Question 1

The multiplier is greater than 1 because

Accepted Answer

A)  most households are unable to save. 
B)  corporate spending exceeds corporate income. 
C)  one personʹs spending becomes anotherʹs income. 
D)  household spending exceeds income. 
A)  most households are unable to save. 
B)  corporate spending exceeds corporate income. 
C)  one personʹs spending becomes anotherʹs income. 
D)  household spending exceeds income.

Question 2

The consumption function relates consumption expenditure to

Accepted Answer

A)  saving. 
B)  disposable income. 
C)  the interest rate. 
D)  the price level. 
A)  saving. 
B)  disposable income. 
C)  the interest rate. 
D)  the price level.

Question 3

Suppose the equilibrium level of expenditure is $13 trillion. If real GDP is $12 trillion, then inventories are___________ their target levels and real GDP will___________ .

Accepted Answer

A)  above; increase 
B)  below; decrease 
C)  above; decrease 
D)  below; increase 
A)  above; increase 
B)  below; decrease 
C)  above; decrease 
D)  below; increase

Question 4

If aggregate planned expenditure is less than real GDP,

Accepted Answer

A)  real GDP remain unchanged. 
B)  real GDP will either decrease or increase, depending on the MPC. 
C)  inventories will increase above their target level and real GDP will decrease. 
D)  real GDP will increase. 
A)  real GDP remain unchanged. 
B)  real GDP will either decrease or increase, depending on the MPC. 
C)  inventories will increase above their target level and real GDP will decrease. 
D)  real GDP will increase.

Question 5

If unplanned inventory changes are positive, what is the relationship between aggregate planned expenditure and real GDP?

Accepted Answer

If unplanned inventory changes

Question 6

-The figure above illustrates an economyʹs consumption function. What is autonomous consumption in this economy?

Accepted Answer

A)  $6 trillion 
B)  $0 
C)  $4 trillion 
D)  None of the above answers is correct. 
A)  $6 trillion 
B)  $0 
C)  $4 trillion 
D)  None of the above answers is correct.

Question 7

-In the above figure, the multiplier is equal to

Accepted Answer

A)  one. 
B)  three. 
C)  zero. 
D)  two. 
A)  one. 
B)  three. 
C)  zero. 
D)  two.

Question 8

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

Question 9

Components of aggregate expenditure include saving, consumption expenditure, investment and government expenditure.

Accepted Answer

A) True 
 B)False

Question 10

$$\begin{array} { | l | l | } 
\hline \begin{array} { l } 
\text { Real GDP } \
\text { (trillions of 2005 } \
\text { dollars) }
\end{array} & \begin{array} { l } 
\text { A ggregate } \
\text { expenditure } \
\text { (trillions of 2005 } \
\text { dollars) }
\end{array} \
\hline 0 & 0.3 \
\hline 1.0 & 1.2 \
\hline 2.0 & 2.1 \
\hline 3.0 & 3.0 \
\hline 4.0 & 3.9 \
\hline 5.0 & 4.8 \
\hline
\end{array}$$
-The data in the above table indicate that the slope of the AE curve is

Accepted Answer

A)  0.30. 
B)  0.90. 
C)  0.50. 
D)  None of the above answers are correct. 
A)  0.30. 
B)  0.90. 
C)  0.50. 
D)  None of the above answers are correct.

Question 11

If disposable income increases,

Accepted Answer

A)  there is movement downward along the consumption function. 
B)  the consumption function shifts upward. 
C)  there is a movement upward along the consumption function. 
D)  the consumption function shifts downward. 
A)  there is movement downward along the consumption function. 
B)  the consumption function shifts upward. 
C)  there is a movement upward along the consumption function. 
D)  the consumption function shifts downward.

Question 12

The marginal propensity to consume is the .

Accepted Answer

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

Question 13

The slope of the saving function is equal to the

Accepted Answer

A)  marginal propensity to consume divided by the marginal propensity to save. 
B)  marginal propensity to save. 
C)  marginal propensity to save divided by the marginal propensity to consume. 
D)  marginal propensity to consume. 
A)  marginal propensity to consume divided by the marginal propensity to save. 
B)  marginal propensity to save. 
C)  marginal propensity to save divided by the marginal propensity to consume. 
D)  marginal propensity to consume.

Question 14

An increase in disposable income

Accepted Answer

A)  shifts the saving function downward. 
B)  results in a movement downward along the saving function. 
C)  shifts the saving function upward. 
D)  results in a movement upward along the saving function. 
A)  shifts the saving function downward. 
B)  results in a movement downward along the saving function. 
C)  shifts the saving function upward. 
D)  results in a movement upward along the saving function.

Question 15

If the multiplier is 3, a $750,000 increase in autonomous expenditure increases equilibrium expenditure by $2.25 million.

Accepted Answer

A) True 
 B)False

Question 16

-In the above figure the economy is initially at point A on aggregate expenditure curve AE0. Suppose investment decreases. As a result

Accepted Answer

A)  the AE curve shifts downward to a curve such as AE1. 
B)  there is a movement along AE1 to a point such as C. 
C)  the AE curve shifts upward to a curve such as AE2. 
D)  there is a movement along AE1 to a point such as B. 
A)  the AE curve shifts downward to a curve such as AE1. 
B)  there is a movement along AE1 to a point such as C. 
C)  the AE curve shifts upward to a curve such as AE2. 
D)  there is a movement along AE1 to a point such as B.

Question 17

Mauritius, an island off the coast of Africa, competes with other countries producing goods with low-skilled labor. In 2006, it was reported that ...ʺits clothing factories have been exposed to frontal competition from China, India and other Asian mass producers.ʺ As a result, ʺthe main export industry has seen a 30 per cent reduction in volume ...
Suppose real GDP is $14 billion, exports total $2 billion and the multiplier is 4. If exports decline by $600,000,000, real GDP in Mauritius will

Accepted Answer

A)  increase by $2.4 billion 
B)  increase by $4 billion. 
C)  decrease by $2.4 billion. 
D)  decrease by $8 billion. 
A)  increase by $2.4 billion 
B)  increase by $4 billion. 
C)  decrease by $2.4 billion. 
D)  decrease by $8 billion.

Question 18

The short-run multiplier is equal to 3, real GDP equals potential GDP of $8,000, and the price level is equal to 100. Suppose that government expenditure decreases by $200. The long-run effect of the decrease in government expenditure changes real GDP by

Accepted Answer

A)  nothing; that is, in the long run real GDP equals $8,000. 
B)  a decrease of $200 because the long-run multiplier is 1. 
C)  a decrease of 600. 
D)  an increase of 600. 
A)  nothing; that is, in the long run real GDP equals $8,000. 
B)  a decrease of $200 because the long-run multiplier is 1. 
C)  a decrease of 600. 
D)  an increase of 600.

Question 19

Any expenditure component that depends on the level of real GDP is called

Accepted Answer

A)  induced expenditure. 
B)  equilibrium expenditure. 
C)  autonomous expenditure. 
D)  spurious expenditure. 
A)  induced expenditure. 
B)  equilibrium expenditure. 
C)  autonomous expenditure. 
D)  spurious expenditure.

Question 20

Suppose that the slope of the AE curve is 0.67. Then a $100 decrease in autonomous spending means equilibrium expenditure will

Accepted Answer

A)  increase by $200. 
B)  decrease by $300. 
C)  decrease by $200. 
D)  increase by $300. 
A)  increase by $200. 
B)  decrease by $300. 
C)  decrease by $200. 
D)  increase by $300.

The multiplier is greater than 1 because

The consumption function relates consumption expenditure to

Suppose the equilibrium level of expenditure is $13 trillion. If real GDP is $12 trillion, then inventories are_ their target levels and real GDP will_ .

If aggregate planned expenditure is less than real GDP,

If unplanned inventory changes are positive, what is the relationship between aggregate planned expenditure and real GDP?

-The figure above illustrates an economyʹs consumption function. What is autonomous consumption in this economy?

-In the above figure, the multiplier is equal to

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?

Components of aggregate expenditure include saving, consumption expenditure, investment and government expenditure.

Real GDP (trillions of 2005 dollars) A ggregate expenditure (trillions of 2005 dollars) 0 0.3 1.0 1.2 2.0 2.1 3.0 3.0 4.0 3.9 5.0 4.8 -The data in the above table indicate that the slope of the AE curve is

If disposable income increases,

The marginal propensity to consume is the .

The slope of the saving function is equal to the

An increase in disposable income

If the multiplier is 3, a $750,000 increase in autonomous expenditure increases equilibrium expenditure by $2.25 million.

-In the above figure the economy is initially at point A on aggregate expenditure curve AE₀. Suppose investment decreases. As a result

The short-run multiplier is equal to 3, real GDP equals potential GDP of $8,000, and the price level is equal to 100. Suppose that government expenditure decreases by $200. The long-run effect of the decrease in government expenditure changes real GDP by

Any expenditure component that depends on the level of real GDP is called

Suppose that the slope of the AE curve is 0.67. Then a $100 decrease in autonomous spending means equilibrium expenditure will

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

Review

Filters

Exam 11: Expenditure Multipliers: the Keynesian Model

The multiplier is greater than 1 because

The consumption function relates consumption expenditure to

Suppose the equilibrium level of expenditure is $13 trillion. If real GDP is $12 trillion, then inventories are___________ their target levels and real GDP will___________ .

If aggregate planned expenditure is less than real GDP,

If unplanned inventory changes are positive, what is the relationship between aggregate planned expenditure and real GDP?

-The figure above illustrates an economyʹs consumption function. What is autonomous consumption in this economy?

-In the above figure, the multiplier is equal to

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?

Components of aggregate expenditure include saving, consumption expenditure, investment and government expenditure.

Real GDP (trillions of 2005 dollars) A ggregate expenditure (trillions of 2005 dollars) 0 0.3 1.0 1.2 2.0 2.1 3.0 3.0 4.0 3.9 5.0 4.8 -The data in the above table indicate that the slope of the AE curve is

If disposable income increases,

The marginal propensity to consume is the .

The slope of the saving function is equal to the

An increase in disposable income

If the multiplier is 3, a $750,000 increase in autonomous expenditure increases equilibrium expenditure by $2.25 million.

-In the above figure the economy is initially at point A on aggregate expenditure curve AE0. Suppose investment decreases. As a result

The short-run multiplier is equal to 3, real GDP equals potential GDP of $8,000, and the price level is equal to 100. Suppose that government expenditure decreases by $200. The long-run effect of the decrease in government expenditure changes real GDP by

Any expenditure component that depends on the level of real GDP is called

Suppose that the slope of the AE curve is 0.67. Then a $100 decrease in autonomous spending means equilibrium expenditure will

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

Review

Filters

Suppose the equilibrium level of expenditure is $13 trillion. If real GDP is $12 trillion, then inventories are_ their target levels and real GDP will_ .

-In the above figure the economy is initially at point A on aggregate expenditure curve AE₀. Suppose investment decreases. As a result