Question 1

How do firms respond to unplanned inventory changes? What is the effect on their production and GDP?

Accepted Answer

If inventories are above their target levels, that is, more than planned so there is an unplanned increase in inventories, firms decrease their production. As a result, GDP decreases. Conversely, if inventories are below their target levels, that is, less than planned so there is an unplanned decrease in inventories, firms increase their production. In this case, GDP increases.

Question 2

As disposable income increases, there is a ________ the saving function.

Accepted Answer

A)  leftward shift of the 
B)  movement along 
C)  rightward shift of 
D)  change in the slope of 
A)  leftward shift of the 
B)  movement along 
C)  rightward shift of 
D)  change in the slope of B

Question 3

In the very short term, in the Keynesian model, which of the following is fixed and does not change when GDP changes?

Accepted Answer

A)  planned investment 
B)  planned consumption 
C)  planned imports 
D)  All of the above answers are correct. 
A)  planned investment 
B)  planned consumption 
C)  planned imports 
D)  All of the above answers are correct. A

Question 4

Explain the relationship between real GDP and aggregate planned expenditure, AE. What change to inventories takes place when the two are not equal?

Accepted Answer

If the GDP and aggregate planned expendi

Question 5

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

Question 6

Discuss the link between real GDP and imports.

Accepted Answer

Imports are one of two components that a

Question 7

The presence of income taxes and imports make the multiplier

Accepted Answer

A)  fall in value but remain positive. 
B)  rise in value. 
C)  not change in value. 
D)  become negative. 
A)  fall in value but remain positive. 
B)  rise in value. 
C)  not change in value. 
D)  become negative.

Question 8

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

Accepted Answer

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

Question 9

As disposable income increases, consumption expenditures

Accepted Answer

A)  increase by the same amount. 
B)  increase by a smaller amount. 
C)  increase by a larger amount. 
D)  remain constant. 
A)  increase by the same amount. 
B)  increase by a smaller amount. 
C)  increase by a larger amount. 
D)  remain constant.

Question 10

Which of the following statements is FALSE?

Accepted Answer

A)  Disposable income - saving = consumption expenditure. 
B)  Consumption expenditure + saving = disposable income. 
C)  Saving = disposable income - consumption expenditure. 
D)  Consumption expenditure = saving - disposable income. 
A)  Disposable income - saving = consumption expenditure. 
B)  Consumption expenditure + saving = disposable income. 
C)  Saving = disposable income - consumption expenditure. 
D)  Consumption expenditure = saving - disposable income.

Question 11

The consumption function relates the consumption expenditure decisions of households to

Accepted Answer

A)  the level of disposable income. 
B)  investment decisions of firms. 
C)  saving decisions of households. 
D)  the nominal interest rate. 
A)  the level of disposable income. 
B)  investment decisions of firms. 
C)  saving decisions of households. 
D)  the nominal interest rate.

Question 12

The marginal propensity to consume must increase as disposable income increases.

Accepted Answer

A) True 
 B)False

Question 13

-In the above table, there are no taxes and no imports or exports. The change in unplanned inventories when real GDP is $7,000 is

Accepted Answer

A)  $6,500. 
B)  $500. 
C)  -$500. 
D)  $1,500. 
A)  $6,500. 
B)  $500. 
C)  -$500. 
D)  $1,500.

Question 14

What effect does an increase in the MPC have on the slope of the AE curve?

Accepted Answer

An increase in the M

Question 15

A country reports that it has an unplanned inventory increase of $1.0 trillion. Discuss how the economy adjusts until it reaches an unplanned inventory change of $0.0 trillion.

Accepted Answer

When unplanned inventory changes are pos

Question 16

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

Question 17

-In the above table, there are no taxes and no imports or exports. The total level of expenditure in the economy when real GDP is $7,000 is

Accepted Answer

A)  $7,000. 
B)  $6,500. 
C)  $13,500. 
D)  0.75. 
A)  $7,000. 
B)  $6,500. 
C)  $13,500. 
D)  0.75.

Question 18

Suppose a country has no income taxes or imports. If the MPC is 0.75, what does the multiplier equal?

Accepted Answer

The multiplier equal

Question 19

The marginal propensity to consume is found by

Accepted Answer

A)  dividing consumption expenditure by disposable income. 
B)  dividing disposable income by consumption expenditure. 
C)  dividing the change in disposable income by the change in consumption expenditure. 
D)  dividing the change in consumption expenditure by the change in disposable income. 
A)  dividing consumption expenditure by disposable income. 
B)  dividing disposable income by consumption expenditure. 
C)  dividing the change in disposable income by the change in consumption expenditure. 
D)  dividing the change in consumption expenditure by the change in disposable income.

Question 20

If the marginal propensity to consume is 0.8 and there no income taxes or imports, the multiplier for a change in autonomous expenditure equals

Accepted Answer

A)  0.8. 
B)  1.0 
C)  4.0. 
D)  5.0. 
A)  0.8. 
B)  1.0 
C)  4.0. 
D)  5.0.

How do firms respond to unplanned inventory changes? What is the effect on their production and GDP?

As disposable income increases, there is a ________ the saving function.

In the very short term, in the Keynesian model, which of the following is fixed and does not change when GDP changes?

Explain the relationship between real GDP and aggregate planned expenditure, AE. What change to inventories takes place when the two are not equal?

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

Discuss the link between real GDP and imports.

The presence of income taxes and imports make the multiplier

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

As disposable income increases, consumption expenditures

Which of the following statements is FALSE?

The consumption function relates the consumption expenditure decisions of households to

The marginal propensity to consume must increase as disposable income increases.

-In the above table, there are no taxes and no imports or exports. The change in unplanned inventories when real GDP is $7,000 is

What effect does an increase in the MPC have on the slope of the AE curve?

A country reports that it has an unplanned inventory increase of $1.0 trillion. Discuss how the economy adjusts until it reaches an unplanned inventory change of $0.0 trillion.

Imports

-In the above table, there are no taxes and no imports or exports. The total level of expenditure in the economy when real GDP is $7,000 is

Suppose a country has no income taxes or imports. If the MPC is 0.75, what does the multiplier equal?

The marginal propensity to consume is found by

If the marginal propensity to consume is 0.8 and there no income taxes or imports, the multiplier for a change in autonomous expenditure equals

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

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 11: Expenditure Multipliers

How do firms respond to unplanned inventory changes? What is the effect on their production and GDP?

As disposable income increases, there is a ________ the saving function.

In the very short term, in the Keynesian model, which of the following is fixed and does not change when GDP changes?

Explain the relationship between real GDP and aggregate planned expenditure, AE. What change to inventories takes place when the two are not equal?

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

Discuss the link between real GDP and imports.

The presence of income taxes and imports make the multiplier

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

As disposable income increases, consumption expenditures

Which of the following statements is FALSE?

The consumption function relates the consumption expenditure decisions of households to

The marginal propensity to consume must increase as disposable income increases.

-In the above table, there are no taxes and no imports or exports. The change in unplanned inventories when real GDP is $7,000 is

What effect does an increase in the MPC have on the slope of the AE curve?

A country reports that it has an unplanned inventory increase of $1.0 trillion. Discuss how the economy adjusts until it reaches an unplanned inventory change of $0.0 trillion.

Imports

-In the above table, there are no taxes and no imports or exports. The total level of expenditure in the economy when real GDP is $7,000 is

Suppose a country has no income taxes or imports. If the MPC is 0.75, what does the multiplier equal?

The marginal propensity to consume is found by

If the marginal propensity to consume is 0.8 and there no income taxes or imports, the multiplier for a change in autonomous expenditure equals

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

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters