Question 1

Aggregate expenditure includes consumption spending,unplanned investment spending,government purchases,and net exports.

Accepted Answer

Aggregate expenditure includes consumption spending, planned investment spending, government purchases, and net exports, not unplanned investment spending.

Question 2

Aggregate expenditure includes consumption spending,planned investment spending,government purchases,and net exports.

Accepted Answer

Aggregate expenditure represents the total spending in an economy and includes consumption spending, planned investment spending, government purchases, and net exports.

Question 3

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

Accepted Answer

If firms anticipated an inventory growth of $750,000 and inventories actually grew by that exact amount, it means that firms sold all the goods they produced without any leftover inventory. This implies that aggregate expenditure and GDP were equal, as all goods produced were sold and included in GDP.

Question 4

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?

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 5

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?

Accepted Answer

Aggregate expenditure is the sum of consumption spending, planned investment spending, unplanned investment spending, government purchases, and net export spending.

Aggregate expenditure = consumption spending + planned investment spending + unplanned investment spending + government purchases + net export spending

= $5 million + $8 million + $2 million + $10 million + $2 million

= $27 million

Therefore, the best choice is C, which is $25 million.

Question 6

If planned investment is greater than actual investment,then aggregate expenditure is less than GDP.

Accepted Answer

The answer of If planned investment is greater than actual...

Question 7

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

Accepted Answer

If firms sell what they expected to sell, there will be no unplanned changes in inventories. This means that the amount of goods produced will equal the amount of goods sold, and there will be no need for firms to increase or decrease their inventories. Hence, option B is the correct answer.

Question 8

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

Accepted Answer

Planned investment refers to the intended investment spending by firms, while actual investment is the actual amount spent. When planned investment is equal to actual investment, it means that the investment spending has matched the intended investment. In the calculation of GDP, investment is a significant component, and when planned investment equals actual investment, it implies that the expenditure component of investment used in calculating GDP is correct. Therefore, aggregate expenditure is equal to GDP.

Question 9

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

Accepted Answer

An increase in aggregate expenditure implies an increase in demand for goods and services, leading to an increase in production levels and ultimately an increase in GDP.

Question 10

Macroeconomic equilibrium occurs when

Accepted Answer

Macroeconomic equilibrium occurs when aggregate expenditure equals GDP. This is because, in an economy, the total amount spent on goods and services (aggregate expenditure) should equal the total value of goods and services produced (GDP) for the economy to be in equilibrium.

Question 11

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

Accepted Answer

When inventories grow by less than anticipated, it implies that actual sales were higher than expected, leading to aggregate expenditure being greater than what firms planned for, hence greater than GDP.

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 $23 million,what unplanned changes in inventories occurred?

Accepted Answer

To calculate unplanned changes in inventories, we use the equation: GDP = Consumption + Investment + Government Purchases + Net Exports + Unplanned Changes in Inventories. 
Rearranging this equation, we get: Unplanned Changes in Inventories = GDP - Consumption - Investment - Government Purchases - Net Exports. 
Substituting the given values, we get: Unplanned Changes in Inventories = $23 million - $5 million - $8 million - $10 million - $2 million = -$2 million. 
A negative value means that there was an unplanned decrease in inventories. Therefore, the answer is C.

Question 13

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

Accepted Answer

If consumers are purchasing less than expected, then it means that aggregate expenditure is likely to be less than GDP. This is because aggregate expenditure includes consumption expenditure, which is a major component of GDP. Therefore, a decrease in consumption expenditure will lead to a decrease in aggregate expenditure, which may result in a decrease in real GDP. This can lead to recession which can cause firms to reduce production and employment to match the lower demand.

Question 14

If aggregate expenditure is more than GDP,then inventories fall and GDP rises.

Accepted Answer

If aggregate expenditure is more than GDP, it means that there is an excess demand for goods and services. To meet this demand, firms will have to use up their inventories, which will lead to an increase in GDP as production and sales increase.

Question 15

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

Accepted Answer

When aggregate expenditure is less than GDP, it means that there is a mismatch between the total amount that households, firms, and the government intend to spend, and the total output that has been produced. This implies that firms have produced more than they have sold, which results in an unplanned increase in inventories. Therefore, option A is correct. Options B and C are not necessarily true and depend on other factors.

Question 16

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?

Accepted Answer

When aggregate expenditure exceeds GDP, it indicates that firms sold more than they produced, leading to a decrease in inventories.

Question 17

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

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 firms sell more than they produce. To replenish their inventories, firms will increase production, which in turn increases GDP and employment, moving the economy towards equilibrium.

Question 18

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?

Accepted Answer

Aggregate expenditure (AE) is the total amount of spending in the economy, which includes consumption spending, planned investment spending, government purchases, and net exports.

AE = C + I + G + NX 
AE = $5 million + $8 million + $10 million + $2 million 
AE = $25 million

Gross domestic product (GDP) is the total value of all final goods and services produced in an economy.

Since government purchases and net export spending are already included in GDP, we only need to add consumption spending and investment spending (both planned and actual) to calculate GDP.

GDP = C + I + G + NX 
GDP = $5 million + $8 million + $10 million + $2 million 
GDP = $25 million

Therefore, aggregate expenditure is equal to GDP, which means that there was no unplanned change in inventories.

Question 19

An unplanned decrease in inventories results in

Accepted Answer

The answer of An unplanned decrease in inventories results in
...

Question 20

At macroeconomic equilibrium,total ________ equals total ________.

Accepted Answer

At macroeconomic equilibrium, total spending in the economy (consumption, investment, and government spending) equals total production (GDP). This means that all goods and services produced are being purchased and there are no excess inventories or shortages in the economy.

Quiz 23: Aggregate Expenditure and Output in the Short Run