

A)consumption equals investment.
B)consumption plus investment equals aggregate expenditures.
C)planned investment equals saving.
D)disposable income equals consumption minus saving.

Question 46

When investment remains the same at each level of GDP in a private closed economy, the slope of the aggregate expenditures schedule:

A)exceeds the MPC.
B)is less than the MPC.
C)equals the MPS.
D)equals the MPC.

Question 47

In a private closed economy, where aggregate expenditures exceed domestic output:

A)domestic output will decline to the break-even level.
B)business inventories will rise.
C)saving exceeds planned investment.
D)planned investment exceeds saving.

Question 48

The equilibrium level of GDP in a private closed economy is where:

A)MPC = APC.
B)unemployment is about 3 percent of the labor force.
C)planned consumption equals saving.
D)saving equals planned investment.

Question 49

Achieving aggregate equilibrium in the economy is indicated by:

A)an equality of saving and planned investment.
B)an equality of aggregate expenditures and domestic output.
C)the absence of unplanned investment or disinvestment.
D)all of the above.

Question 50

Refer to the diagram below for a private closed economy.Saving and planned investment are equal:

A)only at the $300 level of GDP.
B)only at the $250 level of GDP.
C)at all levels of GDP.
D)only at the $375 level of GDP.

Question 51

If aggregate expenditures exceed the domestic output in a private closed economy:

A)leakages will exceed injections.
B)planned investment will exceed saving.
C)unplanned investment in inventories will occur.
D)saving will exceed planned investment.

Question 52

Refer to the above diagram for a private closed economy.Aggregate saving in this economy will be zero when:

A)C + I_g cuts the 45-degree line.
B)GDP is $180 billion.
C)GDP is $60 billion.
D)GDP is also zero.

Question 53

Refer to the above diagram which applies to a private closed economy.If gross investment is Ig₁, the equilibrium GDP and the level of consumption will be:

A)H and HB respectively.
B)J and JI respectively.
C)J and JK respectively
D)H and HF respectively.

Question 54

Refer to the above diagram for a private closed economy.At the equilibrium level of GDP saving is:

A)$10
B)$20
C)$30
D)$50

Question 55

Refer to the above diagram which applies to a private closed economy.If gross investment increases from I_g1 to I_g2, the equilibrium GDP will:

A)decrease by KD.
B)increase by HJ.
C)increase by KD.
D)increase by GH.

Question 56

Investment and saving are, respectively:

A)income and wealth.
B)stocks and flows.
C)injections and leakages.
D)leakages and injections.

Question 57

The equilibrium level of GDP is associated with:

A)an excess of planned investment over saving.
B)no unintended investment in inventories.
C)an unintended decrease in business inventories.
D)an unintended increase in business inventories.

Question 58

Refer to the above diagram for a private closed economy.The equilibrium level of GDP in this economy:

A)is $60 billion.
B)is $180 billion.
C)is between $60 and $180 billion.
D)cannot be determined from the information given.

Question 59

Refer to the above diagram for a private closed economy.At the $400 level of GDP:

A)aggregate expenditures exceed GDP with the result that GDP will rise.
B)consumption is $350 and planned investment is zero so that aggregate expenditures are $350.
C)consumption is $300 and planned investment is $50 so that aggregate expenditures are $350.
D)consumption is $300 and actual investment is $100 so that aggregate expenditures are $400.

Question 60

Refer to the above diagram for a private closed economy.At the $200 level of GDP:

A)consumption is $200 and planned investment is $50 so that aggregate expenditures are $250.
B)consumption is $200 and planned investment is $100 so that aggregate expenditures are $300.
C)consumption is $250 and actual investment is $50 so that aggregate expenditures are $300.
D)aggregate expenditures is equal to the GDP.

Question 61

Which of the following statements is correct for a private closed economy?

A)Saving equals planned investment only at the equilibrium level of domestic output.
B)All levels of domestic output where planned investment exceeds saving will be too high for equilibrium.
C)Planned and actual investment are identical at all possible levels of domestic output.
D)Saving equals actual investment only at the equilibrium level of domestic output.

Question 62

For a private closed economy, an unplanned decline in inventories suggests that:

A)aggregate expenditures are less than the business sector expected them to be.
B)planned investment is greater than saving.
C)actual investment exceeds saving.
D)planned investment is greater than consumption.

Question 63

If an unplanned increase in business inventories occurs:

A)we can expect aggregate production to be unaffected.
B)we can expect businesses to increase the level of production.
C)we can expect businesses to lower the level of production.
D)aggregate expenditures must exceed the domestic output.

Question 64

Planned investment equals saving:

A)at all levels of GDP.
B)at all below-equilibrium levels of GDP.
C)at all above-equilibrium levels of GDP.
D)only at the equilibrium GDP.

Question 65

Planned investment is $75 billion and saving is $62 billion in a private closed economy.In equilibrium actual investment must be:

A)$13 billion.
B)$75 billion.
C)$62 billion.
D)minus $13 billion.

Question 66

The economy will expand when:

A)actual GDP is less than potential GDP.
B)planned investment exceeds saving.
C)saving exceeds planned investment.
D)unplanned investment occurs.

Question 67

Refer to the diagram below for a private closed economy.In equilibrium the level of consumption:

A)will be $100.
B)will be $500.
C)will be $600.
D)cannot be determined from the information given.

Question 68

Refer to the above diagram for a private closed economy.At the $200 level of GDP:

A)consumption will equal GDP.
B)planned investment will equal saving and unintended investment will be zero.
C)aggregate expenditures will exceed GDP, causing GDP to rise.
D)GDP will exceed aggregate expenditures, causing GDP to fall.

Question 69

Refer to the above diagram which is for a private closed economy.All figures are in billions of dollars.If businesses were willing to invest $30 at each possible level of GDP, the equilibrium level of GDP would be:

A)$462.5.
B)$435.
C)$420.
D)$380.

Question 70

If an unplanned increase in business inventories occurs at some level of GDP, then GDP:

A)entails a rate of aggregate expenditures in excess of the rate of aggregate production.
B)may be either above or below the equilibrium output.
C)is too low for equilibrium.
D)will decrease.

Question 71

In a private closed economy _____ investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where _____ investment is equal to saving.

A)planned; actual
B)actual; planned
C)gross; net
D)net; gross

Question 72

Refer to the above diagram for a private closed economy.At the $100 level of GDP:

A)aggregate expenditures will exceed GDP, causing GDP to fall.
B)planned investment will exceed saving, but actual investment will be equal to saving.
C)households will consume more than their income.
D)saving will be $40.

Question 73

Refer to the above diagram which is for a private closed economy.All figures are in billions of dollars.If gross investment is $15, the equilibrium level of GDP:

A)is $30.
B)is $380.
C)is $300.
D)is $340.

Question 74

In which of the following situations for a private closed economy will the level of GDP expand?

A)when planned investment exceeds saving
B)when planned investment exceeds consumption
C)when saving exceeds consumption
D)when consumption exceeds investment

Question 75

Refer to the above diagram for a private closed economy.At the $300 level of GDP:

A)planned investment will exceed saving, but actual investment will be equal to saving.
B)aggregate expenditures will exceed GDP, causing GDP to rise.
C)actual investment will exceed planned investment.
D)households will consume in excess of their incomes.

Question 76

Assume that in a private closed economy consumption is $240 billion and investment is $50 billion at the $280 billion level of domestic output.Thus:

A)saving is $10 billion.
B)unplanned disinvestment of $10 billion will occur.
C)the MPC is.80.
D)unplanned investment of $10 billion will occur.

Question 77

At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy.Planned investment must be:

A)$138 billion.
B)$126 billion.
C)$38 billion.
D)$180 billion.

Question 78

Actual investment is $62 billion at an equilibrium output level of $620 billion in a private closed economy.The average propensity to save at this level of output:

A)is 0.10.
B)is 10.
C)is 0.62.
D)cannot be determined on the basis of the information given.

Question 79

If at some level of GDP the economy is experiencing an unplanned decrease in inventories:

A)the aggregate level of saving will decline.
B)the price level will fall.
C)the business sector will lay off workers.
D)domestic output will increase.

Question 80

The inequality of saving and planned investment:

A)is attributable to a low MPC.
B)may be of considerable significance because of the subsequent changes in income, employment, and the price level.
C)is of no consequence because a compensating inequality of tax collections and government spending will always occur.
D)is of no consequence because saving and actual investment will always be equal.