Question 1

An increase in disposable income shifts

Accepted Answer

A)  both the consumption and savings functions upward. 
B)  the consumption function upward and leads to a movement along the savings function. 
C)  both the consumption and savings functions downward. 
D)  neither the consumption function nor the savings function because it leads to a movement along both the consumption and savings functions. 
A)  both the consumption and savings functions upward. 
B)  the consumption function upward and leads to a movement along the savings function. 
C)  both the consumption and savings functions downward. 
D)  neither the consumption function nor the savings function because it leads to a movement along both the consumption and savings functions.

Question 2

-Based upon the above table, the MPC for the consumption function is

Accepted Answer

A)  increasing as income rises. 
B)  equal to 1.0 at $600 billion. 
C)  constant at 0.75. 
D)  constant at 0.25. 
A)  increasing as income rises. 
B)  equal to 1.0 at $600 billion. 
C)  constant at 0.75. 
D)  constant at 0.25.

Question 3

Suppose that the slope of the AE curve is 0.75. Then a $100 decrease in autonomous spending means equilibrium expenditure will

Accepted Answer

A)  decrease by $400. 
B)  increase by $400. 
C)  decrease by $750. 
D)  increase by $750. 
A)  decrease by $400. 
B)  increase by $400. 
C)  decrease by $750. 
D)  increase by $750.

Question 4

If prices are fixed, when aggregate planned expenditure exceeds real GDP, then

Accepted Answer

A)  inventories decrease, signaling firms to increase production and increase real GDP. 
B)  inventories increase, signaling firms to decrease production and decrease real GDP. 
C)  profits fall, signaling firms to decrease production and decrease real GDP. 
D)  None of the above answers are correct. 
A)  inventories decrease, signaling firms to increase production and increase real GDP. 
B)  inventories increase, signaling firms to decrease production and decrease real GDP. 
C)  profits fall, signaling firms to decrease production and decrease real GDP. 
D)  None of the above answers are correct.

Question 5

The multiplier is the ratio of the

Accepted Answer

A)  change in real GDP to the change in autonomous expenditures. 
B)  equilibrium level of real GDP to the change in induced expenditures. 
C)  change in induced expenditures to the change in autonomous expenditures. 
D)  change in autonomous expenditures to the change in real GDP. 
A)  change in real GDP to the change in autonomous expenditures. 
B)  equilibrium level of real GDP to the change in induced expenditures. 
C)  change in induced expenditures to the change in autonomous expenditures. 
D)  change in autonomous expenditures to the change in real GDP.

Question 6

Suppose that the slope of the AE curve is 0.80. Then an increase of investment of $10 billion leads to an increase in equilibrium real GDP equal to

Accepted Answer

A)  $8.0 billion. 
B)  $10.0 billion. 
C)  $12.5 billion. 
D)  $50.0 billion. 
A)  $8.0 billion. 
B)  $10.0 billion. 
C)  $12.5 billion. 
D)  $50.0 billion.

Question 7

The multiplier effect exists because a change in autonomous expenditure

Accepted Answer

A)  leaves the economy in the form of imports. 
B)  leads to changes in income, which generate further spending. 
C)  prompts further exports. 
D)  will undergo its complete effect in one round. 
A)  leaves the economy in the form of imports. 
B)  leads to changes in income, which generate further spending. 
C)  prompts further exports. 
D)  will undergo its complete effect in one round.

Question 8

In the country of Midland, autonomous consumption expenditure is $60 million, and the marginal propensity to consume is 0.6. Investment is $110 million, government expenditure is $70 million, and there are no income taxes. Investment and government expenditure are constant-they do not vary with income. The nation does not trade with the rest of the world.
a) Draw the aggregate expenditure curve.
b) What is the autonomous aggregate expenditure?
c) What is the size of the multiplier in Midland's economy?
d) What is aggregate planned expenditure and what is happening to inventories when real GDP is $800 million?
e) What is the economy's equilibrium aggregate expenditure?

Accepted Answer

@#IMG-DLM& a) See the figure above. Because the na

Question 9

How is it possible for consumption expenditure to be positive even when disposable income is zero?

Accepted Answer

Consumption expenditure can be positive

Question 10

-The figure above illustrates an economy's consumption function. What is the marginal propensity to consume in this economy?

Accepted Answer

A)  0.67 
B)  1.00 
C)  0.75 
D)  0.33 
A)  0.67 
B)  1.00 
C)  0.75 
D)  0.33

Question 11

Assume there are no taxes or imports. The government estimates that between 2012 and 2013 disposable income decreased by $400 billion and consumption expenditure decreased by $280 billion. Based on these data, the multiplier equals

Accepted Answer

A)  0.33. 
B)  0.7. 
C)  1.42. 
D)  3.33. 
A)  0.33. 
B)  0.7. 
C)  1.42. 
D)  3.33.

Question 12

Equilibrium real GDP is $400 billion, the MPC = 0.9, and there are no income taxes or imports. Investment increases $40 billion. If the price level is constant, after the increase in investment, equilibrium real GDP will be

Accepted Answer

A)  $440 billion. 
B)  $360 billion. 
C)  $600 billion. 
D)  $800 billion. 
A)  $440 billion. 
B)  $360 billion. 
C)  $600 billion. 
D)  $800 billion.

Question 13

Explain the relationships between real GDP, aggregate planned expenditure, induced expenditure, and unplanned investment.

Accepted Answer

All buyers in the economy make expenditu

Question 14

As a nation's GDP increases, that nation's

Accepted Answer

A)  autonomous consumption increases. 
B)  autonomous consumption decreases. 
C)  exports increase. 
D)  imports increase. 
A)  autonomous consumption increases. 
B)  autonomous consumption decreases. 
C)  exports increase. 
D)  imports increase.

Question 15

When disposal income is $5.0 trillion, consumption expenditure is $4.5 trillion. When disposal income is $6.0 trillion, consumption expenditure is $5.0 trillion. What is the marginal propensity to consume?

Accepted Answer

The marginal propensity to consume is th

Question 16

Suppose that in a particular economy, the multiplier is equal to 5. In terms of aggregate demand and aggregate supply, this value for the multiplier means that after an increase in investment

Accepted Answer

A)  at each level of real GDP, the aggregate demand curve shifts upward by an amount equal to 5 times the change in investment. 
B)  at each level of real GDP, the aggregate supply curve shifts upward by an amount equal to 5 times the change in investment. 
C)  at each price level, the aggregate supply curve shifts rightward by an amount equal to 5 times the change in investment. 
D)  at each price level, the aggregate demand curve shifts rightward by an amount equal to 5 times the change in investment. 
A)  at each level of real GDP, the aggregate demand curve shifts upward by an amount equal to 5 times the change in investment. 
B)  at each level of real GDP, the aggregate supply curve shifts upward by an amount equal to 5 times the change in investment. 
C)  at each price level, the aggregate supply curve shifts rightward by an amount equal to 5 times the change in investment. 
D)  at each price level, the aggregate demand curve shifts rightward by an amount equal to 5 times the change in investment.

Question 17

In an article regarding Bangladesh's economy, the author suggests that the government ..."[g]ive double tax breaks on investment dollars. Give a tax break to R&D [research and development]. Give a tax break on donations to educational institutions." www.groundreport.com, March 24, 2008
Suppose the multiplier in Bangladesh is 2. If the government enacts the proposed policies and ________, aggregate expenditure ________ in the short run.

Accepted Answer

A)  induced expenditure increases by $5 billion; increases by $10 billion. 
B)  autonomous expenditure decreases by $10; decreases by $5 billion. 
C)  equilibrium expenditure increases by $8 billion; increases by $16 billion. 
D)  autonomous expenditure increases by $10 billion; increases by $20 billion. 
A)  induced expenditure increases by $5 billion; increases by $10 billion. 
B)  autonomous expenditure decreases by $10; decreases by $5 billion. 
C)  equilibrium expenditure increases by $8 billion; increases by $16 billion. 
D)  autonomous expenditure increases by $10 billion; increases by $20 billion.

Question 18

-In the above table, savings are positive when disposable income is greater than

Accepted Answer

A)  zero. 
B)  $100. 
C)  $300. 
D)  $500. 
A)  zero. 
B)  $100. 
C)  $300. 
D)  $500.

Question 19

According to the Keynesian theory, the typical firm

Accepted Answer

A)  changes its prices frequently in response to fluctuations in aggregate demand. 
B)  lowers its prices when inventories are decreasing. 
C)  does not change its prices immediately when aggregate demand fluctuates. 
D)  lowers its prices if sales exceed production. 
A)  changes its prices frequently in response to fluctuations in aggregate demand. 
B)  lowers its prices when inventories are decreasing. 
C)  does not change its prices immediately when aggregate demand fluctuates. 
D)  lowers its prices if sales exceed production.

Question 20

A change in the real interest rate creates a movement along the consumption function.

Accepted Answer

A) True 
 B)False

An increase in disposable income shifts

-Based upon the above table, the MPC for the consumption function is

Suppose that the slope of the AE curve is 0.75. Then a $100 decrease in autonomous spending means equilibrium expenditure will

If prices are fixed, when aggregate planned expenditure exceeds real GDP, then

The multiplier is the ratio of the

Suppose that the slope of the AE curve is 0.80. Then an increase of investment of $10 billion leads to an increase in equilibrium real GDP equal to

The multiplier effect exists because a change in autonomous expenditure

How is it possible for consumption expenditure to be positive even when disposable income is zero?

-The figure above illustrates an economy's consumption function. What is the marginal propensity to consume in this economy?

Assume there are no taxes or imports. The government estimates that between 2012 and 2013 disposable income decreased by $400 billion and consumption expenditure decreased by $280 billion. Based on these data, the multiplier equals

Equilibrium real GDP is $400 billion, the MPC = 0.9, and there are no income taxes or imports. Investment increases $40 billion. If the price level is constant, after the increase in investment, equilibrium real GDP will be

Explain the relationships between real GDP, aggregate planned expenditure, induced expenditure, and unplanned investment.

As a nation's GDP increases, that nation's

When disposal income is $5.0 trillion, consumption expenditure is $4.5 trillion. When disposal income is $6.0 trillion, consumption expenditure is $5.0 trillion. What is the marginal propensity to consume?

Suppose that in a particular economy, the multiplier is equal to 5. In terms of aggregate demand and aggregate supply, this value for the multiplier means that after an increase in investment

-In the above table, savings are positive when disposable income is greater than

According to the Keynesian theory, the typical firm

A change in the real interest rate creates a movement along the consumption function.

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

An increase in disposable income shifts

-Based upon the above table, the MPC for the consumption function is

Suppose that the slope of the AE curve is 0.75. Then a $100 decrease in autonomous spending means equilibrium expenditure will

If prices are fixed, when aggregate planned expenditure exceeds real GDP, then

The multiplier is the ratio of the

Suppose that the slope of the AE curve is 0.80. Then an increase of investment of $10 billion leads to an increase in equilibrium real GDP equal to

The multiplier effect exists because a change in autonomous expenditure

How is it possible for consumption expenditure to be positive even when disposable income is zero?

-The figure above illustrates an economy's consumption function. What is the marginal propensity to consume in this economy?

Assume there are no taxes or imports. The government estimates that between 2012 and 2013 disposable income decreased by $400 billion and consumption expenditure decreased by $280 billion. Based on these data, the multiplier equals

Equilibrium real GDP is $400 billion, the MPC = 0.9, and there are no income taxes or imports. Investment increases $40 billion. If the price level is constant, after the increase in investment, equilibrium real GDP will be

Explain the relationships between real GDP, aggregate planned expenditure, induced expenditure, and unplanned investment.

As a nation's GDP increases, that nation's

When disposal income is $5.0 trillion, consumption expenditure is $4.5 trillion. When disposal income is $6.0 trillion, consumption expenditure is $5.0 trillion. What is the marginal propensity to consume?

Suppose that in a particular economy, the multiplier is equal to 5. In terms of aggregate demand and aggregate supply, this value for the multiplier means that after an increase in investment

-In the above table, savings are positive when disposable income is greater than

According to the Keynesian theory, the typical firm

A change in the real interest rate creates a movement along the consumption function.

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