Question 1

The marginal propensity to consume is

Accepted Answer

A)  total consumption expenditure divided by the change in disposable income. 
B)  the change in consumption expenditure divided by total disposable income. 
C)  the change in consumption expenditure divided by the change in disposable income. 
D)  the change in consumption expenditure divided by total saving. 
A)  total consumption expenditure divided by the change in disposable income. 
B)  the change in consumption expenditure divided by total disposable income. 
C)  the change in consumption expenditure divided by the change in disposable income. 
D)  the change in consumption expenditure divided by total saving.

Question 2

An increase in expected future income

Accepted Answer

A)  decreases consumption expenditure. 
B)  increases saving. 
C)  shifts the consumption function upward. 
D)  shifts the saving function upward. 
A)  decreases consumption expenditure. 
B)  increases saving. 
C)  shifts the consumption function upward. 
D)  shifts the saving function upward.

Question 3

The marginal propensity to consume measures

Accepted Answer

A)  how much of a given level of disposable income is consumed. 
B)  what percentage of disposable income goes to saving. 
C)  how much consumption expenditure occurs at the equilibrium level of income. 
D)  the fraction of a change in disposable income that is spent on consumption expenditure. 
A)  how much of a given level of disposable income is consumed. 
B)  what percentage of disposable income goes to saving. 
C)  how much consumption expenditure occurs at the equilibrium level of income. 
D)  the fraction of a change in disposable income that is spent on consumption expenditure.

Question 4

The consumption function shows how much

Accepted Answer

A)  all households plan to consume at each level of real disposable income. 
B)  all households plan to consume at each possible real interest rate. 
C)  real disposable income people will earn at each income tax bracket. 
D)  all households plan to consume at each level of savings. 
A)  all households plan to consume at each level of real disposable income. 
B)  all households plan to consume at each possible real interest rate. 
C)  real disposable income people will earn at each income tax bracket. 
D)  all households plan to consume at each level of savings.

Question 5

The slope of the AE curve is 0.9. Investment decreases by $100 million and the price level is constant. Real GDP

Accepted Answer

A)  decreases by $10 million. 
B)  increases by $90 million. 
C)  decreases by $1 billion. 
D)  increases by $1 billion. 
A)  decreases by $10 million. 
B)  increases by $90 million. 
C)  decreases by $1 billion. 
D)  increases by $1 billion.

Question 6

In the long run, the multiplier

Accepted Answer

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

Question 7

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 t

Question 8

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

Accepted Answer

If unplanned inventory changes

Question 9

"The global financial crisis has had a considerable impact on China's export growth, which will continue to show weakness with recession in the U.S. and Europe," said a report by JP Morgan & Co. www.money.cnn.com, 11/11/2008
If Chinese exports continue to decline, the AE curve will shift ________, the price level will ________ in the short run and real GDP will ________ in the short run.

Accepted Answer

A)  upward; decrease; decrease 
B)  downward; decrease; decrease 
C)  upward; decrease; not change 
D)  downward; decrease; not change 
A)  upward; decrease; decrease 
B)  downward; decrease; decrease 
C)  upward; decrease; not change 
D)  downward; decrease; not change

Question 10

The size of the marginal propensity to save

Accepted Answer

A)  is negative if dissaving is present. 
B)  is between 0 and 1. 
C)  equals 1. 
D)  exceeds 1. 
A)  is negative if dissaving is present. 
B)  is between 0 and 1. 
C)  equals 1. 
D)  exceeds 1.

Question 11

In 2007, investment in France increased by 7 billion euros. Which of following occurs?
I. an upward shift in the AE curve
II. a leftward shift in the AD curve
III. an increase in the price level and real GDP in the short run
IV. an increase in the price level and no change in real GDP in the long run

Accepted Answer

A)  I, II, III and IV 
B)  I and III only 
C)  I, III and IV only 
D)  III and iv only 
A)  I, II, III and IV 
B)  I and III only 
C)  I, III and IV only 
D)  III and iv only

Question 12

Income taxes reduce the size of the multiplier.

Accepted Answer

A) True 
 B)False

Question 13

Suppose the economy has no income taxes or imports. The MPC equals 0.8. What does the expenditure model predict will be the change in real GDP if investment increases by $200 billion?

Accepted Answer

The multiplier equals @#IMG-DLM& , so for the case

Question 14

The slope of the AE curve is .80. What is the multiplier? Everything else the same, by how much does equilibrium aggregate expenditure increase if
a) exports increase from $1.75 trillion to $2.25 trillion.
b) government expenditure on goods and services decrease from $2.0 trillion to $1.8 trillion.
c) investment increases from $1.2 trillion to $2.3 trillion.

Accepted Answer

a) The change in equilibrium aggregate e

Question 15

A change in imports caused by rising U.S. incomes is

Accepted Answer

A)  an increase in autonomous expenditure. 
B)  a decrease in autonomous expenditure. 
C)  an increase in induced exports. 
D)  a change in induced expenditure. 
A)  an increase in autonomous expenditure. 
B)  a decrease in autonomous expenditure. 
C)  an increase in induced exports. 
D)  a change in induced expenditure.

Question 16

The software and related services sector has a multiplier effect on the Indian economy with every one-rupee input spent by the" information technology sector" producing an increase in real GDP by two rupees. www.ft.com, 2/28/2008
According to the story, if ________ in the software and related services sector increases by $15 billion, real GDP will increase by ________.

Accepted Answer

A)  investment; $30 billion. 
B)  consumption; $30 billion. 
C)  consumption; $2 billion. 
D)  investment; $2 billion. 
A)  investment; $30 billion. 
B)  consumption; $30 billion. 
C)  consumption; $2 billion. 
D)  investment; $2 billion.

Question 17

If aggregate planned expenditure is less than real GDP then

Accepted Answer

A)  consumers increase their planned expenditure until aggregate planned expenditure increases to equal real GDP. 
B)  firms increase their planned expenditure until aggregate planned expenditure increases to equal real GDP. 
C)  firms' inventories will increase and real GDP will decrease as production falls. 
D)  firms' inventories will decrease and real GDP will decrease as production falls. 
A)  consumers increase their planned expenditure until aggregate planned expenditure increases to equal real GDP. 
B)  firms increase their planned expenditure until aggregate planned expenditure increases to equal real GDP. 
C)  firms' inventories will increase and real GDP will decrease as production falls. 
D)  firms' inventories will decrease and real GDP will decrease as production falls.

Question 18

Autonomous consumption

Accepted Answer

A)  increases with income. 
B)  is independent of income. 
C)  is independent of income and must be equal to zero. 
D)  decreases with income. 
A)  increases with income. 
B)  is independent of income. 
C)  is independent of income and must be equal to zero. 
D)  decreases with income.

Question 19

The multiplier is 5.0 and autonomous expenditure increases by $30 billion. If potential real GDP is unaffected, in the long run, equilibrium real GDP will

Accepted Answer

A)  increase by $50 billion. 
B)  increase by more than $50 billion. 
C)  increase by less than $50 billion. 
D)  not change. 
A)  increase by $50 billion. 
B)  increase by more than $50 billion. 
C)  increase by less than $50 billion. 
D)  not change.

Question 20

What is the relationship between the MPC and the slope of the AE curve?

Accepted Answer

If there are no imports or income taxes,

The marginal propensity to consume is

An increase in expected future income

The marginal propensity to consume measures

The consumption function shows how much

The slope of the AE curve is 0.9. Investment decreases by $100 million and the price level is constant. Real GDP

In the long run, the multiplier

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?

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

The size of the marginal propensity to save

Income taxes reduce the size of the multiplier.

Suppose the economy has no income taxes or imports. The MPC equals 0.8. What does the expenditure model predict will be the change in real GDP if investment increases by $200 billion?

A change in imports caused by rising U.S. incomes is

If aggregate planned expenditure is less than real GDP then

Autonomous consumption

The multiplier is 5.0 and autonomous expenditure increases by $30 billion. If potential real GDP is unaffected, in the long run, equilibrium real GDP will

What is the relationship between the MPC and the slope of the AE curve?

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

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Exam 11: Expenditure Multipliers

The marginal propensity to consume is

An increase in expected future income

The marginal propensity to consume measures

The consumption function shows how much

The slope of the AE curve is 0.9. Investment decreases by $100 million and the price level is constant. Real GDP

In the long run, the multiplier

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?

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

The size of the marginal propensity to save

Income taxes reduce the size of the multiplier.

Suppose the economy has no income taxes or imports. The MPC equals 0.8. What does the expenditure model predict will be the change in real GDP if investment increases by $200 billion?

A change in imports caused by rising U.S. incomes is

If aggregate planned expenditure is less than real GDP then

Autonomous consumption

The multiplier is 5.0 and autonomous expenditure increases by $30 billion. If potential real GDP is unaffected, in the long run, equilibrium real GDP will

What is the relationship between the MPC and the slope of the AE curve?

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