Question 1

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, the size of the multiplier depends on the
A) 45-degree line.
B) height of the consumption function.
C) slope of the aggregate demand curve.
D) slope of the aggregate expenditures curve.

Accepted Answer

The size of the multiplier in the aggregate expenditure model is determined by the slope of the aggregate expenditures curve, which is influenced by the marginal propensity to consume.

Question 2

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. The marginal propensity to consume is 0.75. Suppose the equilibrium level of real GDP at the prevailing price is $600 billion below potential real GDP. All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?
A) $150 billion
B) $450 billion
C) $600 billion
D) $800 billion

Accepted Answer

The spending multiplier is 1/(1-MPC) = 1/(1-0.75) = 4. To close a $600 billion gap, autonomous expenditures should increase by $600 billion / 4 = $150 billion.

Question 3

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift downwards?
A) Firms become optimistic about future profits and increase investment spending.
B) The government reduces property tax rates.
C) The government cuts spending on education.
D) Households save a greater portion of any change in disposable income.

Accepted Answer

A reduction in government spending on education decreases aggregate expenditures, causing the curve to shift downwards.

Question 4

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. If the consumption function is
C = $500 + 0.8Y, planned investment = $200, government purchases = $300,
Net exports = $100, and real GDP = $1,000, what is the amount of autonomous expenditures?
A) $500
B) $1,000
C) $1,100
D) $1,900

Accepted Answer

Autonomous expenditures include planned investment, government purchases, net exports, and the autonomous part of consumption. Here, autonomous consumption is $500, so the total is $500 (consumption) + $200 (investment) + $300 (government) + $100 (net exports) = $1,100.

Question 5

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. If government purchases increases by $200 billion, the aggregate expenditures curve will shift up by
A) $200 billion.
B) $200 billion *the multiplier.
C) $200 billion * marginal propensity to consume.
D) $200 billion *(1 ÷ marginal propensity to consume).

Accepted Answer

Government purchases are an autonomous component of aggregate expenditure. An increase in government purchases will shift the aggregate expenditure curve up by the full amount of the increase.

Question 6

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift upwards?
A) Foreign economies go into a recession and buy less domestically produced goods.
B) Households become more present oriented and decrease the autonomous component of saving.
C) Firms expect future profits to fall and cut investments accordingly.
D) The government cuts spending on healthcare.

Accepted Answer

If households become more present oriented and decrease the autonomous component of saving, this means they are spending more in the current period. This increase in consumption will shift the aggregate expenditures curve upwards. The other events listed either decrease autonomous consumption or decrease other components of aggregate expenditure, leading to a downward shift of the aggregate expenditures curve.

Question 7

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. If the consumption function is
C = $500 + 0.8Y, planned investment = $200, government purchases = $300,
Net exports = $100, and real GDP = $1,000, what is the amount of aggregate expenditures?
A) $800
B) $1,000
C) $1,100
D) $1,900

Accepted Answer

Aggregate expenditures are calculated as the sum of consumption, planned investment, government purchases, and net exports. Consumption is $500 + 0.8($1,000) = $1,300. Adding planned investment ($200), government purchases ($300), and net exports ($100) gives $1,300 + $200 + $300 + $100 = $1,900.

Question 8

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to save is 0.1?
A) 1
B) 4
C) 5
D) 10

Accepted Answer

The answer of In the simple aggregate expenditure model where...

Question 9

Suppose the slope of the aggregate expenditures curve is 0.75. An increase in autonomous investment expenditure of $6 billion would produce an ultimate increase in equilibrium real GDP of
A) $0.25 billion.
B) $6 billion.
C) $12 billion.
D) $24 billion.

Accepted Answer

The multiplier effect is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. Here, the slope of the aggregate expenditures curve is the MPC, which is 0.75. The multiplier is 1/(1-0.75) = 4. Therefore, an increase in autonomous investment of $6 billion would increase equilibrium real GDP by 4 * $6 billion = $24 billion.

Question 10

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to consume is 0.75?
A) 1
B) 4
C) 5
D) infinity

Accepted Answer

The answer of In the simple aggregate expenditure model where...

Question 11

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $1,000 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?
A) The multiplier is 2.5.
B) The MPC = 0.5.
C) The MPC = 0.75.
D) The MPC = 0.8.

Accepted Answer

The multiplier equals the change in equilibrium output divided by the change in autonomous expenditure. Therefore, the multiplier equals 2.5/1000 = 2.5. The MPC cannot be determined from the information given.

Question 12

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. If the consumption function is
C = $500 + 0.8Y, planned investment = $200, government purchases = $300,
Net exports = $100, and real GDP = $1,000, what is the amount of induced expenditures?
A) $500
B) $800
C) $1,100
D) $1,900

Accepted Answer

Autonomous expenditures = investment + government purchases + net exports 
= $200 + $300 + $100 = $600

Planned aggregate expenditure = autonomous expenditures + induced expenditures 
Real GDP (Y) = planned aggregate expenditure

Therefore, induced expenditures = Y - autonomous expenditures 
= $1,000 - $600 
= $400

However, since consumption is not fully autonomous and depends on income, we need to calculate consumption expenditure based on the given consumption function: 
C = $500 + 0.8Y 
= $500 + 0.8($1,000) 
= $1,300

Planned aggregate expenditure = C + I + G + NX 
= $1,300 + $200 + $300 + $100 
= $1,900

Induced expenditures = planned aggregate expenditure - autonomous expenditures 
= $1,900 - $600 
= $1,300

But we need to subtract the autonomous consumption from this to get the induced expenditure: 
Induced expenditure = $1,300 - $500 
= $800

Therefore, the amount of induced expenditures is $800.

Question 13

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift upwards?
A) an increase in taxes
B) an increase in exports
C) a decrease in the national debt
D) a decrease in interest rate

Accepted Answer

Since all components of aggregate expenditure are assumed to be autonomous except for consumption, an increase in exports (a component of net exports) would cause an upward shift in the aggregate expenditures curve. None of the other options would have an effect on autonomous aggregate expenditure components.

Question 14

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift downwards?
A) a decrease in taxes
B) an increase in imports
C) an increase in government spending
D) an increase in investment

Accepted Answer

An increase in imports would decrease net exports (NX = exports - imports), which in turn would decrease aggregate expenditure (AE = C + I + G + NX). Therefore, the aggregate expenditures curve would shift downwards.

Question 15

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve increases, the multiplier
A) increases.
B) decreases.
C) remains constant.
D) is undefined.

Accepted Answer

If the slope of the aggregate expenditure curve increases, it means that a given change in income will result in a larger change in aggregate expenditure. This means that the multiplier will increase as well, since the multiplier measures the amount by which a change in autonomous expenditure is amplified by the economy's response to that change. Therefore, the correct answer is A.

Question 16

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $500 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?
A) The MPS = 0.8.
B) The MPC = 0.2
C) The MPS = 0.2.
D) The MPC = 5.

Accepted Answer

The multiplier effect is calculated as the change in GDP divided by the change in autonomous spending, which is $2,500 billion / $500 billion = 5. The multiplier is also equal to 1/(1-MPC), so 5 = 1/(1-MPC). Solving for MPC gives MPC = 0.8, and since MPS = 1 - MPC, MPS = 0.2.

Question 17

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the slope of the aggregate expenditures curve is 0.8?
A) 1
B) 4
C) 5
D) Cannot be determined without information on marginal propensity to consume.

Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. If the slope of the aggregate expenditures curve is 0.8, it implies that the MPC is 0.8. Therefore, the multiplier is 1/(1-0.8) = 5.

Question 18

Use the following to answer questions .
Exhibit: Real GDP and the Multiplier
 
-(Exhibit: Real GDP and the Multiplier) What is the value of the marginal propensity to consume?
A) 0.5
B) 0.6
C) ⅔
D) 0.75

Accepted Answer

The multiplier is 2, and the formula for the multiplier is 1/(1-MPC). Solving for MPC, we get 0.6.

Question 19

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. The marginal propensity to consume is 0.8. Suppose the equilibrium level of real GDP at the prevailing price is $500 billion below potential real GDP. All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?
A) $625 billion
B) $500 billion
C) $400 billion
D) $100 billion

Accepted Answer

The spending multiplier is 1/(1-MPC) = 1/(1-0.8) = 5. To close a $500 billion gap, autonomous expenditures should increase by $500 billion / 5 = $100 billion.

Question 20

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve decreases, the multiplier
A) increases.
B) decreases.
C) remains constant.
D) is undefined.

Accepted Answer

The multiplier is inversely related to the slope of the aggregate expenditures curve. If the slope decreases, it means the marginal propensity to consume is lower, leading to a smaller multiplier.

Quiz 13: Consumption and the Aggregate Expenditures Model

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, the size of the multiplier depends on the

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift downwards?

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. If government purchases increases by $200 billion, the aggregate expenditures curve will shift up by

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift upwards?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to save is 0.1?

Suppose the slope of the aggregate expenditures curve is 0.75. An increase in autonomous investment expenditure of $6 billion would produce an ultimate increase in equilibrium real GDP of

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to consume is 0.75?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $1,000 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift upwards?

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift downwards?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve increases, the multiplier

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $500 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the slope of the aggregate expenditures curve is 0.8?

Use the following to answer questions . Exhibit: Real GDP and the Multiplier -(Exhibit: Real GDP and the Multiplier) What is the value of the marginal propensity to consume?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve decreases, the multiplier