Question 1

The marginal propensity to consume is the _ _.

Accepted Answer

A)  total amount of disposable income consumed 
B)  fraction of a change in disposable income that is consumed. 
C)  fraction of total disposable income consumed 
D)  fraction of GDP consumed 
A)  total amount of disposable income consumed 
B)  fraction of a change in disposable income that is consumed. 
C)  fraction of total disposable income consumed 
D)  fraction of GDP consumed B

Question 2

Mauritius, an island off the coast of Africa, competes with other countries producing goods with low- skilled labor. In 2006, it was reported that its "... factories have been exposed to ... competition China, India and other Asian mass producers." As a result, "the main export industry has seen a 30 cent reduction in volume ..."
HYPERLINK "http://www.ft.com/" www.ft.com, 3/13/20
The story describes

Accepted Answer

A)  an increase in equilibrium expenditure. 
B)  a decrease in autonomous expenditure. 
C)  a decrease in induced expenditure. 
D)  an unplanned decrease in inventories. 
A)  an increase in equilibrium expenditure. 
B)  a decrease in autonomous expenditure. 
C)  a decrease in induced expenditure. 
D)  an unplanned decrease in inventories. B

Question 3

An increase in the price level shifts the aggregate expenditure curve downward and results in a movement along the aggregate demand curve. Why does an increase in the price level result in a shift in the aggregate expenditure curve rather than a movement along it?

Accepted Answer

The increase in the price level shifts the aggregate expenditure curve because the aggregate expenditure curve plots expenditure against real GDP. In other words, the curve shows how aggregate planned expenditure changes when real GDP changes. Thus a change in real GDP results in a movement along the aggregate expenditure curve. But the effect from an increase in the price level creates a shift in the curve because at any level of real GDP, a higher price level means a lower level of expenditure. Because the effect of the higher price level applies at all levels of real GDP, the aggregate expenditure curve shifts downward.

Question 4

The slope of the consumption function is

Accepted Answer

A)  greater than 1. 
B)  negative. 
C)  1. 
D)  less than 1. 
A)  greater than 1. 
B)  negative. 
C)  1. 
D)  less than 1.

Question 5

What does the marginal propensity to consume measure and how is it related to the consumption function?

Accepted Answer

The marginal propensity to consume, or M

Question 6

You observe that unplanned inventories are increasing. You predict that there will be .

Accepted Answer

A)  a recession 
B)  a trough 
C)  an expansion 
D)  a business cycle 
A)  a recession 
B)  a trough 
C)  an expansion 
D)  a business cycle

Question 7

In the long run, the multiplier

Accepted Answer

A)  is twice the short- run multiplier. 
B)  is greater than 1 because of the position and slope of the SAS curve. 
C)  is 0. 
D)  depends on the slope of the AD curve. 
A)  is twice the short- run multiplier. 
B)  is greater than 1 because of the position and slope of the SAS curve. 
C)  is 0. 
D)  depends on the slope of the AD curve.

Question 8

Imports

Accepted Answer

A)  increase the size of the multiplier because imports make disposable income less than real GDP. 
B)  decrease the size of the multiplier because imports lead to an increase in taxes and government purchases. 
C)  increase the size of the multiplier because imports are paid for by exports. 
D)  decrease the size of the multiplier because spending on imports does not increase real GDP in the domestic nation. 
A)  increase the size of the multiplier because imports make disposable income less than real GDP. 
B)  decrease the size of the multiplier because imports lead to an increase in taxes and government purchases. 
C)  increase the size of the multiplier because imports are paid for by exports. 
D)  decrease the size of the multiplier because spending on imports does not increase real GDP in the domestic nation.

Question 9

The graph of the consumption function has consumption expenditure on the vertical axis and

Accepted Answer

A)  the Consumer Price Index on the horizontal axis. 
B)  the interest rate on the horizontal axis. 
C)  time on the horizontal axis. 
D)  disposable income on the horizontal axis. 
A)  the Consumer Price Index on the horizontal axis. 
B)  the interest rate on the horizontal axis. 
C)  time on the horizontal axis. 
D)  disposable income on the horizontal axis.

Question 10

The multiplier effect

Accepted Answer

A)  promotes stability of the general price level. 
B)  magnifies small changes in spending into larger changes in real GDP. 
C)  generates instability in autonomous expenditure. 
D)  increases the MPC. 
A)  promotes stability of the general price level. 
B)  magnifies small changes in spending into larger changes in real GDP. 
C)  generates instability in autonomous expenditure. 
D)  increases the MPC.

Question 11

-If AE0 is the aggregate planned expenditure curve, then equilibrium real GDP in the figure above is

Accepted Answer

A)  $4 trillion. 
B)  $2 trillion. 
C)  $8 trillion. 
D)  None of the above answers is correct. 
A)  $4 trillion. 
B)  $2 trillion. 
C)  $8 trillion. 
D)  None of the above answers is correct.

Question 12

-In the above figure, at a disposable income level of $200 billion, saving equals

Accepted Answer

A)  consumption expenditures. 
B)  $40 billion. 
C)  zero. 
D)  disposable income. 
A)  consumption expenditures. 
B)  $40 billion. 
C)  zero. 
D)  disposable income.

Question 13

Which of the following makes the multiplier larger?

Accepted Answer

A)  an increase in the marginal propensity to import 
B)  an increase in the marginal propensity to consume 
C)  an increase in the marginal propensity to save 
D)  an increase in the tax rate 
A)  an increase in the marginal propensity to import 
B)  an increase in the marginal propensity to consume 
C)  an increase in the marginal propensity to save 
D)  an increase in the tax rate

Question 14

When disposable income equals $800 billion, planned consumption expenditure equals $600 billion, and when disposable income equals $1,000 billion, planned consumption expenditure equals $640 billion. What is planned saving when disposable income is $800 billion?

Accepted Answer

A)  $360 billion 
B)  $200 billion 
C)  $560 billion 
D)  $1,400 billion 
A)  $360 billion 
B)  $200 billion 
C)  $560 billion 
D)  $1,400 billion

Question 15

Which of the following shifts the aggregate expenditure curve AND shifts the aggregate demand cu
I. a decrease in investment
II. a change in the price level
III. an increase in exports

Accepted Answer

A)  III only 
B)  I and II 
C)  II and III 
D)  I and III 
A)  III only 
B)  I and II 
C)  II and III 
D)  I and III

Question 16

Because the short- run aggregate expenditure model assumes that the price level is , its predicted effect of changes in autonomous expenditure on equilibrium output is than the prediction of the AD/SAS model.

Accepted Answer

A)  flexible; less 
B)  flexible; greater 
C)  fixed; greater 
D)  fixed; less 
A)  flexible; less 
B)  flexible; greater 
C)  fixed; greater 
D)  fixed; less

Question 17

If real GDP is $2 billion and planned aggregate expenditure is $2.25 billion, inventories will

Accepted Answer

A)  be depleted and real GDP will increase. 
B)  be depleted and real GDP will decrease. 
C)  pile up and real GDP will increase. 
D)  pile up and real GDP will decrease. 
A)  be depleted and real GDP will increase. 
B)  be depleted and real GDP will decrease. 
C)  pile up and real GDP will increase. 
D)  pile up and real GDP will decrease.

Question 18

If planned expenditures equal $2000 when GDP is $2200, then

Accepted Answer

A)  actual investment will exceed planned investment. 
B)  the economy must have a trade surplus to sell the excess goods and services. 
C)  there will be excess demand for most goods. 
D)  inventories will decrease by $200. 
A)  actual investment will exceed planned investment. 
B)  the economy must have a trade surplus to sell the excess goods and services. 
C)  there will be excess demand for most goods. 
D)  inventories will decrease by $200.

Question 19

How does the economy adjust so that aggregate planned expenditure equals real GDP?

Accepted Answer

Equilibrium occurs when real GDP equals

Question 20

Suppose the consumption function is given by the equation C = 100 + 0.8YD, where YD is disposable income. What is the marginal propensity to consume?

Accepted Answer

A)  2.0 
B)  0.8 
C)  100 
D)  0.2 
A)  2.0 
B)  0.8 
C)  100 
D)  0.2

The marginal propensity to consume is the _ _.

An increase in the price level shifts the aggregate expenditure curve downward and results in a movement along the aggregate demand curve. Why does an increase in the price level result in a shift in the aggregate expenditure curve rather than a movement along it?

The slope of the consumption function is

What does the marginal propensity to consume measure and how is it related to the consumption function?

You observe that unplanned inventories are increasing. You predict that there will be .

In the long run, the multiplier

Imports

The graph of the consumption function has consumption expenditure on the vertical axis and

The multiplier effect

-If AE₀is the aggregate planned expenditure curve, then equilibrium real GDP in the figure above is

-In the above figure, at a disposable income level of $200 billion, saving equals

Which of the following makes the multiplier larger?

When disposable income equals $800 billion, planned consumption expenditure equals $600 billion, and when disposable income equals $1,000 billion, planned consumption expenditure equals $640 billion. What is planned saving when disposable income is $800 billion?

Which of the following shifts the aggregate expenditure curve AND shifts the aggregate demand cu I. a decrease in investment II. a change in the price level III. an increase in exports

Because the short- run aggregate expenditure model assumes that the price level is , its predicted effect of changes in autonomous expenditure on equilibrium output is than the prediction of the AD/SAS model.

If real GDP is $2 billion and planned aggregate expenditure is $2.25 billion, inventories will

If planned expenditures equal $2000 when GDP is $2200, then

How does the economy adjust so that aggregate planned expenditure equals real GDP?

Suppose the consumption function is given by the equation C = 100 + 0.8YD, where YD is disposable income. What is the marginal propensity to consume?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

U.S. Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 11: Expenditure Multipliers: They Keynesian Model

The marginal propensity to consume is the _ _.

An increase in the price level shifts the aggregate expenditure curve downward and results in a movement along the aggregate demand curve. Why does an increase in the price level result in a shift in the aggregate expenditure curve rather than a movement along it?

The slope of the consumption function is

What does the marginal propensity to consume measure and how is it related to the consumption function?

You observe that unplanned inventories are increasing. You predict that there will be .

In the long run, the multiplier

Imports

The graph of the consumption function has consumption expenditure on the vertical axis and

The multiplier effect

-If AE0 is the aggregate planned expenditure curve, then equilibrium real GDP in the figure above is

-In the above figure, at a disposable income level of $200 billion, saving equals

Which of the following makes the multiplier larger?

When disposable income equals $800 billion, planned consumption expenditure equals $600 billion, and when disposable income equals $1,000 billion, planned consumption expenditure equals $640 billion. What is planned saving when disposable income is $800 billion?

Which of the following shifts the aggregate expenditure curve AND shifts the aggregate demand cu I. a decrease in investment II. a change in the price level III. an increase in exports

Because the short- run aggregate expenditure model assumes that the price level is , its predicted effect of changes in autonomous expenditure on equilibrium output is than the prediction of the AD/SAS model.

If real GDP is $2 billion and planned aggregate expenditure is $2.25 billion, inventories will

If planned expenditures equal $2000 when GDP is $2200, then

How does the economy adjust so that aggregate planned expenditure equals real GDP?

Suppose the consumption function is given by the equation C = 100 + 0.8YD, where YD is disposable income. What is the marginal propensity to consume?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

U.S. Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

-If AE₀is the aggregate planned expenditure curve, then equilibrium real GDP in the figure above is