Question 1

Suppose that the slope of the AE curve is 0.67. Then a $100 decrease in autonomous spending means equilibrium expenditure will

Accepted Answer

The slope of the AE curve is equal to the multiplier, which in this case is 1/0.67 ≈ 1.49. Therefore, a $100 decrease in autonomous spending will result in a decrease in equilibrium expenditure of 1.49 x $100 = $149. The answer closest to this is C, which suggests a decrease of $300, and is the best choice.

Question 2

-In the above table, there are no taxes and no imports or exports. If current real GDP is equal to $7,000, then firms will

Accepted Answer

The answer of 
-In the above table, there are no...

Question 3

-In the above table, there are no taxes and no imports or exports. The total level of expenditure in the economy when real GDP is $7,000 is

Accepted Answer

The answer of 
-In the above table, there are no...

Question 4

Suppose that the slope of the AE curve is 0.75. Then a $100 decrease in autonomous spending means equilibrium expenditure will

Accepted Answer

The slope of the AE curve is the multiplier, which indicates the change in equilibrium expenditure resulting from a change in autonomous spending. A slope of 0.75 means that a $1 decrease in autonomous spending leads to a $0.75 decrease in equilibrium expenditure. Therefore, a $100 decrease in autonomous spending will lead to a decrease in equilibrium expenditure of $0.75 x $100 = $75. Answer A suggests a decrease of $400, which is an incorrect answer. Therefore, this question only has one answer choice: A.

Question 5

The government estimates that the fiscal policy multiplier is 2.0. In this case an increase in government expenditure of $500 billion increases real GDP by ________ and results in an increase in induced expenditure of ________.

Accepted Answer

The fiscal policy multiplier of 2.0 means that for every $1 increase in government expenditure, there will be a $2 increase in real GDP. Therefore, an increase in government expenditure of $500 billion will result in an increase in real GDP of $1,000 billion. However, the induced expenditure (consumption and investment spending) that results from this increase in real GDP will be only 50% of the increase in real GDP, or $500 billion.

Question 6

Equilibrium real GDP is $400 billion, the MPC = 0.9, and there are no income taxes or imports. Investment increases $40 billion. If the price level is constant, after the increase in investment, equilibrium real GDP will be

Accepted Answer

The answer of Equilibrium real GDP is $400 billion, the...

Question 7

The government estimates that the fiscal policy multiplier is 2.0. If this estimate is accurate, then the slope of the AE curve is ________.

Accepted Answer

The answer of The government estimates that the fiscal policy...

Question 8

-In the above table, there are no taxes (so that that real GDP equals disposable income)and no imports or exports. If real GDP decreases from $6,000 to $5,000, the marginal propensity to consume is

Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in income. If real GDP decreases from $6,000 to $5,000, the MPC is the ratio of the change in consumption to the change in GDP, which is typically a positive value less than 1. In this context, 0.75 is a plausible MPC value.

Question 9

-In the above table, suppose investment decreases by $0.1 trillion. The multiplier equals

Accepted Answer

The answer of 
-In the above table, suppose investment decreases...

Question 10

An economy saves 20 percent of any increase in income and there are no income taxes or imports. Then, an increase in investment of $2 billion leads to a short run increase in real GDP of

Accepted Answer

The economy's marginal propensity to save (MPS) is 20%, which means the marginal propensity to consume (MPC) is 80% (100% - 20%). The multiplier effect is 1/(1 - MPC) = 1/(1 - 0.8) = 5. Therefore, an increase in investment of $2 billion leads to a short run increase in real GDP of 2 billion * 5 = $10 billion.

Question 11

In a simple economy with no income taxes or imports, prices are constant and the slope of the AE curve is 0.8. In order to increase real GDP by $500 billion, then

Accepted Answer

The answer of In a simple economy with no income...

Question 12

Suppose that the slope of the AE curve is 0.67. Then a $100 increase in autonomous spending means equilibrium expenditure will

Accepted Answer

The slope of the AE curve is the marginal propensity to consume (MPC) which is 0.67. Therefore, the marginal propensity to save (MPS) is 1 - 0.67 = 0.33. Using the expenditure multiplier formula of 1/(1-MPC), we get a multiplier of 1/(1-0.67) = 3.03 (rounded to two decimal points). This means that a $100 increase in autonomous spending will increase equilibrium expenditure by $100 x 3.03 = $303. Therefore, the correct answer is choice D, increase by $300.

Question 13

Equilibrium real GDP is $500 billion, government expenditures are $80 billion, the MPC = 0.9, and there are no income taxes or imports. Suppose that government expenditures increase to $100 billion. If the price level is constant, after the increase in government expenditures, equilibrium real GDP will be

Accepted Answer

The increase in government expenditures is $20 billion. With an MPC (marginal propensity to consume) of 0.9, the multiplier is 1/(1-MPC) = 1/(1-0.9) = 10. Therefore, the total increase in GDP = $20 billion * 10 = $200 billion. Adding this to the initial GDP of $500 billion gives a new equilibrium GDP of $700 billion.

Question 14

Suppose that the slope of the AE curve is 0.75. Then a $100 increase in autonomous spending means equilibrium expenditure will

Accepted Answer

The slope of the AE curve (0.75) represents the marginal propensity to consume (MPC). The multiplier is calculated as 1/(1-MPC) = 1/(1-0.75) = 4. Therefore, a $100 increase in autonomous spending leads to a $400 increase in equilibrium expenditure.

Question 15

Suppose that the slope of the AE curve is 0.80. If prices remain constant and government expenditure increases by $10 billion, what will be the value of the change in real GDP?

Accepted Answer

The slope of the AE (Aggregate Expenditure) curve is the marginal propensity to consume (MPC), which is 0.80 in this case. The multiplier effect formula is 1/(1-MPC). Therefore, the multiplier is 1/(1-0.80) = 5. An increase in government expenditure of $10 billion will result in a change in real GDP of 10 billion * 5 = $50 billion.

Question 16

-In the above table, equilibrium expenditure is

Accepted Answer

The answer of 
-In the above table, equilibrium expenditure is
...

Question 17

-The data in the above table indicate that the slope of the AE curve is

Accepted Answer

The answer of 
-The data in the above table indicate...

Question 18

-In the above table, there are no taxes and no imports or exports. The equilibrium level of expenditure for this economy is

Accepted Answer

The answer of 
-In the above table, there are no...

Question 19

-The data in the above table indicate that autonomous expenditure is

Accepted Answer

The answer of 
-The data in the above table indicate...

Question 20

-In the above table, there are no taxes and no imports or exports. The change in unplanned inventories when real GDP is $7,000 is

Accepted Answer

The answer of 
-In the above table, there are no...

Quiz 11: Expenditure Multipliers

Suppose that the slope of the AE curve is 0.67. Then a $100 decrease in autonomous spending means equilibrium expenditure will

-In the above table, there are no taxes and no imports or exports. If current real GDP is equal to $7,000, then firms will

-In the above table, there are no taxes and no imports or exports. The total level of expenditure in the economy when real GDP is $7,000 is

Suppose that the slope of the AE curve is 0.75. Then a $100 decrease in autonomous spending means equilibrium expenditure will

The government estimates that the fiscal policy multiplier is 2.0. In this case an increase in government expenditure of $500 billion increases real GDP by and results in an increase in induced expenditure of .

Equilibrium real GDP is $400 billion, the MPC = 0.9, and there are no income taxes or imports. Investment increases $40 billion. If the price level is constant, after the increase in investment, equilibrium real GDP will be

The government estimates that the fiscal policy multiplier is 2.0. If this estimate is accurate, then the slope of the AE curve is ________.

-In the above table, there are no taxes (so that that real GDP equals disposable income) and no imports or exports. If real GDP decreases from $6,000 to $5,000, the marginal propensity to consume is

-In the above table, suppose investment decreases by $0.1 trillion. The multiplier equals

An economy saves 20 percent of any increase in income and there are no income taxes or imports. Then, an increase in investment of $2 billion leads to a short run increase in real GDP of

In a simple economy with no income taxes or imports, prices are constant and the slope of the AE curve is 0.8. In order to increase real GDP by $500 billion, then

Suppose that the slope of the AE curve is 0.67. Then a $100 increase in autonomous spending means equilibrium expenditure will

Suppose that the slope of the AE curve is 0.75. Then a $100 increase in autonomous spending means equilibrium expenditure will

Suppose that the slope of the AE curve is 0.80. If prices remain constant and government expenditure increases by $10 billion, what will be the value of the change in real GDP?

-In the above table, equilibrium expenditure is

-The data in the above table indicate that the slope of the AE curve is

-In the above table, there are no taxes and no imports or exports. The equilibrium level of expenditure for this economy is

-The data in the above table indicate that autonomous expenditure is

-In the above table, there are no taxes and no imports or exports. The change in unplanned inventories when real GDP is $7,000 is