Question 1

What is the marginal propensity to consume? Can the marginal propensity to consume be greater than 1?

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Question 2

Please explain the relationship between consumption, disposable income and saving.

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Question 3

What is the difference between movements along the consumption function and shifts in the consumption function? What factor or factors lead to movements along the consumption function and what factor or factors lead to shifts in the consumption function?

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Question 4

ʺAggregate planned expenditure is the sum of planned consumption expenditure, investment, government expenditure on goods and services, and exports minus imports.ʺ Is the previous statement correct or incorrect?

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Question 5

What is the marginal propensity to consume? Why it is an important concept?

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Question 6

What is the relationship between U.S. real GDP and U.S. imports?

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Question 7

What is the consumption function? What factor leads to a movement along the consumption function?

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Question 8

ʺThe global financial crisis has had a considerable impact on Chinaʹs export growth, which will continue to show weakness with recession in the U.S. and Europe,ʺ said a report by JP Morgan & Co.
If Chinese exports continue to decline, the AE curve will shift __________, the price level will__________In the short run and real GDP will__________ in the short run.

Accepted Answer

If Chinese exports continue to decline, the AE (aggregate expenditure) curve will shift downward as there will be less demand for Chinese goods. This will result in a decrease in the price level since there will be less demand for goods and services, causing a decrease in inflation. In the short run, real GDP will also decrease as there will be less demand for goods and services, causing a decrease in production and output.

Question 9

In 2007, investment in France increased by 7 billion euros. Which of following occurs?
i. an upward shift in the AE curve.
ii. a leftward shift in the AD curve.
iii. an increase in the price level and real GDP in the short run.
iv. an increase in the price level and no change in real GDP in the long run.

Accepted Answer

An increase in investment leads to an upward shift in the Aggregate Expenditure (AE) curve and an increase in real GDP and the price level in the short run. In the long run, the price level may increase, but real GDP remains unchanged due to the economy reaching its potential output.

Question 10

ʺThe global financial crisis has had a considerable impact on Chinaʹs export growth, which will continue to show weakness with recession in the U.S. and Europe,ʺ said a report by JP Morgan & Co.
If Chinese exports continue to decline, the AE curve will shift__________ , the price level will__________ In the long run and real GDP will __________in the long run.

Accepted Answer

A decline in Chinese exports would decrease aggregate demand, shifting the AE curve downward. In the long run, the price level will decrease, but real GDP will not change due to the economy's self-correcting mechanism.

Question 11

List the components of aggregate expenditure and describe how each of them change as real GDP increases.

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Question 12

Mauritius, an island off the coast of Africa, competes with other countries producing goods with low-skilled labor. In 2006, it was reported that its ʺ... factories have been exposed to ... competition from China, India and other Asian mass producers.ʺ As a result, ʺthe main export industry has seen a 30 per cent reduction in volume ...
The decrease in exports will cause __________and the price level will__________ .

Accepted Answer

A decrease in exports leads to a downward shift in the Aggregate Expenditure (AE) curve and a leftward shift in the Aggregate Demand (AD) curve, causing the price level to decrease in the short run.

Question 13

ʺSimilar to imports, U.S. exports depend on the level of U.S. real GDP so that if real GDP increases, U.S. exports increase.ʺ Explain whether the previous sentence is correct or incorrect.

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Question 14

What does the marginal propensity to consume measure and how is it related to the consumption function?

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Question 15

Define induced expenditure and autonomous expenditure. Which expenditure items are induced expenditure and which are autonomous expenditure?

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Question 16

What is the difference between induced and autonomous expenditure? Which components of aggregate expenditure fall under which category?

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Question 17

How is it possible for consumption expenditure to be positive even when disposable income is zero?

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Question 18

Discuss the link between real GDP and imports.

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Question 19

List and explain factors that influence consumption expenditure.

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Question 20

List the four components of aggregate expenditure. Explain the two -way link with real GDP.

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Quiz 11: Expenditure Multipliers: the Keynesian Model