Question 1

As disposable income _{--------------------}planned consumption expenditure _{--------------------} A)decreases; remains the same, since it is autonomous expenditure B)increases; increases C)increases; decreases D)increases; changes only if net taxes also change E)decreases; increases

Accepted Answer

As disposable income increases, planned consumption expenditure typically increases because people have more income to spend.

Question 2

When aggregate planned expenditure exceeds real GDP, there is
A)an unplanned decrease in inventories.
B)a planned decrease in inventories.
C)an unplanned decrease in the price level.
D)a planned increase in inventories.
E)an unplanned increase in inventories.

Accepted Answer

When aggregate planned expenditure exceeds real GDP, firms sell more than they expected, leading to an unplanned decrease in inventories as they need to use their stock to meet the higher demand.

Question 3

In Germany, expected future income increased during 2010. This increase lead to
A)a movement downward along the consumption function.
B)no movement along the consumption function and no shift of the consumption function.
C)a downward shift of the consumption function.
D)a movement upward along the consumption function.
E)an upward shift of the consumption function.

Accepted Answer

An increase in expected future income typically leads to an upward shift of the consumption function, as people are likely to consume more at each level of current income.

Question 4

If the price level increases, the AE curve shifts
A)downward and there is a movement along the AD curve.
B)upward and the AD curve shifts rightward.
C)upward and there is a movement along the AD curve.
D)downward and the AD curve shifts rightward.
E)upward and the AD curve shifts leftward.

Accepted Answer

When the price level increases, the aggregate expenditure (AE) curve shifts downward, leading to a movement along the aggregate demand (AD) curve, not a shift of the AD curve itself.

Question 5

The expenditure multiplier equals 5 and there is a $3 million increase in investment. Equilibrium expenditure
A)increases by $0.60 million.
B)increases by $15 million.
C)increases by $3 million.
D)decreases by $15 million.
E)increases by $5 million.

Accepted Answer

The expenditure multiplier indicates how much total output will change in response to a change in autonomous spending. With a multiplier of 5, a $3 million increase in investment will increase equilibrium expenditure by 5 times $3 million, which is $15 million.

Question 6

When the real interest rate falls, the consumption function
A)shifts upward.
B)does not shift and there is a movement downward along the consumption function.
C)does not shift and there is no movement along the consumption function.
D)does not shift and there is a movement upward along the consumption function.
E)shifts downward.

Accepted Answer

When the real interest rate falls, the consumption function shifts upward because consumers are encouraged to borrow more and spend more.

Question 7

Equilibrium expenditure is the level of expenditure at which
A)aggregate planned expenditure plus planned changes in inventories equals real GDP.
B)firms' inventories are zero.
C)firms' inventories are at the desired level.
D)aggregate planned expenditure minus planned changes in inventories equals real GDP.
E)firms produce more output than they sell.

Accepted Answer

Equilibrium expenditure occurs when aggregate planned expenditure equals real GDP, meaning firms' inventories are at the desired level, with no unplanned changes.

Question 8

$\begin{array}{rccc}\hline &\text { Consumption }&&\text { Government }\
\text { Real GDP, } Y &\text { expenditure, } C& \text { Investment, } I& \text { expenditure, } G\
\text { (billions of } & \text { (billions of } & \text { (billions of } & \text { (billions of } \
\text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) }\\hline
15 & 6 & 5 & 5 \
20 & 10 & 5 & 5 \
25 & 14 & 5 & 5 \
30 & 18 & 5 & 5 \
35 & 22 & 5 & 5\
\hline
\end{array}$
The above table contains information about the nation of Syldavia
- There are no income taxes or
Imports in this nation. The expenditure multiplier is equal to
A)10.
B)0.8.
C)5.
D)2.
E)1.25.

Accepted Answer

The answer of \(\begin{array}{rccc}\hline &\text { Consumption }&&\text { Government...

Question 9

$\begin{array} { c c c c c c } 
\hline \begin{array} { r } 
\text { Real GDP, } Y \
\text { (trillions of }
\end{array} & \begin{array} { c } 
\text { Consumption } \
\text { expenditure, } C \
\text { (trillions of }
\end{array} & \begin{array} { c } 
\text { Investment, } I \
\text { (trillions of }
\end{array} & \begin{array} { c } 
\text { Government } \
\text { expenditure, } G \
\text { (trillions of }
\end{array} & \begin{array} { c } 
\text { Exports, } X \
\text { (trillions of }
\end{array} & \begin{array} { c } 
\text { Imports, } M \
\text { (trillions of }
\end{array} \
\text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars ) } \
\hline 0.00 & 0.00 & 1.75 & 1.00 & 0.75 & 0.00 \
3.00 & 2.00 & 1.75 & 1.00 & 0.75 & 0.75 \
6.00 & 4.00 & 1.75 & 1.00 & 0.75 & 1.50 \
9.00 & 6.00 & 1.75 & 1.00 & 0.75 & 2.25 \
12.00 & 8.00 & 1.75 & 1.00 & 0.75 & 3.00 \
\hline
\end{array}$The above table gives data for the nation of Mojo. At what level of real GDP is the unplanned inventory change equal to $1.75 trillion?
A)$9.0 trillion
B)$3.0 trillion
C)$6.0 trillion
D)$12.0 trillion
E)$0.0 trillion

Accepted Answer

Unplanned inventory change is equal to the difference between actual GDP and aggregate expenditure (C + I + G + X - M). At $9.0 trillion GDP, aggregate expenditure is $7.25 trillion, resulting in an unplanned inventory change of $1.75 trillion.

Question 10

In the range of disposable income where the consumption function lies above the 45° line,
A)induced consumption is zero.
B)disposable income is negative.
C)saving is negative.
D)saving is positive.
E)disposable income equals planned expenditures.

Accepted Answer

When the consumption function is above the 45° line, consumption exceeds disposable income, resulting in negative saving.

Question 11

The MPC is equal to the
A)level of consumption expenditure divided by the level of total disposable income that brought it about.
B)level of consumption divided by the change in disposable income that brought it about.
C)change in consumption expenditure divided by the total disposable income that brought it about.
D)change in disposable income divided by the change in consumption expenditure.
E)change in consumption expenditure divided by the change in disposable income that brought it about.

Accepted Answer

The Marginal Propensity to Consume (MPC) is defined as the change in consumption expenditure divided by the change in disposable income that brought it about.

Question 12

Real GDP is $13 trillion and aggregate planned expenditure is $14 trillion. As a result, unplanned inventory change is _{--------------------} and real GDP _{--------------------}. A)negative; decreases B)negative; does not change C)positive; increases D)negative; increases E)positive; decreases

Accepted Answer

When aggregate planned expenditure exceeds real GDP, it indicates that demand is higher than the current production, leading to a decrease in unplanned inventories. This situation typically results in an increase in real GDP as production is ramped up to meet the higher demand.

Question 13

If aggregate planned expenditures are less than real GDP, then
A)there is no equilibrium level of real GDP.
B)inventories decrease below their planned levels and businesses increase their production.
C)inventories increase above their planned levels and businesses decrease their production.
D)unplanned inventory changes equal zero.
E)inventories increase above their planned levels and businesses increase their production.

Accepted Answer

When aggregate planned expenditures are less than real GDP, businesses experience an unplanned increase in inventories, leading them to decrease production to align with the lower level of demand.

Question 14

What is the key difference between the aggregate expenditure model and the aggregate
Demand/aggregate supply model?
A)the aggregate expenditure model assumes that real GDP is fixed
B)monetary and real factors interact in the aggregate demand/aggregate supply model
C)the aggregate expenditure model examines monetary policy whereas the aggregate demand/aggregate supply model does not
D)the aggregate demand/aggregate supply model assumes that the price level is fixed
E)the aggregate expenditure model assumes that the price level is fixed

Accepted Answer

The answer of What is the key difference between the...

Question 15

$\begin{array}{rccc}\hline &\text { Consumption }&&\text { Government }\
\text { Real GDP, } Y &\text { expenditure, } C& \text { Investment, } I& \text { expenditure, } G\
\text { (billions of } & \text { (billions of } & \text { (billions of } & \text { (billions of } \
\text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) }\\hline
15 & 6 & 5 & 5 \
20 & 10 & 5 & 5 \
25 & 14 & 5 & 5 \
30 & 18 & 5 & 5 \
35 & 22 & 5 & 5\
\hline
\end{array}$
-

The above table gives data for the nation of Mouseville. There are no imports into or exports from Mouseville. Unplanned inventory changes are zero when real GDP equals
A)$500 billion.
B)$900 billion.
C)$300 billion.
D)$800 billion.
E)$700 billion.

Accepted Answer

The answer of \(\begin{array}{rccc}\hline &\text { Consumption }&&\text { Government...

Question 16

$\begin{array}{rccc}\hline &\text { Consumption }&&\text { Government }\
\text { Real GDP, } Y &\text { expenditure, } C& \text { Investment, } I& \text { expenditure, } G\
\text { (billions of } & \text { (billions of } & \text { (billions of } & \text { (billions of } \
\text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) }\\hline
15 & 6 & 5 & 5 \
20 & 10 & 5 & 5 \
25 & 14 & 5 & 5 \
30 & 18 & 5 & 5 \
35 & 22 & 5 & 5\
\hline
\end{array}$
The above table contains information about the nation of Syldavia. 
-There are no income taxes or imports in this nation. The equilibrium expenditure is
A)$15 billion.
B)$25 billion.
C)$30 billion.
D)$10 billion.
E)$20 billion.

Accepted Answer

The answer of \(\begin{array}{rccc}\hline &\text { Consumption }&&\text { Government...

Question 17

During 2012, a country has consumption expenditures of $3.0 trillion, investment expenditures of
$1.5 trillion, government expenditure of $1.5 trillion, exports of $1.0 trillion, and imports of $1.5
Trillion. Aggregate expenditure for the country is
A)$6.0 trillion.
B)$6.5 trillion.
C)$8.5 trillion.
D)$5.5 trillion.
E)$7.0 trillion.

Accepted Answer

The answer of During 2012, a country has consumption expenditures...

Question 18

In an economy with no income taxes or imports, the marginal propensity to consume is 0.80. The
Expenditure multiplier is
A)10.0.
B)0.20.
C)1.25.
D)5.00.
E)0.80.

Accepted Answer

The expenditure multiplier is calculated as 1/(1-MPC). With an MPC of 0.80, the multiplier is 1/(1-0.80) = 5.00.

Question 19

An economy has no imports or income taxes. An increase in autonomous expenditure of $40 billion
Increases equilibrium expenditure by $160 billion. The expenditure multiplier equals
A)16.
B)2.
C)4.
D)8.
E)6.

Accepted Answer

The expenditure multiplier is calculated as the change in equilibrium expenditure divided by the change in autonomous expenditure. Here, it is $160 billion / $40 billion = 4.

Question 20

$\begin{array} { c c } 
\hline \begin{array} { c } 
\text { Disposable income } \
\text { (trillions of 2005 dollars) }
\end{array} & \begin{array} { c } 
\text { Consumption expenditure } \
\text { (trillions of 2005 dollars) }
\end{array} \
\hline 0.0 & 1.5 \
2.0 & 3.0 \
4.0 & 4.5 \
6.0 & 6.0 \
8.0 & 7.5 \
\hline
\end{array}$
-
The above table has data from the nation of Atlantica. Based on these data, when disposable income equals 2.0 there is
A)savings of $1.0 trillion.
B)dissavings of $3.0 trillion.
C)savings of $3.0 trillion.
D)dissavings of $1.0 trillion.
E)dissavings of $5.0 trillion.

Accepted Answer

When disposable income is 2.0 trillion, consumption expenditure is 3.0 trillion, indicating that consumption exceeds income by 1.0 trillion, resulting in dissavings of 1.0 trillion.

Quiz 14: Aggregate Expenditure Multiplier

As disposable income --------------------planned consumption expenditure --------------------

When aggregate planned expenditure exceeds real GDP, there is

In Germany, expected future income increased during 2010. This increase lead to

If the price level increases, the AE curve shifts

The expenditure multiplier equals 5 and there is a $3 million increase in investment. Equilibrium expenditure

When the real interest rate falls, the consumption function

Equilibrium expenditure is the level of expenditure at which

In the range of disposable income where the consumption function lies above the 45° line,

The MPC is equal to the

Real GDP is $13 trillion and aggregate planned expenditure is $14 trillion. As a result, unplanned inventory change is -------------------- and real GDP --------------------.

If aggregate planned expenditures are less than real GDP, then

What is the key difference between the aggregate expenditure model and the aggregate Demand/aggregate supply model?

During 2012, a country has consumption expenditures of $3.0 trillion, investment expenditures of $1.5 trillion, government expenditure of $1.5 trillion, exports of $1.0 trillion, and imports of $1.5 Trillion. Aggregate expenditure for the country is

In an economy with no income taxes or imports, the marginal propensity to consume is 0.80. The Expenditure multiplier is

An economy has no imports or income taxes. An increase in autonomous expenditure of $40 billion Increases equilibrium expenditure by $160 billion. The expenditure multiplier equals

As disposable income _{--------------------}planned consumption expenditure _{--------------------}

Real GDP is $13 trillion and aggregate planned expenditure is $14 trillion. As a result, unplanned inventory change is _{--------------------} and real GDP _{--------------------}.