Question 1

Assume that in Splendora, planned investment is $50 billion, but actual investment is $85 billion. Unplanned inventory investment is

Accepted Answer

Unplanned inventory investment is the difference between actual investment and planned investment, which is $85 billion - $50 billion = $35 billion.

Question 2

The Slippery Slope Company manufactures only snow skis. In 2016 Slippery Slope manufactured 10,000 snow skis, but sold 12,000 snow skis. In 2016 Slippery Slope's change in inventory was ________ snow skis.

Accepted Answer

The change in inventory can be calculated as follows: 
Change in inventory = Ending inventory - Beginning inventory 
In this case, we do not know the ending inventory, but we can calculate the beginning inventory as follows: 
Beginning inventory = 10,000 
Since Slippery Slope sold 12,000 snow skis, we know that the ending inventory must be less than 10,000. Therefore, the change in inventory must be negative. 
Change in inventory = Ending inventory - Beginning inventory = Ending inventory - 10,000 
Since the change in inventory is negative, we can eliminate choices C and D. 
To determine the exact amount of the change in inventory, we would need to know the ending inventory. However, we can determine the minimum amount of the change in inventory by assuming that Slippery Slope sold all of the skis manufactured in 2016 and did not have any additional snow skis from previous periods. 
If Slippery Slope sold all of the 10,000 snow skis that they manufactured in 2016, then their ending inventory would be negative 2,000 (-2,000) snow skis. Therefore, the minimum change in inventory would be: 
Change in inventory = Ending inventory - Beginning inventory = (-2,000) - 10,000 = -12,000 
So, the best choice is B, which is the closest to the minimum change in inventory that we calculated.

Question 3

Without the government or the foreign sector in the income-expenditure model, consumption equals

Accepted Answer

Without the government or foreign sector, the income-expenditure model simplifies to just the domestic private sector. Therefore, consumption equals planned aggregate expenditures minus planned investment. This is because planned aggregate expenditures include consumption, investment, and government spending, but in this simplified model government spending is absent and investment is the only variable besides consumption.

Question 4

Related to the Economics in Practice on p. 146: A recent study by economists at Yale University and the University of Chicago suggests that changing retirement plan enrollment options from a(n) ________ system to a(n) ________ system increased pension plan enrollment after three months of work from 65 percent of workers to 98 percent of workers.

Accepted Answer

The correct answer is "opt-in"; "opt-out". This means that initially, workers had to actively choose to enroll in the pension plan (opt-in), but when the system was changed so that workers were automatically enrolled and had to choose if they wanted to opt-out, enrollment rates significantly increased.

Question 5

Related to the Economics in Practice on p. 146: Early results from the Save More Tomorrow retirement plans have shown ________ in the savings rates of the enrolled.

Accepted Answer

The phrase "early results have shown" suggests that the program is still ongoing, so it is unlikely that there would be "very little change" or "significant decreases" in savings rates. "Mixed results" is possible, but "dramatic increases" would be the most likely outcome to be highlighted as a positive result.

Question 6

Refer to the information provided in Figure 8.7 below to answer the questions that follow.  Figure 8.7
-Refer to Figure 8.7. In Spiceland, income does not vary with planned investment. Spiceland's planned investment function is represented by

Accepted Answer

Panel C shows a horizontal line, indicating that planned investment is constant and does not vary with income, which matches the description of Spiceland's planned investment function.

Question 7

If unplanned business investment is $45 million and planned investment is $45 million, then actual investment is

Accepted Answer

The unplanned business investment of $45 million added to the planned investment of $45 million equals a total actual investment of $90 million.

Question 8

If Inventory investment is lower than firms planned

Accepted Answer

If inventory investment is lower than firms planned, it means the actual investment is less than the planned investment. Therefore, option B is the correct answer.

Question 9

If actual investment is greater than planned investment, unplanned inventories decline.

Accepted Answer

If actual investment is greater than planned investment, it typically means that firms have invested more in inventories than they intended, leading to an increase in unplanned inventories, not a decline.

Question 10

The Bob & Weave Company manufactures only hair extensions. In 2016 Bob & Weave manufactured 50,000 hair extensions, but sold only 32,000 hair extensions. In 2016 Bob & Weave's change in inventory was ________ hair extensions.

Accepted Answer

The change in inventory can be calculated by subtracting the number of units sold from the number of units manufactured. Change in inventory = 50,000 - 32,000 = 18,000 hair extensions. Therefore, the correct option is B.

Question 11

A change in inventory is equal to

Accepted Answer

A change in inventory is the difference between the amount of goods produced and the amount of goods sold. Therefore, it is calculated as production minus sales.

Question 12

Which of the following is considered investment?

Accepted Answer

Investment typically refers to the acquisition of capital goods that can be used to produce goods and services in the future, contributing to economic growth.

Question 13

Assume that in Narnia, planned investment is $80 billion but actual investment is $50 billion. Unplanned inventory investment is

Accepted Answer

Planned investment - Actual investment = Unplanned inventory investment
$80 billion - $50 billion = $30 billion of unplanned inventory investment
However, since the actual investment is less than the planned investment, that means there was an overproduction of goods, which resulted in excess inventory. Therefore, the unplanned inventory investment is negative: -$30 billion.

Question 14

In 2016, the Isle of Lucy's planned investment was $130 billion and its actual investment was $145 billion. In 2016, the Isle of Lucy's unplanned inventory change was

Accepted Answer

The unplanned inventory change can be calculated by subtracting the actual investment from the planned investment. Therefore, unplanned inventory change = $145 billion - $130 billion = $15 billion. Therefore, the answer is choice A.

Question 15

Refer to the information provided in Figure 8.7 below to answer the questions that follow.  Figure 8.7
-Refer to Figure 8.7. In Ichabodia, planned investment varies directly with income. Ichabodia's planned investment function is represented by

Accepted Answer

Panel A shows a positive relationship between income and planned investment, which is consistent with the given information.

Question 16

If actual investment exceeds planned investment

Accepted Answer

When actual investment exceeds planned investment, businesses are producing more than planned and likely have excess inventory on hand. This excess inventory will accumulate and may lead to eventual markdowns or write-offs.

Question 17

Without the government or the foreign sector in the income-expenditure model, planned aggregate expenditure equals

Accepted Answer

Planned aggregate expenditure (PAE) is the total planned spending in an economy at a given price level. In the absence of government or foreign sector in the income-expenditure model, PAE would be equal to consumption expenditure (C) plus planned investment expenditure (I). Therefore, the correct answer is D, which is consumption plus planned investment.

Question 18

Related to the Economics in Practice on p. 146: Under the Save More Tomorrow retirement plans, employees can pre-commit to save more

Accepted Answer

Under the Save More Tomorrow retirement plans, employees can pre-commit to save more whenever they get a pay raise. This system aims to overcome people's present-bias and self-control problems by allowing individuals to commit in advance to increasing their savings rate whenever they receive a pay increase in the future. This approach takes advantage of the fact that people typically save a lower fraction of income when their earnings are low and a higher fraction when their earnings are high.

Question 19

Which of the following is not an investment?

Accepted Answer

The purchase of a share of stock by a household is not considered an investment as it is only a transfer of ownership of already existing assets between parties. The other choices involve the acquisition of new physical assets for productive purposes, which are considered investments.

Question 20

Related to the Economics in Practice on p. 146: A recent study by economists at Yale University and the University of Chicago suggests that changing retirement plan enrollment options from "opt-in" systems to "opt-out" systems increased pension plan enrollment after three months of work from ________ percent of workers to ________ percent of workers.

Accepted Answer

The question asks about the increase in pension plan enrollment after switching from "opt-in" to "opt-out" enrollment options. The correct answer choice is C because it shows a considerable increase in enrollment from 65% to 98%. The other answer choices show either a decrease or an unrealistic increase in enrollment.

Quiz 8: Aggregate Expenditure and Equilibrium Output