Question 1

Which of the following quotations illustrates a decrease in aggregate expenditure?

Accepted Answer

A) "The new stadium will generate $200 million in spin off spending." 
B) "Higher expected profits are leading to higher investment spending by business, and will lead to higher consumer spending." 
C) "The projected cuts in government jobs will hurt the local retail industry." 
D) "Taking the grain elevator out of our small town will destroy 300 jobs." 
E) Both C and D. 
A) "The new stadium will generate $200 million in spin off spending." 
B) "Higher expected profits are leading to higher investment spending by business, and will lead to higher consumer spending." 
C) "The projected cuts in government jobs will hurt the local retail industry." 
D) "Taking the grain elevator out of our small town will destroy 300 jobs." 
E) Both C and D.

Question 2

Equilibrium expenditure occurs when

Accepted Answer

A) consumption equals real GDP. 
B) aggregate planned expenditure equals real GDP. 
C) aggregate planned expenditure equals consumption. 
D) induced consumption equals aggregate planned expenditure. 
E) none of the above. 
A) consumption equals real GDP. 
B) aggregate planned expenditure equals real GDP. 
C) aggregate planned expenditure equals consumption. 
D) induced consumption equals aggregate planned expenditure. 
E) none of the above.

Question 3

Use the table below to answer the following question(s).
Table 27.3.1
The following table shows the relationship between aggregate planned
expenditure and real GDP in the hypothetical economy of Econoworld.
  
-Refer to Table 27.3.1.What is the slope of the AE curve?

Accepted Answer

A) 0.8 
B) 0.6 
C) 0.75 
D) 1 
E) 1.3 
A) 0.8 
B) 0.6 
C) 0.75 
D) 1 
E) 1.3

Question 4

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

Accepted Answer

A) a trough 
B) a business cycle 
C) a recession 
D) an expansion 
E) a collapse of the stock market 
A) a trough 
B) a business cycle 
C) a recession 
D) an expansion 
E) a collapse of the stock market

Question 5

The marginal propensity to consume

Accepted Answer

A) is negative if dissaving is present. 
B) is greater than 1 if dissaving is present. 
C) is between 1/2 and 1. 
D) is greater than 1 but less than 2. 
E) is between zero and 1. 
A) is negative if dissaving is present. 
B) is greater than 1 if dissaving is present. 
C) is between 1/2 and 1. 
D) is greater than 1 but less than 2. 
E) is between zero and 1.

Question 6

Use the figure below to answer the following questions.
   
Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for a model economy.
-Refer to Figure 27.1.1.When disposable income is $500 billion,saving is equal to

Accepted Answer

A) disposable income. 
B) zero. 
C) $20 billion. 
D) consumption expenditure. 
E) $40 billion. 
A) disposable income. 
B) zero. 
C) $20 billion. 
D) consumption expenditure. 
E) $40 billion.

Question 7

Use the figure below to answer the following question(s).
   
Figure 27.3.1
The economy shown in the graph does not engage in international trade and has no government.Planned aggregate expenditure equals the sum of consumption expenditure (C)and investment (I).
-Refer to Figure 27.3.1.Autonomous expenditure equals

Accepted Answer

A) $100 billion. 
B) $25 billion. 
C) $50 billion. 
D) $125 billion. 
E) none of the above. 
A) $100 billion. 
B) $25 billion. 
C) $50 billion. 
D) $125 billion. 
E) none of the above.

Question 8

You are given the following information about the Canadian economy.Autonomous consumption expenditure is $50 billion,investment is $200 billion,and government expenditure is $250 billion.The marginal propensity to consume is 0.7 and net taxes are $250 billion.Net taxes are assumed to be constant and not vary with income.Exports are $500 billion and imports are $450 billion.
The equation of the AE curve in billions of dollars is ________.Equilibrium expenditure is ________.

Accepted Answer

A) AE = 0.7 + 375Y;$1,250 billion 
B) AE = 0.7Y + 300;$1,000 billion 
C) AE = 0.7Y + 1,275;$4,250 billion 
D) AE = 0.7Y + 375;$1,250 billion 
E) AE = 0.7Y + 375;$536 billion 
A) AE = 0.7 + 375Y;$1,250 billion 
B) AE = 0.7Y + 300;$1,000 billion 
C) AE = 0.7Y + 1,275;$4,250 billion 
D) AE = 0.7Y + 375;$1,250 billion 
E) AE = 0.7Y + 375;$536 billion

Question 9

If an economy's real GDP increases from $100 billion to $150 billion,and at the same time its imports increase from $40 billion to $50 billion,then the marginal propensity to import

Accepted Answer

A) decreases from 0.4 to 0.2. 
B) is greater than 0.2 and less than 0.4. 
C) is 0.2. 
D) is 0.36. 
E) is 0.4. 
A) decreases from 0.4 to 0.2. 
B) is greater than 0.2 and less than 0.4. 
C) is 0.2. 
D) is 0.36. 
E) is 0.4.

Question 10

An increase in the price level

Accepted Answer

A) shifts the AE curve upward and increases equilibrium expenditure. 
B) shifts the AE curve upward and decreases equilibrium expenditure. 
C) shifts the AE curve downward and increases equilibrium expenditure. 
D) shifts the AE curve downward and decreases equilibrium expenditure. 
E) has no impact on the AE curve. 
A) shifts the AE curve upward and increases equilibrium expenditure. 
B) shifts the AE curve upward and decreases equilibrium expenditure. 
C) shifts the AE curve downward and increases equilibrium expenditure. 
D) shifts the AE curve downward and decreases equilibrium expenditure. 
E) has no impact on the AE curve.

Question 11

Use the information below to answer the following questions.
Fact 27.5.2
The economy of Tinseltown has a consumption function of C = 15 + 0.7Y , investment equal to 8, government expenditure equal to 12, exports equal to 20, and an import function of M = 0.2Y.
-Refer to Fact 27.5.2.What is the equation for the aggregate expenditure curve for this economy?

Accepted Answer

A) AE = 35 + 0.5Y 
B) AE = 55 + 0.7Y 
C) AE = 55 + 0.9Y 
D) AE = 45 - 0.5Y 
E) AE = 55 + 0.5Y 
A) AE = 35 + 0.5Y 
B) AE = 55 + 0.7Y 
C) AE = 55 + 0.9Y 
D) AE = 45 - 0.5Y 
E) AE = 55 + 0.5Y

Question 12

If aggregate planned expenditure exceeds real GDP,then inventories

Accepted Answer

A) increase and real GDP increases. 
B) increase and real GDP falls. 
C) decrease and real GDP increases. 
D) decrease and real GDP decreases. 
E) remain constant and real GDP remains constant. 
A) increase and real GDP increases. 
B) increase and real GDP falls. 
C) decrease and real GDP increases. 
D) decrease and real GDP decreases. 
E) remain constant and real GDP remains constant.

Question 13

Use the information below to answer the following question.
Fact 27.5.1
The economy of Beverly Hills has a consumption function of C = 10 + 0.8Y, investment equal to 6, government expenditure equal to 10, exports equal to 10, and an import function of M = 0.1Y.
-Refer to Fact 27.5.1.What is equilibrium real GDP in this economy?

Accepted Answer

A) 36 
B) 120 
C) 130 
D) 360 
E) none of the above 
A) 36 
B) 120 
C) 130 
D) 360 
E) none of the above

Question 14

The sum of the marginal propensity to save and the marginal propensity to consume

Accepted Answer

A) always equals 1. 
B) sometimes equals 1. 
C) always equals 0. 
D) never equals 1. 
E) is greater than zero but less than 1. 
A) always equals 1. 
B) sometimes equals 1. 
C) always equals 0. 
D) never equals 1. 
E) is greater than zero but less than 1.

Question 15

Use the information below to answer the following questions.
Fact 27.5.2
The economy of Tinseltown has a consumption function of C = 15 + 0.7Y , investment equal to 8, government expenditure equal to 12, exports equal to 20, and an import function of M = 0.2Y.
-Refer to Fact 27.5.2.What is equilibrium real GDP for this economy?

Accepted Answer

A) 110 
B) 55 
C) 27.5 
D) 70 
E) 550 
A) 110 
B) 55 
C) 27.5 
D) 70 
E) 550

Question 16

Suppose that investment decreases by $15 billion.If the multiplier is 2,and the short-run aggregate supply curve is positively sloped.In the short run,equilibrium real GDP

Accepted Answer

A) decreases by $30 billion. 
B) decreases by more than $30 billion. 
C) decreases by less than $30 billion. 
D) increases by less than $30 billion. 
E) does not change. 
A) decreases by $30 billion. 
B) decreases by more than $30 billion. 
C) decreases by less than $30 billion. 
D) increases by less than $30 billion. 
E) does not change.

Question 17

Which of the following quotations illustrates an increase in aggregate expenditure?

Accepted Answer

A) "The new stadium will generate $200 million in spin off spending." 
B) "Higher expected profits are leading to higher investment spending by business, and will lead to higher consumer spending." 
C) "The projected cuts in government jobs will hurt the local retail industry." 
D) "Taking the grain elevator out of our small town will destroy 300 jobs." 
E) Both A and B. 
A) "The new stadium will generate $200 million in spin off spending." 
B) "Higher expected profits are leading to higher investment spending by business, and will lead to higher consumer spending." 
C) "The projected cuts in government jobs will hurt the local retail industry." 
D) "Taking the grain elevator out of our small town will destroy 300 jobs." 
E) Both A and B.

Question 18

Use the table below to answer the following question.
Table 27.1.1
The following table shows the relationship between consumption
expenditure (C)and disposable income (YD)for a hypothetical economy.
  
-Refer to Table 27.1.1.The marginal propensity to save is

Accepted Answer

A) decreasing as YD increases. 
B) equal to zero when YD equals $600. 
C) 0.75. 
D) 0.25. 
E) 4. 
A) decreasing as YD increases. 
B) equal to zero when YD equals $600. 
C) 0.75. 
D) 0.25. 
E) 4.

Exam 27: Expenditure Multipliers: The Keynesian Model

Which of the following quotations illustrates a decrease in aggregate expenditure?

Equilibrium expenditure occurs when

Use the table below to answer the following question(s). Table 27.3.1 The following table shows the relationship between aggregate planned expenditure and real GDP in the hypothetical economy of Econoworld. -Refer to Table 27.3.1.What is the slope of the AE curve?

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

The marginal propensity to consume

Use the figure below to answer the following questions. Figure 27.1.1 This figure describes the relationship between consumption expenditure and disposable income for a model economy. -Refer to Figure 27.1.1.When disposable income is $500 billion,saving is equal to

If an economy's real GDP increases from $100 billion to $150 billion,and at the same time its imports increase from $40 billion to $50 billion,then the marginal propensity to import

An increase in the price level

If aggregate planned expenditure exceeds real GDP,then inventories

The sum of the marginal propensity to save and the marginal propensity to consume

Suppose that investment decreases by $15 billion.If the multiplier is 2,and the short-run aggregate supply curve is positively sloped.In the short run,equilibrium real GDP

Which of the following quotations illustrates an increase in aggregate expenditure?

Use the table below to answer the following question. Table 27.1.1 The following table shows the relationship between consumption expenditure (C)and disposable income (YD)for a hypothetical economy. -Refer to Table 27.1.1.The marginal propensity to save is

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