Question 1

The formula for aggregate expenditure is
A)AE = C + I + G.
B)AE = C + I + G - NX.
C)AE = C + I + G + NX.
D)AE = C + I + depreciation - NX.

Accepted Answer

The formula for aggregate expenditure is AE = C + I + G + NX, where C is consumption expenditure, I is investment expenditure, G is government expenditure, and NX is net exports. This formula represents the total spending in an economy, including both domestic and foreign spending.

Question 2

All of the following are components of aggregate expenditure except
A)consumption spending.
B)net export spending.
C)actual investment spending.
D)government spending.

Accepted Answer

Actual investment spending is a component of gross domestic product (GDP), not aggregate expenditure. Aggregate expenditure includes consumption spending, government spending, and net export spending, which together determine the total demand for goods and services in an economy.

Question 3

A decrease in consumer confidence can put your job at risk if
A)aggregate expenditures fall.
B)consumers expect their incomes to rise in the future.
C)aggregate expenditures rise.
D)consumers expect firms to increase investment in the future.

Accepted Answer

A decrease in consumer confidence means that consumers are less likely to spend money, leading to a fall in aggregate expenditures. This can negatively impact businesses, which may result in layoffs and therefore put jobs at risk.

Question 4

Economists first began studying the relationship between changes in aggregate expenditures and changes in GDP
A)in the 1950s.
B)during the Great Depression.
C)at the end of the Civil War.
D)during the Industrial Revolution.

Accepted Answer

Economists began studying the relationship between changes in aggregate expenditures and changes in GDP more intensively during the Great Depression, as they sought to understand and respond to the economic crisis of that era.

Question 5

The aggregate expenditure model focuses on the ________ relationship between real spending and ________.
A)short-run; real GDP
B)short-run; inflation
C)long-run; real GDP
D)long-run; inflation

Accepted Answer

The aggregate expenditure model focuses on the short-run relationship between real spending (aggregate expenditure) and real GDP. In other words, it analyzes how changes in spending affect changes in the level of output in the economy. It does not focus on the long-run relationship or inflation.

Question 6

If inventories decline by more than analysts predict they will decline,this implies that
A)actual investment spending was greater than planned investment spending.
B)actual investment spending was less than planned investment spending.
C)actual investment spending was equal to than planned investment spending.
D)there is no relationship between actual investment spending and planned investment spending.

Accepted Answer

When inventories decline more than expected, it indicates that actual sales were higher than anticipated, leading to less inventory. This means that actual investment spending (which includes inventory changes) was less than planned, as businesses did not invest as much in inventory as they had planned.

Question 7

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 commonly referred to as consumption spending.

Question 8

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 focuses on the relationship between total spending and real GDP in the short run, assuming the price level is constant. This model is used to analyze the components of total spending and how they interact with output and income levels in the economy.

Question 9

When aggregate expenditure = GDP
A)macroeconomic equilibrium occurs.
B)the federal budget is balanced.
C)net exports equal zero.
D)saving equals zero.

Accepted Answer

When aggregate expenditure equals GDP, it means that the economy is in equilibrium. This implies that the amount of goods and services produced (GDP) is equal to the total expenditure on those goods and services (aggregate expenditure). This is the point where the economy experiences neither a surplus nor a shortage of goods and services, and therefore it is referred to as macroeconomic equilibrium. The other options are not necessarily true when aggregate expenditure equals GDP.

Question 10

Consumption spending is $16 million,planned investment spending is $4 million,unplanned investment spending is $2 million,government purchases are $6 million,and net export spending is $1 million.What is aggregate expenditure?
A)$22 million
B)$26 million
C)$27 million
D)$29 million

Accepted Answer

Aggregate expenditure = consumption spending + planned investment spending + unplanned investment spending + government purchases + net export spending
Aggregate expenditure = $16 million + $4 million + $2 million + $6 million + $1 million
Aggregate expenditure = $27 million

Question 11

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 determined by the level of aggregate expenditure in the economy. Aggregate expenditure is made up of four components: consumption spending, investment spending, government spending, and net exports. While investment spending, export spending, and government spending are all important factors in determining GDP, the aggregate expenditure model emphasizes that the total level of spending (or AD) in the economy is what ultimately drives GDP. Therefore, option D is the best choice.

Question 12

Consumption is $5 million,planned investment spending is $8 million,government purchases are $10 million,and net exports are equal to $2 million.If GDP during that same time period is equal to $27 million,what unplanned changes in inventories occurred?
A)There was an unplanned increase in inventories equal to $2 million.
B)There was no unplanned change in inventories.
C)There was an unplanned decrease in inventories equal to $2 million.
D)There was an unplanned decrease in inventories equal to $19 million.

Accepted Answer

The total spending (consumption + planned investment + government purchases + net exports) is $25 million. Since GDP is $27 million, there is an unplanned increase in inventories of $2 million.

Question 13

Actual investment spending does not include
A)spending on consumer durable goods.
B)spending on new capital equipment.
C)spending on new houses.
D)changes in inventories.

Accepted Answer

Actual investment spending refers to spending on new capital equipment, new construction projects, and changes in inventories. Spending on consumer durable goods is not considered investment spending because they are not used to generate future income and production.

Question 14

Inventories refer to
A)goods which have been presold before they are produced.
B)goods that have been produced but not yet sold.
C)goods that have been planned but not yet produced.
D)goods that have been produced and sold in the same year.

Accepted Answer

Inventories refer to goods that have been produced but not yet sold. They include raw materials, work in progress, and finished goods.

Question 15

At macroeconomic equilibrium
A)total investment equals total inventories.
B)total spending equals total production.
C)total consumption equals total production.
D)total taxes equal total transfers.

Accepted Answer

At macroeconomic equilibrium, total spending (aggregate demand) equals total production (aggregate supply). This means that all goods and services produced are being consumed, and there are no excess inventories or shortages. The other options (A, C, and D) are not necessarily equal at macroeconomic equilibrium.

Question 16

Each of the following is one of the four main categories of spending identified by John Maynard Keynes except
A)consumption.
B)net exports.
C)government purchases.
D)taxes.

Accepted Answer

John Maynard Keynes identified three main categories of spending that drive an economy: consumption, investment (often implicitly included in discussions of his theory), and government purchases. Net exports are also considered a component of aggregate demand in the Keynesian framework. Taxes, however, are not categorized as a form of spending in Keynesian economics; instead, they are a means by which the government finances its spending.

Question 17

Consumption spending is $5 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 GDP?
A)$15 million
B)$23 million
C)$25 million
D)$27 million

Accepted Answer

GDP is calculated as the sum of consumption spending, planned investment spending, government purchases, and net export spending. Unplanned investment spending is not included in this calculation. Therefore, GDP = $5 million (consumption) + $8 million (planned investment) + $10 million (government purchases) + $2 million (net exports) = $25 million. However, the correct calculation should include both planned and unplanned investments, making the total GDP = $5 million + $8 million (planned) + $2 million (unplanned) + $10 million + $2 million = $27 million.

Question 18

An unplanned increase in inventories results from
A)an increase in planned investment.
B)a decrease in planned investment.
C)actual investment that is greater than planned investment.
D)actual investment that is less than planned investment.

Accepted Answer

An unplanned increase in inventories occurs when actual investment (inventory accumulation) is greater than planned investment (anticipated inventory levels). This may happen due to various reasons such as a decrease in demand, overproduction, or an increase in supply chain interruptions.

Question 19

Consumption spending is $22 million,planned investment spending is $7 million,actual investment spending is $7 million,government purchases are $9 million,and net export spending is $3 million.Based on this information,which of the following is true?
A)There was an unplanned change in inventories.
B)Aggregate expenditure is equal to GDP.
C)Aggregate expenditure is greater than GDP.
D)Aggregate expenditure is less than GDP.

Accepted Answer

Aggregate expenditure is calculated as the sum of consumption spending, planned investment spending, government purchases, and net export spending. Therefore, aggregate expenditure is 22 million + 7 million + 9 million + 3 million = 41 million. Since there is no information given about any unplanned change in inventories, we cannot conclude A. The GDP is not provided in the question, so we cannot compare the aggregate expenditure to the GDP to answer C and D. However, we know that aggregate expenditure is equal to GDP in a closed economy (i.e., no net exports), assuming no unplanned changes in inventories. Therefore, B is the correct answer.

Question 20

The recession of 2007-2009 resulted in falling revenues and large layoffs for a vast number of companies.By 2017,unemployment ________ and spending ________ in the economy.
A)fell; decreased
B)rose; increased
C)fell; increased
D)rose; decreased

Accepted Answer

The question states that the recession resulted in falling revenues and large layoffs, which suggests a decrease in spending and an increase in unemployment. However, by 2017, the question indicates that unemployment had fallen and spending had increased in the economy. Therefore, the best fit for this scenario is that unemployment fell (choice C) and spending increased (choice C).

Quiz 12: Aggregate Expenditure and Output in the Short Run

The formula for aggregate expenditure is

All of the following are components of aggregate expenditure except

A decrease in consumer confidence can put your job at risk if

Economists first began studying the relationship between changes in aggregate expenditures and changes in GDP

The aggregate expenditure model focuses on the relationship between real spending and .

If inventories decline by more than analysts predict they will decline,this implies that

Household spending on goods and services is known as

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

When aggregate expenditure = GDP

Consumption spending is $16 million,planned investment spending is $4 million,unplanned investment spending is $2 million,government purchases are $6 million,and net export spending is $1 million.What is aggregate expenditure?

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

Consumption is $5 million,planned investment spending is $8 million,government purchases are $10 million,and net exports are equal to $2 million.If GDP during that same time period is equal to $27 million,what unplanned changes in inventories occurred?

Actual investment spending does not include

Inventories refer to

At macroeconomic equilibrium

Each of the following is one of the four main categories of spending identified by John Maynard Keynes except

Consumption spending is $5 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 GDP?

An unplanned increase in inventories results from

Consumption spending is $22 million,planned investment spending is $7 million,actual investment spending is $7 million,government purchases are $9 million,and net export spending is $3 million.Based on this information,which of the following is true?

The recession of 2007-2009 resulted in falling revenues and large layoffs for a vast number of companies.By 2017,unemployment and spending in the economy.