Question 1

'Consumption spending' refers to ________ spending on goods and services.
A)household
B)business
C)government
D)foreign

Accepted Answer

Consumption spending refers to spending by households on goods and services. Business spending is referred to as investment spending, government spending is referred to as government spending, and spending by foreign entities is referred to as exports.

Question 2

'Actual investment' spending includes spending by consumers on:
A)durable goods.
B)non-durable goods.
C)new houses.
D)services.

Accepted Answer

Actual investment spending includes spending on fixed assets such as new houses. Spending on durable and non-durable goods as well as services are classified as consumption spending.

Question 3

Which of the following is not one of the four main categories of spending identified by John Maynard Keynes?
A)consumption
B)planned investment
C)government purchases
D)transfer payments

Accepted Answer

The four main categories of spending identified by John Maynard Keynes are consumption, planned investment, government purchases, and net exports. Transfer payments are not included in these categories as they do not represent spending on goods and services but rather payments made without receiving a good or service in return, such as welfare or social security payments.

Question 4

At macroeconomic equilibrium, total ________ equals total ________.
A)spending; production
B)investment; inventories
C)consumption; production
D)taxes; transfer payments

Accepted Answer

At macroeconomic equilibrium, total spending equals total production, which means that everything produced is being consumed or invested, with no excess inventory or deficiency in demand. Therefore, choice A (spending; production) is the best answer. Choices B, C, and D do not represent the balance of the economy at equilibrium.

Question 5

Consumption spending is $6 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 the GDP?
A)$15 million
B)$22 million
C)$25 million
D)$27 million

Accepted Answer

The answer of Consumption spending is $6 million, planned investment...

Question 6

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

Accepted Answer

Household spending on goods and services is referred to as consumption spending.

Question 7

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 aggregate expenditure model suggests that the level of GDP is primarily determined by the level of aggregate expenditure, which includes consumer spending, investment spending, government spending, and net exports. While investment spending, export spending, and government spending can all have an impact on aggregate expenditure and therefore GDP, the key idea of the model is that the overall level of spending is the main driver of economic growth in a given year.

Question 8

'Investment spending' does not include:
A)spending on consumer durable goods.
B)spending on new capital equipment.
C)family purchases of new houses.
D)changes in inventories.

Accepted Answer

Investment spending typically includes spending on new capital equipment, family purchases of new houses, and changes in inventories, but not spending on consumer durable goods, which is considered consumption.

Question 9

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 primarily examines the relationship between total spending and real GDP in the short run, under the assumption that the price level remains constant.

Question 10

Macroeconomic equilibrium occurs when:
A)aggregate expenditure = GDP.
B)aggregate expenditure = C + I + G + NX.
C)real GDP = potential GDP.
D)aggregate income = planned inventories.

Accepted Answer

Macroeconomic equilibrium occurs when aggregate expenditure, which is the sum of consumption, investment, government spending, and net exports, is equal to GDP. This means that there is no unplanned change in inventories and the economy is running at a stable level. Real GDP equal to potential GDP is an indication of full employment, while aggregate income equal to planned inventories shows only a point on the production possibility frontier, but does not necessarily indicate macroeconomic equilibrium.

Question 11

Consumption spending is $6 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 the aggregate expenditure?
A)$15 million
B)$23 million
C)$25 million
D)$26 million

Accepted Answer

The answer of Consumption spending is $6 million, planned investment...

Question 12

If firms find that consumers are purchasing more than expected, which of the following would you expect?
A)Aggregate expenditure will likely be greater than GDP.
B)Aggregate expenditure will likely be less than GDP.
C)The economy will adjust to macroeconomic equilibrium as inventories rise and production and employment rise.
D)The economy will adjust to macroeconomic equilibrium as inventories fall and production and employment rise.

Accepted Answer

When consumers purchase more than expected, aggregate expenditure exceeds GDP, leading to a decrease in inventories and prompting firms to increase production and employment to meet the higher demand.

Question 13

Which of the following is not a component of aggregate expenditure?
A)consumption spending
B)planned investment spending
C)actual investment spending
D)government spending

Accepted Answer

Actual investment spending refers to the actual amount of investment spending that has taken place, whereas planned investment spending is included in aggregate expenditure as it represents the amount that firms plan to invest. Therefore, actual investment spending is not a component of aggregate expenditure.

Question 14

When aggregate expenditure is more than GDP, which of the following is true?
A)There was an unplanned decrease in inventories.
B)Firms spent less on capital goods than they anticipated.
C)Households bought fewer new homes than they anticipated.
D)All of the above must be true when aggregate expenditure is more than GDP.

Accepted Answer

Aggregate expenditure includes consumption, investment, government spending, and net exports. When aggregate expenditure is more than GDP, it means that total spending in the economy is greater than the value of output produced. The only way this can happen is if there was an unplanned decrease in inventories, which means firms sold more goods than they intended and their inventories decreased. It does not necessarily imply that firms spent less on capital goods or that households bought fewer new homes than they had anticipated.

Question 15

Aggregate expenditure includes spending on:
A)C + I + G.
B)C + I + G - NX.
C)C + I + G + NX.
D)C + I + depreciation - NX.

Accepted Answer

Aggregate expenditure is the total spending on goods and services in an economy, and it includes consumption spending (C), investment spending (I), government spending (G), and net exports (NX). Therefore, choice C - C + I + G + NX - is the best choice as it includes all the components of aggregate expenditure.

Question 16

Goods that have been produced but not yet sold are referred to as:
A)understocks.
B)inventories.
C)pre-sold goods.
D)capital goods.

Accepted Answer

Goods that have been produced but not yet sold are referred to as inventories. Understocks refer to a situation where demand exceeds supply, pre-sold goods have already been sold before production, and capital goods are long-term assets used for producing other goods or services.

Question 17

During the Great Depression, economists first began studying the relationship between:
A)changes in GDP and changes in interest rates.
B)changes in aggregate expenditure and changes in GDP.
C)changes in nominal GDP and changes in real GDP.
D)changes in share prices and changes in price controls.

Accepted Answer

During the Great Depression, economists began studying the relationship between changes in aggregate expenditure (i.e. total spending in the economy) and changes in GDP. This led to the development of Keynesian economics, which focused on the role of government intervention in boosting aggregate demand to stimulate economic growth.

Question 18

When there is an unplanned decrease in inventories________.
A)actual inventory investment equals planned inventory investment.
B)actual inventory investment is less than planned inventory investment.
C)actual inventory investment is greater than planned inventory investment.
D)a firm experiences much higher sales than expected.

Accepted Answer

When there is an unplanned decrease in inventories, it means that actual inventory investment is less than planned inventory investment. This can happen due to factors such as unexpected decline in sales, supply chain disruptions, or overestimation of demand.

Question 19

If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium?
A)Inventories will decline and GDP and employment will decline.
B)Inventories will rise and GDP and employment will decline.
C)Inventories will decline and GDP and employment will rise.
D)Inventories will rise and GDP and employment will rise.

Accepted Answer

When aggregate expenditure is less than GDP, it means that the total spending in the economy is less than what the economy is producing. This leads to an accumulation of unsold goods, causing inventories to rise. Businesses respond by reducing production, which leads to a decline in GDP and employment until equilibrium is reached.

Question 20

Consumption is $6 million, planned investment spending is $7 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $24 million, what unplanned changes in inventories occurred?
A)There was an unplanned decrease in inventories equal to $3 million.
B)There was no unplanned change in inventories.
C)There was an unplanned increase in inventories equal to $3 million.
D)There was an unplanned decrease in inventories equal to $19 million.

Accepted Answer

The answer of Consumption is $6 million, planned investment spending...

Quiz 9: Aggregate Expenditure and Output in the Short Run

'Consumption spending' refers to ________ spending on goods and services.

'Actual investment' spending includes spending by consumers on:

Which of the following is not one of the four main categories of spending identified by John Maynard Keynes?

At macroeconomic equilibrium, total equals total .

Consumption spending is $6 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 the GDP?

Household spending on goods and services is known as:

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

'Investment spending' does not include:

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

Macroeconomic equilibrium occurs when:

Consumption spending is $6 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 the aggregate expenditure?

If firms find that consumers are purchasing more than expected, which of the following would you expect?

Which of the following is not a component of aggregate expenditure?

When aggregate expenditure is more than GDP, which of the following is true?

Aggregate expenditure includes spending on:

Goods that have been produced but not yet sold are referred to as:

During the Great Depression, economists first began studying the relationship between:

When there is an unplanned decrease in inventories________.

If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium?

Consumption is $6 million, planned investment spending is $7 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $24 million, what unplanned changes in inventories occurred?