Question 1

An increase in investment spending results in a ________ the aggregate expenditure curve and ________ the aggregate demand curve.

Accepted Answer

An increase in investment spending results in a shift in the aggregate expenditure curve (because investment is a component of aggregate expenditure) and a shift in the aggregate demand curve (because investment also affects aggregate demand).

Question 2

The multiplier measures the

Accepted Answer

The answer of The multiplier measures the
...

Question 3

If investment decreases,the AE curve shifts

Accepted Answer

When investment decreases, it leads to a decrease in Aggregate Expenditure (AE). This causes the AE curve to shift downward. As a result, the equilibrium level of output and income decreases, which is represented by a leftward shift in the Aggregate Demand (AD) curve. Therefore, option B is the correct answer.

Question 4

An increase in ________ shifts the AE curve ________ and an increase in ________ shifts the aggregate demand curve ________.

Accepted Answer

The answer of An increase in ________ shifts the AE...

Question 5

Suppose that in a particular economy,the multiplier is equal to 5.In terms of aggregate demand and aggregate supply,this value for the multiplier means that after an increase in investment

Accepted Answer

The multiplier indicates the amount by which a change in autonomous expenditure (such as investment) will affect equilibrium real GDP. A multiplier of 5 means that a $1 increase in investment will lead to a $5 increase in equilibrium real GDP. This is achieved through the multiplier process, where the initial increase in investment leads to an increase in income, which in turn leads to an increase in consumption, and so on. As a result, the aggregate demand curve shifts rightward by an amount equal to 5 times the change in investment at each price level. Therefore, the correct answer is D.

Question 6

When autonomous expenditure changes,the horizontal distance by which the aggregate demand curve shifts

Accepted Answer

The horizontal distance by which the aggregate demand curve shifts when autonomous expenditure changes depends on the size of the multiplier. The multiplier determines the size of the change in aggregate demand that results from a change in autonomous expenditure.

Question 7

Which of the following shifts the aggregate expenditure curve AND shifts the aggregate demand curve?
I. a decrease in investment
II. a change in the price level
III. an increase in exports

Accepted Answer

I (a decrease in investment) and III (an increase in exports) both shift the aggregate expenditure curve and the aggregate demand curve. A change in the price level (II) shifts the aggregate demand curve but does not shift the aggregate expenditure curve, as it is a movement along the curve rather than a shift of the curve itself.

Question 8

A fall in the price level

Accepted Answer

A fall in the price level will increase the purchasing power of consumers, leading to an increase in aggregate expenditure at each level of real GDP. This shift will move the aggregate expenditure curve upward and increase the quantity of real GDP demanded.

Question 9

An increase in the price level results in a

Accepted Answer

An increase in the price level results in a decrease in the real value of money, which typically reduces consumption and investment. This is represented by a downward shift in the Aggregate Expenditure (AE) curve, as people and businesses are likely to spend less at higher price levels. It also results in a movement up along the Aggregate Demand (AD) curve because the AD curve shows the relationship between the price level and the quantity of output demanded, holding everything else constant. As the price level increases, the quantity of goods and services demanded decreases, which is shown by moving up along the AD curve (since it is downward sloping).

Question 10

Any change in the price level will result in a

Accepted Answer

The answer of Any change in the price level will...

Question 11

The larger the multiplier,the ________ the AE curve and the ________ the AD curve from an increase in investment.

Accepted Answer

A larger multiplier means that a given change in investment will have a greater overall impact on the economy, leading to a steeper AE curve (since AE is the sum of consumption and investment). This will also cause a larger shift in the AD curve (which shows the total amount of goods and services demanded at different price levels). Therefore, option B is the correct answer.

Question 12

If the price level increases,the AE curve shifts

Accepted Answer

The answer of If the price level increases,the AE curve...

Question 13

In general,an increase in autonomous expenditure that is NOT created by a change in the price level results in a

Accepted Answer

An increase in autonomous expenditure (such as government spending or consumer spending) shifts the aggregate demand (AD) curve rightward, as it increases the total amount of goods and services demanded at each price level. A movement upward or downward along the AD curve occurs due to a change in the price level, not autonomous expenditure. A leftward shift of the AD curve occurs when there is a decrease in autonomous expenditure.

Question 14

An increase in the price level decreases planned expenditures because

Accepted Answer

An increase in the price level means that goods and services are more expensive, which reduces the purchasing power of income. This leads to a decrease in planned expenditures as people are less likely to spend money at higher prices. Additionally, when current prices rise relative to future prices, it incentivizes consumers to delay purchases until prices potentially fall in the future, further decreasing planned expenditures.

Question 15

An increase in the price level decreases planned expenditure because

Accepted Answer

An increase in the price level decreases the purchasing power of consumers' income, decreasing their real wealth. As a result, consumers reduce their expenditure, leading to a decrease in planned expenditure. Option B is incorrect because an increase in current prices relative to future prices would decrease expenditure as people would reduce spending today to save for future purchases. Option C is incorrect because an increase in domestic prices relative to foreign prices would decrease net exports as exports become more expensive for foreign buyers. Option D is incorrect because an increase in the real interest rate would also decrease planned expenditure as borrowing becomes more expensive, leading to a decrease in consumption expenditure.

Question 16

Because the short-run aggregate expenditure model assumes that the price level is ________,its predicted effect of changes in autonomous expenditure on equilibrium output is ________ than the prediction of the AD/SAS model.

Accepted Answer

In the short-run aggregate expenditure model, the price level is assumed to be fixed, which means that changes in autonomous expenditure have a more direct and significant impact on equilibrium output compared to the AD/SAS model, where prices can adjust.

Question 17

Intertemporal substitution means changes in purchases

Accepted Answer

Intertemporal substitution refers to changes in purchases over time. It is the idea that individuals can adjust their consumption patterns over time based on changes in prices, income, and preferences.

Question 18

In an economy,the multiplier is 3.If government expenditure increases by $1 million,then in the short run,the price level ________ and real GDP ________ $3 million.

Accepted Answer

The multiplier effect means that an initial increase in government expenditure will lead to a larger increase in real GDP. In this case, with a multiplier of 3, the final increase in real GDP will be $3 million. However, in the short run, prices may also rise due to increased demand, leading to a smaller increase in real GDP than the initial $3 million. Therefore, option C is correct as prices will rise and real GDP will increase by less than $3 million.

Question 19

A shift in the aggregate expenditure curve as a result of an increase in the price level results in a

Accepted Answer

The answer of A shift in the aggregate expenditure curve...

Question 20

Which of the following shifts the aggregate demand curve rightward?

Accepted Answer

An increase in government expenditure will shift the aggregate demand curve rightward because it increases the amount of money the government is spending in the economy, which increases aggregate demand. A decrease in investment (option D) would shift the aggregate demand curve leftward because it decreases demand for goods and services. An increase in the price level (option A) would also shift the aggregate demand curve leftward because it would decrease consumer spending. An increase in the income tax rate (option B) would decrease consumer spending and shift the aggregate demand curve leftward.

Quiz 11: Expenditure Multipliers

An increase in investment spending results in a the aggregate expenditure curve and the aggregate demand curve.