Question 1

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
E)net exports

Accepted Answer

Actual investment spending is not a component of aggregate expenditure, although planned investment spending is. The other options, such as consumption spending, government spending, and net exports, are all components of aggregate expenditure.

Question 2

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

Accepted Answer

At macroeconomic equilibrium, total spending by households, businesses, and the government equals total production of goods and services in the economy, also known as Gross Domestic Product (GDP).

Question 3

In a small economy in 2016,aggregate expenditure was $850 million while GDP that year was $800 million.Which of the following can explain the difference between aggregate expenditure and GDP that year?
A)Aggregate expenditure is always less than GDP in developed countries.
B)Firm investment in inventories was less than anticipated in 2016.
C)Firm investment in inventories was greater than anticipated in 2016.
D)Aggregate expenditure is always less than GDP in developing countries.
E)Aggregate expenditure does not account for consumer spending.

Accepted Answer

The difference between aggregate expenditure and GDP in this instance is likely due to firm investment in inventories being less than anticipated in 2016.

Question 4

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

Accepted Answer

Goods that have been produced but not yet sold are typically referred to as inventory. This inventory can include raw materials, work-in-progress, and finished goods waiting to be sold.

Question 5

The aggregate expenditure model focuses on the short-run relationship between ________ and ________.
A)real spending; real GDP
B)unemployment; inflation
C)nominal spending; nominal GDP
D)planned inventories; unplanned inventories
E)nominal spending; and real savings

Accepted Answer

The aggregate expenditure model focuses on the short-run relationship between real spending (or expenditures) and real GDP. In other words, it examines how changes in spending affect economic output in the short-term. The other options listed are not directly related to the aggregate expenditure model.

Question 6

If firms find that consumers are purchasing less 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.
E)The unemployment rate will fall.

Accepted Answer

When firms find that consumers are purchasing less than expected, it means that aggregate expenditure is less than what was anticipated. This leads to a situation where GDP is higher than the aggregate expenditure, resulting in an increase in inventories. To achieve macroeconomic equilibrium, firms need to reduce production, which will result in a reduction in employment. Therefore, the correct option is B, as aggregate expenditure will likely be less than GDP.

Question 7

If aggregate expenditure is greater 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.
E)Inventories will rise,GDP will fall,and employment will rise.

Accepted Answer

When aggregate expenditure is greater than GDP, it indicates that the demand for goods and services is higher than what the economy is currently producing. This leads to a decrease in inventories as businesses sell more than they produce. To replenish their inventories, businesses will increase production, which in turn increases GDP and employment.

Question 8

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

Accepted Answer

When aggregate expenditure is less than GDP, it means that not all outputs produced were sold. This could lead to an unplanned increase in inventories, as firms did not expect to have leftover goods. The other options (B and C) do not necessarily have to be true, and D is not a direct result of aggregate expenditure being less than GDP.

Question 9

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 aggregate expenditure?
A)$15 million
B)$23 million
C)$25 million
D)$27 million
E)$29 million

Accepted Answer

Aggregate expenditure is equal to consumption spending (C) + planned investment spending (I) + government purchases (G) + net export spending (NX). Therefore, aggregate expenditure equals $5 million + $8 million + $10 million + $2 million = $25 million.

Question 10

If firms sell what they expected to sell,which of the following will be true?
A)Aggregate expenditure will be greater than GDP.
B)There will be no unplanned change in inventories.
C)Inventories will rise and GDP and employment will fall.
D)Aggregate expenditure will be less than GDP.
E)Employment will rise.

Accepted Answer

If firms sell exactly what they expected to sell, then there will be no unplanned changes in inventories. This means that firms have produced the right amount of goods to meet demand, and there will be no need to increase or decrease production in the near future. Therefore, option B is the correct answer.

Question 11

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 the same time period is equal to $23 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.
E)There was an unplanned decrease in inventories equal to $3 million.

Accepted Answer

We can use the GDP equation: GDP = C + I + G + NX
Plugging in the given values, we get:
$23 million = $5 million + $8 million + $10 million + $2 million + unplanned inventory changes
Simplifying, we get:
Unplanned inventory changes = $23 million - $25 million
Unplanned inventory changes = -$2 million
This means that there was an unplanned decrease in inventories equal to $2 million, so the answer is C.

Question 12

If planned investment is equal to actual investment,then aggregate expenditure is equal to GDP.

Accepted Answer

Planned investment is a component of aggregate expenditure, and if it is equal to actual investment, then aggregate expenditure (which includes consumption, government spending, net exports, and planned investment) will equal GDP.

Question 13

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

Accepted Answer

The answer of An unplanned decrease in inventories results in
A)a...

Question 14

If economists forecast an increase in aggregate expenditure,which of the following is likely to occur?
A)GDP will rise.
B)GDP will fall.
C)Wages will fall.
D)Inventories will rise.
E)Unemployment will rise.

Accepted Answer

An increase in aggregate expenditure implies an increase in demand in the economy. This is likely to lead to an increase in GDP, as firms produce more output to meet the higher demand. Wages may also rise in response to the increased demand for labor, rather than fall. Inventories may rise temporarily if firms underestimate the increase in demand, but over time they are likely to adjust their production to better match demand. Unemployment is unlikely to rise in this scenario, as the increased production and demand for labor is likely to lead to an increase in employment.

Question 15

Macroeconomic equilibrium occurs when
A)aggregate expenditure = GDP.
B)aggregate expenditure = C+ I + G + net transfers.
C)aggregate income = planned inventories.
D)aggregate expenditure = planned inventories.
E)exports = imports.

Accepted Answer

Macroeconomic equilibrium occurs when aggregate expenditure equals GDP, meaning the total spending in the economy (consumption, investment, government spending, and net exports) matches the total output or production of goods and services.

Question 16

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
E)$29 million

Accepted Answer

GDP = Consumption spending + Planned Investment spending + Government purchases + Net export spending + Unplanned Investment spending 
GDP = $5 million + $8 million + $10 million + $2 million + (-$2 million) 
GDP = $23 million

Question 17

Firms in a small economy anticipated that inventories would grow over the past year by $750,000,and over that year,inventories grew by exactly $750,000.This implies that
A)aggregate expenditure and GDP were equal that year.
B)there was an unplanned increase in inventories that year.
C)there was an unplanned decrease in inventories that year.
D)aggregate expenditure was greater than GDP that year.
E)there was an unanticipated rise in consumer spending.

Accepted Answer

If firms anticipated that inventories would grow by $750,000 and they grew by exactly that amount, it means that the actual economic activity matched their expectations, implying that aggregate expenditure (the total spending in the economy) was equal to the GDP (the total value of goods and services produced). This is because the planned inventory investment was realized as expected, indicating that the goods produced were sold at the anticipated levels, aligning aggregate expenditure with GDP.

Question 18

Firms in a small economy anticipated that inventories would grow over the past year by $500,000.Over that year,inventories actually grew by only $400,000.This implies that
A)aggregate expenditure that year was greater than GDP that year.
B)there was an unplanned increase in inventories that year.
C)there was a planned increase in inventories that year.
D)aggregate expenditure that year was equal to GDP that year.
E)there was a rise in the unemployment rate.

Accepted Answer

When inventories grow by less than anticipated, it implies that actual sales were higher than expected, meaning aggregate expenditure was greater than what firms planned for, which typically means it was greater than GDP.

Question 19

Consumption spending is $5 million,planned investment spending is $8 million,actual investment spending is $8 million,government purchases are $10 million,and net export spending is $2 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.
E)Unemployment will rise.

Accepted Answer

Aggregate expenditure is the sum of consumption spending, planned investment spending, government purchases, and net export spending. In this case, AE = $5 million + $8 million + $10 million + $2 million = $25 million. Since there is no information given about unplanned change in inventories, we assume it is zero. Therefore, GDP is also $25 million. Hence, choice B is true because AE = GDP.

Question 20

Actual investment spending includes spending by consumers on
A)durable goods.
B)nondurable goods.
C)new houses.
D)services.
E)stocks and bonds.

Accepted Answer

Actual investment spending refers to the spending by firms or households on new capital goods such as buildings, machinery or equipment, and new residential construction (houses). Out of the given options, only choice C refers to new house construction which falls under actual investment spending.

Quiz 8: Aggregate Expenditure and Output in the Short Run

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

At macroeconomic equilibrium,total equals total .

In a small economy in 2016,aggregate expenditure was $850 million while GDP that year was $800 million.Which of the following can explain the difference between aggregate expenditure and GDP that year?

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

The aggregate expenditure model focuses on the short-run relationship between and .

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

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

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

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 aggregate expenditure?

If firms sell what they expected to sell,which of the following will be true?

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 the same time period is equal to $23 million,what unplanned changes in inventories occurred?

If planned investment is equal to actual investment,then aggregate expenditure is equal to GDP.

An unplanned decrease in inventories results in

If economists forecast an increase in aggregate expenditure,which of the following is likely to occur?

Macroeconomic equilibrium occurs when

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?

Firms in a small economy anticipated that inventories would grow over the past year by $750,000,and over that year,inventories grew by exactly $750,000.This implies that

Firms in a small economy anticipated that inventories would grow over the past year by $500,000.Over that year,inventories actually grew by only $400,000.This implies that

Consumption spending is $5 million,planned investment spending is $8 million,actual investment spending is $8 million,government purchases are $10 million,and net export spending is $2 million.Based on this information,which of the following is true?

Actual investment spending includes spending by consumers on