Question 1

Suppose the level of autonomous spending decreases at a given price level.How does this relate to the aggregate expenditure line and the aggregate demand curve?  
A) The aggregate expenditure line shifts upward, and the economy moves along the aggregate demand curve. 
B) The aggregate expenditure line shifts downward, and the economy moves along the aggregate demand curve. 
C) The aggregate expenditure line shifts upward, and the aggregate demand curve shifts to the right. 
D) The aggregate expenditure line shifts downward, and the aggregate demand curve shifts to the left.

Accepted Answer

A decrease in autonomous spending leads to a decrease in aggregate expenditure at every price level, which shifts the aggregate expenditure line downward. This, in turn, leads to a decrease in real GDP and a decrease in price level, which shifts the aggregate demand curve to the left. Therefore, the correct choice is D, i.e., "The aggregate expenditure line shifts downward, and the aggregate demand curve shifts to the left."

Question 2

Which of the following best characterizes the relationship between the aggregate demand curve and the aggregate expenditure line?  
A) If the aggregate expenditure line shifts while prices are constant, the resulting change in equilibrium output demanded is depicted as a movement along the aggregate demand curve. 
B) If the aggregate expenditure line shifts while prices are constant, the resulting change in equilibrium output demanded is depicted as a shift of the aggregate demand curve. 
C) If the aggregate expenditure line shifts, the aggregate demand curve also shifts. 
D) If a movement occurs along the aggregate expenditure curve, movement also occurs along the aggregate demand curve.

Accepted Answer

The relationship between the aggregate demand curve and the aggregate expenditure line is such that a shift in the aggregate expenditure line while prices are constant leads to a corresponding shift in the aggregate demand curve. This is because the aggregate expenditure line represents the level of aggregate expenditure at each level of output, while the aggregate demand curve shows the relationship between the price level and the level of real GDP demanded. A shift in the aggregate expenditure line indicates a change in one of the components of aggregate expenditure (consumption, investment, government spending, or net exports) that affects output demanded at each price level. This change in output demanded is depicted as a shift in the aggregate demand curve, rather than a movement along it.

Question 3

Which of the following would result from an increase in planned investment?  
A) an outward shift in the aggregate demand curve 
B) an inward shift in the aggregate demand curve 
C) an outward shift in the aggregate supply curve 
D) an inward shift in the aggregate supply curve

Accepted Answer

An increase in planned investment would lead to an increase in the aggregate demand, resulting in an outward shift of the aggregate demand curve. This is because when firms invest more, they increase their production and hire more workers, which in turn increases the consumption and output, contributing to an overall increase in the economy's demand.

Question 4

Suppose the level of autonomous spending increases at a given price level.How does this relate to the aggregate expenditure line and aggregate demand?  
A) The aggregate expenditure line shifts upward, and the economy moves upward along the aggregate demand curve. 
B) The aggregate expenditure line shifts downward, and the economy moves upward along the aggregate demand curve. 
C) The aggregate expenditure line shifts upward, and the aggregate demand curve shifts to the right. 
D) The aggregate expenditure line shifts downward, and the aggregate demand curve shifts to the left.

Accepted Answer

When the level of autonomous spending increases at a given price level, the aggregate expenditure line shifts upward. This is because autonomous spending is a component of aggregate expenditure. As a result, at every price level, aggregate expenditure will be higher than before, causing the aggregate demand curve to shift to the right. Therefore, the correct answer is C, which states that the aggregate expenditure line shifts upward, and the aggregate demand curve shifts to the right.

Question 5

What shift would result from a decrease in planned investment?  
A) The aggregate demand curve would shift outward. 
B) The aggregate demand curve would shift inward. 
C) The aggregate supply curve would shift inward. 
D) The aggregate supply curve would shift outward.

Accepted Answer

A decrease in planned investment would lead to a decrease in overall spending in the economy, which would cause a decrease in aggregate demand. This would result in a shift of the aggregate demand curve inward.

Question 6

Suppose that a pair of graphs represents a situation in which the aggregate expenditure line and the aggregate demand curve have shifted.What change caused the shift of the aggregate expenditure line?  
A) a change in disposable income 
B) a change in the level of income 
C) a change in autonomous investment 
D) a change in the level of real GDP

Accepted Answer

A shift in the aggregate expenditure line could be caused by a change in any of the four components of aggregate expenditure (which are consumption, investment, government spending, and net exports). However, since the question specifically mentions the aggregate demand curve, which includes only the components of aggregate expenditure other than investment, it suggests that the shift in this case was most likely caused by a change in autonomous investment (which refers to investment spending that is not directly influenced by changes in GDP).

Question 7

How would an economist use an aggregate expenditure line to show how an aggregate demand curve shifts?  
A) by letting changes in autonomous spending shift the aggregate expenditure line 
B) by letting changes in the price level shift the aggregate expenditure line 
C) by letting changes in the level of income shift the aggregate expenditure line 
D) by letting changes in real GDP shift the aggregate expenditure line

Accepted Answer

An economist would use an aggregate expenditure line to show how an aggregate demand curve shifts by letting changes in autonomous spending shift the aggregate expenditure line. Autonomous spending includes government spending, investment, and net exports, which are not influenced by changes in income or the price level. Therefore, any changes in these components will cause the aggregate expenditure line to shift, leading to a shift in the aggregate demand curve. Changes in the price level or the level of income would lead to movements along the aggregate expenditure line, rather than shifts in the curve.

Quiz 10: Aggregate Expenditure and Aggregate Demand

Suppose the level of autonomous spending decreases at a given price level.How does this relate to the aggregate expenditure line and the aggregate demand curve?

Which of the following best characterizes the relationship between the aggregate demand curve and the aggregate expenditure line?

Which of the following would result from an increase in planned investment?

Suppose the level of autonomous spending increases at a given price level.How does this relate to the aggregate expenditure line and aggregate demand?

What shift would result from a decrease in planned investment?

Suppose that a pair of graphs represents a situation in which the aggregate expenditure line and the aggregate demand curve have shifted.What change caused the shift of the aggregate expenditure line?

How would an economist use an aggregate expenditure line to show how an aggregate demand curve shifts?