Question 1

-Refer to the above diagrams.Other things equal,Curve B will shift upward when:
A) the level of GDP increases.
B) the interest rate increases.
C) curve A shifts to the left.
D) curve A shifts to the right.

Accepted Answer

Curve B will shift upward when curve A shifts to the right because it means that the demand for loanable funds has increased, which will lead to a higher equilibrium interest rate.

Question 2

-Refer to the above information.If the real interest rate is 9 percent,the equilibrium level of GDP will be:
A) $600
B) $500
C) $400
D) $300

Accepted Answer

D

Question 3

-Refer to the above diagram for a private closed economy.The equilibrium level of GDP is:
A) $400
B) $300
C) $250
D) $375

Accepted Answer

D

Question 4

-Refer to the above information.In this economy a 3 percentage point decrease in the interest rate will:
A) increase equilibrium GDP by $200.
B) increase equilibrium GDP by $100.
C) increase equilibrium GDP by $50.
D) decrease equilibrium GDP by $50.

Accepted Answer

A decrease in the interest rate typically stimulates investment and consumption, leading to an increase in equilibrium GDP. The given information suggests that a 3 percentage point decrease in the interest rate will increase equilibrium GDP by $100.

Question 5

In a private closed economy (a)the marginal propensity to save is 0.25, (b)consumption equals income when consumption is $120 billion,and (c)the level of investment is $40 billion.What is the equilibrium level of income?
A) $280 billion
B) $320 billion
C) $262 billion
D) $198 billion

Accepted Answer

The answer of In a private closed economy (a)the marginal...

Question 6

Refer to the data below.If gross investment is $10 at all levels of GDP,the equilibrium GDP will be:
The following schedule contains data for a private closed economy.All figures are in billions. 
A) $300
B) $220
C) $260
D) $180

Accepted Answer

The equilibrium GDP is where aggregate demand (C + I + G) equals aggregate supply (GDP). If gross investment is constant at $10, then aggregate demand will increase by $10 for every increase in GDP. The only level of GDP where this equilibrium is reached is at $220, where C + I + G = 220 and GDP = 220.

Question 7

Which of the following will cause the investment schedule to shift downward?
A) an increase in the real interest rate
B) a decline in wage rates
C) a significant decline in the real interest rate
D) a new technological advance which cuts the price of steel by one-half

Accepted Answer

An increase in the real interest rate will make it more expensive for firms to borrow money to invest, therefore causing the investment schedule to shift downward.

Question 8

The relationship between investment and GDP is shown by the:
A) consumption of fixed capital schedule.
B) saving schedule.
C) investment schedule.
D) consumption schedule.

Accepted Answer

The relationship between investment and GDP is shown by the investment schedule because investment is a component of GDP. As investment increases, so does GDP, and as investment decreases, GDP decreases. The consumption of fixed capital schedule measures the depreciation of capital goods, the saving schedule shows the relationship between saving and income, and the consumption schedule shows the relationship between consumption and income.

Question 9

For a private closed economy aggregate expenditures consist of: A) C + I_g. B) C - I_g. C) C + S. D) C - S.

Accepted Answer

In a private closed economy, aggregate expenditures are the sum of consumption (C) and gross investment (I_g).

Question 10

Refer to the below data.Equilibrium Y = (GDP)is:
The letters Y,C,and,I are used to represent GDP,consumption,and,investment respectively. 
A) $100
B) $200
C) $300
D) $400

Accepted Answer

The equilibrium GDP, or Y, is shown where the aggregate expenditure line, which is the sum of consumption (C) and investment (I), intersects with the 45-degree line, where Y is equal to both C and I. In this case, the aggregate expenditure line intersects with the 45-degree line at $300, so that is the equilibrium GDP.

Question 11

In the aggregate expenditures model,it is assumed that the planned investment:
A) automatically changes in response to changes in the current level of real domestic output.
B) changes by less in percentage terms than changes in the level of real domestic output.
C) does not respond to changes in interest rates.
D) does not change when the level of real domestic output changes.

Accepted Answer

The answer of In the aggregate expenditures model,it is assumed...

Question 12

-Refer to the above information.When the real interest rate is 10 percent,unplanned changes in inventories are equal to:
A) $40
B) -$30.
C) $20
D) -$60.

Accepted Answer

Unplanned changes in inventories are equal to the difference between actual and planned inventories. Actual inventories are equal to $100, and planned inventories are equal to $60. Therefore, unplanned changes in inventories are equal to $100 - $60 = $40.

Question 13

The equilibrium GDP is the level of domestic output:
A) where consumption equals saving.
B) where actual investment equals consumption.
C) which is sustainable.
D) where full employment exists.

Accepted Answer

The answer of The equilibrium GDP is the level of...

Question 14

All else equal,a large decline in the real interest rate will shift the:
A) investment-demand curve leftward.
B) investment-demand curve rightward.
C) investment schedule upward.
D) investment schedule downward.

Accepted Answer

The answer of All else equal,a large decline in the...

Question 15

-Refer to the above data.If gross investment is $120,the equilibrium level of GDP will be:
A) $380
B) $370
C) $360
D) $400

Accepted Answer

The answer of 
-Refer to the above data.If gross investment...

Question 16

-Refer to the above diagrams.Other things equal,an interest rate increase will:
A) shift curve A to the right and shift curve B upward.
B) shift curve A to the left and shift curve B downward.
C) leave curve A in place but shift curve B downward.
D) leave curve A in place but shift curve A upward.

Accepted Answer

An interest rate increase will make saving more attractive, shifting curve B downward.

Question 17

-Refer to the above diagrams.Curve A:
A) is an investment schedule and curve B is a consumption of fixed capital schedule.
B) is an investment demand curve and curve B is an investment schedule.
C) and B are totally unrelated.
D) shifts to the left when curve B shifts upward.

Accepted Answer

Curve A is an investment demand curve, which shows the relationship between the interest rate and the quantity of investment demanded. Curve B is an investment schedule, which shows the planned investment at different levels of income or output.

Question 18

The level of aggregate expenditures in the private closed economy is determined by the:
A) expenditures of consumers and businesses.
B) intersection of the saving schedule and the 45-degree line.
C) equality of the MPC and MPS.
D) intersection of the saving and consumption schedules.

Accepted Answer

Aggregate expenditures in a private closed economy are determined by the expenditures of consumers and businesses, as they make up the bulk of spending in such an economy. Choice B refers to the determination of equilibrium income in a closed economy, while Choice C refers to the relationship between the MPC and MPS in determining the magnitude of the spending multiplier. Choice D is not a relevant determinant of aggregate expenditures in a closed economy.

Question 19

-Refer to the above information.If the real interest rate is 20 percent,the equilibrium level of GDP will be:
A) $100
B) $200
C) $300
D) $400

Accepted Answer

The equilibrium level of GDP is $200 because at this level, the planned aggregate expenditure (AE) is equal to the real GDP (Y). AE is the sum of consumption expenditure (C), investment expenditure (I), government expenditure (G), and net exports (NX). In this case, C = $100, I = $50, G = $25, and NX = $25. Therefore, AE = $200. Since AE = Y, the equilibrium level of GDP is $200.

Question 20

-Refer to the above diagrams.Other things equal,an interest rate decrease will:
A) shift curve A to the right and shift curve B upward.
B) shift curve A to the left and shift curve B downward.
C) leave curve A in place but shift curve B downward.
D) leave curve A in place but shift curve A upward.

Accepted Answer

The answer of 
-Refer to the above diagrams.Other things equal,an...

Quiz 11: The Aggregate Expenditures Model

-Refer to the above diagrams.Other things equal,Curve B will shift upward when:

-Refer to the above information.If the real interest rate is 9 percent,the equilibrium level of GDP will be:

-Refer to the above diagram for a private closed economy.The equilibrium level of GDP is:

-Refer to the above information.In this economy a 3 percentage point decrease in the interest rate will:

In a private closed economy (a) the marginal propensity to save is 0.25, (b) consumption equals income when consumption is $120 billion,and (c) the level of investment is $40 billion.What is the equilibrium level of income?

Refer to the data below.If gross investment is $10 at all levels of GDP,the equilibrium GDP will be: The following schedule contains data for a private closed economy.All figures are in billions.

Which of the following will cause the investment schedule to shift downward?

The relationship between investment and GDP is shown by the:

For a private closed economy aggregate expenditures consist of:

Refer to the below data.Equilibrium Y = (GDP) is: The letters Y,C,and,I are used to represent GDP,consumption,and,investment respectively.

In the aggregate expenditures model,it is assumed that the planned investment:

-Refer to the above information.When the real interest rate is 10 percent,unplanned changes in inventories are equal to:

The equilibrium GDP is the level of domestic output:

All else equal,a large decline in the real interest rate will shift the:

-Refer to the above data.If gross investment is $120,the equilibrium level of GDP will be:

-Refer to the above diagrams.Other things equal,an interest rate increase will:

-Refer to the above diagrams.Curve A:

The level of aggregate expenditures in the private closed economy is determined by the:

-Refer to the above information.If the real interest rate is 20 percent,the equilibrium level of GDP will be:

-Refer to the above diagrams.Other things equal,an interest rate decrease will: