Question 1

Explain the basic idea of the expenditure multiplier and the role consumers play in determining its magnitude.

Accepted Answer

The basic idea of the multiplier is that

Question 2

In general, the flatter the aggregate expenditure curve, the

Accepted Answer

A)  larger the multiplier. 
B)  larger the marginal propensity to consume. 
C)  greater the autonomous expenditure. 
D)  smaller the multiplier. 
A)  larger the multiplier. 
B)  larger the marginal propensity to consume. 
C)  greater the autonomous expenditure. 
D)  smaller the multiplier.

Question 3

Because of changes in the_________ , the long-run effect of a $10 increase in investment on real GDP equals _________.

Accepted Answer

A)  interest rate; $10 
B)  money wage rate and price level; $10 
C)  money wage rate and price level; zero 
D)  interest rate; zero 
A)  interest rate; $10 
B)  money wage rate and price level; $10 
C)  money wage rate and price level; zero 
D)  interest rate; zero

Question 4

If consumption expenditures for a household increase from $1000 to $1800 when disposable income rises from $1000 to $2000, the marginal propensity to consume is

Accepted Answer

A)  0.2. 
B)  0.8. 
C)  0.3. 
D)  0.18. 
A)  0.2. 
B)  0.8. 
C)  0.3. 
D)  0.18.

Question 5

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

Accepted Answer

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

Question 6

If the MPC increases from 0.75 to 0.80 and there are no income taxes or imports,

Accepted Answer

A)  the multiplier becomes larger. 
B)  the slope of the savings function becomes larger. 
C)  the slope of the consumption function becomes smaller. 
D)  the multiplier becomes smaller. 
A)  the multiplier becomes larger. 
B)  the slope of the savings function becomes larger. 
C)  the slope of the consumption function becomes smaller. 
D)  the multiplier becomes smaller.

Question 7

Which of the following is INCORRECT ?

Accepted Answer

A)  The multiplier dampens the increase in income that occurs during expansions and brings the economy to a new equilibrium GDP. 
B)  Firms increase production in response to unplanned decreases in inventories. 
C)  Firms experience unplanned decreases in inventories as expansions begin. 
D)  Expansions usually begin with an increase in autonomous spending. 
A)  The multiplier dampens the increase in income that occurs during expansions and brings the economy to a new equilibrium GDP. 
B)  Firms increase production in response to unplanned decreases in inventories. 
C)  Firms experience unplanned decreases in inventories as expansions begin. 
D)  Expansions usually begin with an increase in autonomous spending.

Question 8

Equilibrium expenditure occurs where

Accepted Answer

A)  the aggregate expenditure curve crosses the 45-degree line. 
B)  savings exceed planned investment. 
C)  planned expenditures exceed national income. 
D)  All of the answers are correct. 
A)  the aggregate expenditure curve crosses the 45-degree line. 
B)  savings exceed planned investment. 
C)  planned expenditures exceed national income. 
D)  All of the answers are correct.

Question 9

Please explain the relationship between consumption, disposable income and saving.

Accepted Answer

In general, the greater the level of dis

Question 10

$$\begin{array} { | l | l | l | l | } 
\hline \begin{array} { l } 
\text { Real GDP } \
\text { (dollars) }
\end{array} & \begin{array} { l } 
\text { Consumption } \
\text { expenditure } \
\text { (dollars) }
\end{array} & \begin{array} { l } 
\text { Investment } \
\text { (dollars) }
\end{array} & \begin{array} { l } 
\text { Government } \
\text { expenditure } \
\text { (dollars) }
\end{array} \
\hline 3,000 & 2,500 & 500 & 500 \
\hline 4,000 & 3,250 & 500 & 500 \
\hline 5,000 & 4,000 & 500 & 500 \
\hline 6,000 & 4,750 & 500 & 500 \
\hline 7,000 & 5,500 & 500 & 500 \
\hline 8,000 & 6,250 & 500 & 500 \
\hline
\end{array}$$
-In the above table, there are no taxes and no imports or exports. Suppose that investment increases from $500 to $750 at each level of real GDP. After the increase, what is the level of planned expenditure when real GDP equals $5,000?

Accepted Answer

A)  $1,000 
B)  $5,000 
C)  $250 
D)  $5,250 
A)  $1,000 
B)  $5,000 
C)  $250 
D)  $5,250

Question 11

$$\begin{array} { | l | l | } 
\hline \begin{array} { l } 
\text { Disposable } \
\text { income } \
\text { (thousands of } \
\text { dollars) }
\end{array} & \begin{array} { l } 
\text { Consumption } \
\text { exp enditure } \
\text { (thousands of dollars) }
\end{array} \
\hline 200 & 225 \
\hline 300 & 300 \
\hline 400 & 375 \
\hline 500 & 450 \
\hline
\end{array}$$
-According to the data in the above table, at what level of disposable income is savings negative?

Accepted Answer

A)  400 
B)  200 
C)  300 
D)  Never because saving cannot be negative. 
A)  400 
B)  200 
C)  300 
D)  Never because saving cannot be negative.

Question 12

When disposable income equals consumption expenditure, then

Accepted Answer

A)  the MPS = zero. 
B)  saving is zero. 
C)  the MPC = zero. 
D)  None of the above is correct. 
A)  the MPS = zero. 
B)  saving is zero. 
C)  the MPC = zero. 
D)  None of the above is correct.

Question 13

When there is unplanned inventory investment, aggregate planned expenditure is_________ real GDP and actual investment is _________planned investment.

Accepted Answer

A)  less than; greater than 
B)  less than; less than 
C)  greater than; greater than 
D)  greater than; less than 
A)  less than; greater than 
B)  less than; less than 
C)  greater than; greater than 
D)  greater than; less than

Question 14

$\begin{array}{|l|l|l|l|}
\hline \begin{array}{l}
\text { Real GDP } \
\text { (billions of } \
\text { 2005 dollars) }
\end{array} & \begin{array}{l}
C \
\text { (billions of } \
\text { 2005 dollars) }
\end{array} & \begin{array}{l}
I \
\text { (billions of } \
\text { 2005 dollars) }
\end{array} & \begin{array}{l}
G \
\text { (billions of } \
\text { 2005 dollars) }
\end{array} \\hline 100 & 150 & 150 & 150 \
\hline 200 & 200 & 150 & 150 \
\hline 300 & 250 & 150 & 150 \
\hline 400 & 300 & 150 & 150 \
\hline 500 & 350 & 150 & 150 \
\hline 600 & 400 & 150 & 150 \
\hline 700 & 450 & 150 & 150 \
\hline 800 & 500 & 150 & 150 \
\hline 900 & 550 & 150 & 150 \
\hline
\end{array}$
-The above table gives information for the nation of North Hampton. There are no imports to or exports from North Hampton.
a) Find aggregate planned expenditure for each level of real GDP.
b) What is the equilibrium level of real GDP?

Accepted Answer

To calculate aggregate expenditure, for

Question 15

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

Accepted Answer

Equilibrium occurs when real GDP equals

Question 16

What is the consumption function? What factor leads to a movement along the consumption function?

Accepted Answer

The consumption function is the relation

Question 17

When the economy is at full employment and investment increases, in the long run the price level will_________ and, if potential GDP does not change, in the long run real GDP will_________ .

Accepted Answer

A)  decrease; decrease 
B)  decrease; not change 
C)  increase; not change 
D)  increase; increase 
A)  decrease; decrease 
B)  decrease; not change 
C)  increase; not change 
D)  increase; increase

Question 18

An economy saves 20 percent of any increase in income and there are no income taxes or imports. Then, an increase in investment of $2 billion leads to a short run increase in real GDP of

Accepted Answer

A)  $1.6 billion. 
B)  $0.4 billion. 
C)  $10 billion. 
D)  $2 billion. 
A)  $1.6 billion. 
B)  $0.4 billion. 
C)  $10 billion. 
D)  $2 billion.

Question 19

In an economy with no income taxes or imports, the multiplier equals

Accepted Answer

A)  1/MPS. 
B)  1/1 - MPS). 
C)  1/MPC. 
D)  1/MPC + MPS). 
A)  1/MPS. 
B)  1/1 - MPS). 
C)  1/MPC. 
D)  1/MPC + MPS).

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 save?

Accepted Answer

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

Explain the basic idea of the expenditure multiplier and the role consumers play in determining its magnitude.

In general, the flatter the aggregate expenditure curve, the

Because of changes in the_ , the long-run effect of a $10 increase in investment on real GDP equals _.

If consumption expenditures for a household increase from $1000 to $1800 when disposable income rises from $1000 to $2000, the marginal propensity to consume is

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

If the MPC increases from 0.75 to 0.80 and there are no income taxes or imports,

Which of the following is INCORRECT ?

Equilibrium expenditure occurs where

Please explain the relationship between consumption, disposable income and saving.

Disposable income (thousands of dollars) Consumption exp enditure (thousands of dollars) 200 225 300 300 400 375 500 450 -According to the data in the above table, at what level of disposable income is savings negative?

When disposable income equals consumption expenditure, then

When there is unplanned inventory investment, aggregate planned expenditure is_ real GDP and actual investment is _planned investment.

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

What is the consumption function? What factor leads to a movement along the consumption function?

When the economy is at full employment and investment increases, in the long run the price level will_ and, if potential GDP does not change, in the long run real GDP will_ .

An economy saves 20 percent of any increase in income and there are no income taxes or imports. Then, an increase in investment of $2 billion leads to a short run increase in real GDP of

In an economy with no income taxes or imports, the multiplier equals

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

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

Explain the basic idea of the expenditure multiplier and the role consumers play in determining its magnitude.

In general, the flatter the aggregate expenditure curve, the

Because of changes in the_________ , the long-run effect of a $10 increase in investment on real GDP equals _________.

If consumption expenditures for a household increase from $1000 to $1800 when disposable income rises from $1000 to $2000, the marginal propensity to consume is

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

If the MPC increases from 0.75 to 0.80 and there are no income taxes or imports,

Which of the following is INCORRECT ?

Equilibrium expenditure occurs where

Please explain the relationship between consumption, disposable income and saving.

Disposable income (thousands of dollars) Consumption exp enditure (thousands of dollars) 200 225 300 300 400 375 500 450 -According to the data in the above table, at what level of disposable income is savings negative?

When disposable income equals consumption expenditure, then

When there is unplanned inventory investment, aggregate planned expenditure is_________ real GDP and actual investment is _________planned investment.

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

What is the consumption function? What factor leads to a movement along the consumption function?

When the economy is at full employment and investment increases, in the long run the price level will_________ and, if potential GDP does not change, in the long run real GDP will_________ .

An economy saves 20 percent of any increase in income and there are no income taxes or imports. Then, an increase in investment of $2 billion leads to a short run increase in real GDP of

In an economy with no income taxes or imports, the multiplier equals

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

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

Because of changes in the_ , the long-run effect of a $10 increase in investment on real GDP equals _.

When there is unplanned inventory investment, aggregate planned expenditure is_ real GDP and actual investment is _planned investment.

When the economy is at full employment and investment increases, in the long run the price level will_ and, if potential GDP does not change, in the long run real GDP will_ .