Question 1

If AE = 50 + 0.6Y and Y = 200, then unplanned inventories

Accepted Answer

A) increase by 75. 
B) increase by 30. 
C) decrease by 75. 
D) decrease by 30. 
E) do not change and equilibrium exists. 
A) increase by 75. 
B) increase by 30. 
C) decrease by 75. 
D) decrease by 30. 
E) do not change and equilibrium exists. B

Question 2

Use the figure below to answer the following questions.
   
Figure 27.2.1
There are no exports or imports in this economy.
-Refer to Figure 27.2.1. When real GDP is equal to Yc, then

Accepted Answer

A) actual expenditure is less than planned expenditure. 
B) actual expenditure is greater than planned expenditure. 
C) planned expenditure is equal to actual expenditure. 
D) the economy is in equilibrium. 
E) real GDP increases. 
A) actual expenditure is less than planned expenditure. 
B) actual expenditure is greater than planned expenditure. 
C) planned expenditure is equal to actual expenditure. 
D) the economy is in equilibrium. 
E) real GDP increases. B

Question 3

Everything else remaining the same, an increase in the marginal propensity to consume ________ the slope of the AE curve and ________ equilibrium expenditure.

Accepted Answer

A) decreases; increases 
B) increases; increases 
C) decreases; decreases 
D) increases; decreases 
E) does not change; does not change 
A) decreases; increases 
B) increases; increases 
C) decreases; decreases 
D) increases; decreases 
E) does not change; does not change B

Question 4

A decrease in the marginal propensity to import ________, everything else remaining the same.

Accepted Answer

A) makes the multiplier larger 
B) makes the multiplier smaller 
C) has no effect on the multiplier 
D) sometimes increases the multiplier and sometimes decreases the multiplier 
E) increases the marginal propensity to consume 
A) makes the multiplier larger 
B) makes the multiplier smaller 
C) has no effect on the multiplier 
D) sometimes increases the multiplier and sometimes decreases the multiplier 
E) increases the marginal propensity to consume

Question 5

The aggregate expenditure curve will become steeper if

Accepted Answer

A) people become thriftier. 
B) people show an increased preference for foreign-made products. 
C) firms expect an increase in future profit. 
D) income tax rates are lowered. 
E) income tax rates are raised. 
A) people become thriftier. 
B) people show an increased preference for foreign-made products. 
C) firms expect an increase in future profit. 
D) income tax rates are lowered. 
E) income tax rates are raised.

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 an economy.
-Refer to Figure 27.1.1. When disposable income is equal to $200 billion, saving is

Accepted Answer

A) zero. 
B) $200 billion. 
C) $150 billion. 
D) $60 billion. 
E) - $60 billion. 
A) zero. 
B) $200 billion. 
C) $150 billion. 
D) $60 billion. 
E) - $60 billion.

Question 7

Which one of the following variables has an induced component?

Accepted Answer

A) investment 
B) consumption 
C) exports 
D) government expenditure on goods and services 
E) consumption and investment 
A) investment 
B) consumption 
C) exports 
D) government expenditure on goods and services 
E) consumption and investment

Question 8

Suppose real GDP increases by $1 billion and, as a result, consumption increases by $500 million. This change in consumption is

Accepted Answer

A) unplanned. 
B) induced. 
C) autonomous. 
D) too little. 
E) planned. 
A) unplanned. 
B) induced. 
C) autonomous. 
D) too little. 
E) planned.

Question 9

Dissaving occurs when a household

Accepted Answer

A) spends less than it receives in disposable income. 
B) spends more than it saves. 
C) saves more than it spends. 
D) consumes more than it receives in disposable income. 
E) borrows. 
A) spends less than it receives in disposable income. 
B) spends more than it saves. 
C) saves more than it spends. 
D) consumes more than it receives in disposable income. 
E) borrows.

Question 10

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) the price level equals 100. 
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) the price level equals 100.

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 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 12

Use the figure below to answer the following questions.
   
Figure 27.2.1
There are no exports or imports in this economy.
-Refer to Figure 27.2.1. When real GDP is equal to Ya, then aggregate planned expenditure

Accepted Answer

A) exceeds real GDP, and real GDP increases. 
B) is less than real GDP, and real GDP decreases. 
C) exceeds real GDP, and real GDP decreases. 
D) is equal to real GDP, and real GDP neither increases nor decreases. 
E) is less than real GDP, and real GDP increases. 
A) exceeds real GDP, and real GDP increases. 
B) is less than real GDP, and real GDP decreases. 
C) exceeds real GDP, and real GDP decreases. 
D) is equal to real GDP, and real GDP neither increases nor decreases. 
E) is less than real GDP, and real GDP increases.

Question 13

Use the table below to answer the following questions.
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. The multiplier

Accepted Answer

A) is 5. 
B) is 2.5. 
C) is 4. 
D) is 1.8. 
E) cannot be determined without more information. 
A) is 5. 
B) is 2.5. 
C) is 4. 
D) is 1.8. 
E) cannot be determined without more information.

Question 14

An increase in autonomous expenditure shifts the AE curve

Accepted Answer

A) upward but leaves its slope unchanged. 
B) upward and the curve becomes steeper. 
C) downward but leaves its slope unchanged. 
D) downward and the curve becomes steeper. 
E) upward and the curve becomes less steep. 
A) upward but leaves its slope unchanged. 
B) upward and the curve becomes steeper. 
C) downward but leaves its slope unchanged. 
D) downward and the curve becomes steeper. 
E) upward and the curve becomes less steep.

Question 15

When firms reduce their target level of inventories, equilibrium expenditure ________ and real GDP ________.

Accepted Answer

A) increases; decreases 
B) decreases; increases 
C) decreases; decreases 
D) increases; increases 
E) decreases; does not change 
A) increases; decreases 
B) decreases; increases 
C) decreases; decreases 
D) increases; increases 
E) decreases; does not change

Question 16

When disposable income increases,

Accepted Answer

A) the consumption function shifts upward. 
B) the saving function shifts downward. 
C) a movement occurs down along the consumption function. 
D) a movement occurs up along the consumption function. 
E) a movement occurs down along the saving function. 
A) the consumption function shifts upward. 
B) the saving function shifts downward. 
C) a movement occurs down along the consumption function. 
D) a movement occurs up along the consumption function. 
E) a movement occurs down along the saving function.

Question 17

Use the information below to answer the following questions.
Fact 27.3.1
An economy has a fixed price level, no imports, and no income taxes. MPC is 0.5 and real GDP is $200 billion. Businesses increase investment by $2 billion.
-Consider Fact 27.3.1. The increase in real GDP is

Accepted Answer

A) $2 billion. 
B) $4 billion. 
C) $202 billion. 
D) $404 billion. 
E) $1.6 billion. 
A) $2 billion. 
B) $4 billion. 
C) $202 billion. 
D) $404 billion. 
E) $1.6 billion.

Question 18

A rise in the price level

Accepted Answer

A) shifts the AD curve rightward and brings a movement up along the AE curve. 
B) shifts the AE curve upward and brings a movement down along the AD curve. 
C) shifts the AE curve downward and brings a movement up along the AD curve. 
D) shifts the AD curve leftward and brings a movement down along the AE curve. 
E) shifts the AE curve downward and shifts the AD curve rightward. 
A) shifts the AD curve rightward and brings a movement up along the AE curve. 
B) shifts the AE curve upward and brings a movement down along the AD curve. 
C) shifts the AE curve downward and brings a movement up along the AD curve. 
D) shifts the AD curve leftward and brings a movement down along the AE curve. 
E) shifts the AE curve downward and shifts the AD curve rightward.

Question 19

A rise in the price level

Accepted Answer

A) decreases aggregate expenditure and produces a movement up along the aggregate demand curve. 
B) decreases aggregate expenditure and produces a rightward shift of the aggregate demand curve. 
C) decreases aggregate expenditure and produces a leftward shift of the aggregate demand curve. 
D) has no effect on aggregate expenditure. 
E) increases aggregate expenditure, but has no effect on the aggregate demand curve. 
A) decreases aggregate expenditure and produces a movement up along the aggregate demand curve. 
B) decreases aggregate expenditure and produces a rightward shift of the aggregate demand curve. 
C) decreases aggregate expenditure and produces a leftward shift of the aggregate demand curve. 
D) has no effect on aggregate expenditure. 
E) increases aggregate expenditure, but has no effect on the aggregate demand curve.

Question 20

Complete the following sentence. A household

Accepted Answer

A) consumes or pays taxes out of disposable income. 
B) consumes, saves, or pays taxes out of disposable income. 
C) consumes or saves out of disposable income. 
D) only consumes out of disposable income. 
E) saves more than it consumes. 
A) consumes or pays taxes out of disposable income. 
B) consumes, saves, or pays taxes out of disposable income. 
C) consumes or saves out of disposable income. 
D) only consumes out of disposable income. 
E) saves more than it consumes.

Exam 27: Expenditure Multipliers

If AE = 50 + 0.6Y and Y = 200, then unplanned inventories

Use the figure below to answer the following questions. Figure 27.2.1 There are no exports or imports in this economy. -Refer to Figure 27.2.1. When real GDP is equal to Yc, then

Everything else remaining the same, an increase in the marginal propensity to consume ________ the slope of the AE curve and ________ equilibrium expenditure.

A decrease in the marginal propensity to import ________, everything else remaining the same.

The aggregate expenditure curve will become steeper if

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 an economy. -Refer to Figure 27.1.1. When disposable income is equal to $200 billion, saving is

Which one of the following variables has an induced component?

Suppose real GDP increases by $1 billion and, as a result, consumption increases by $500 million. This change in consumption is

Dissaving occurs when a household

Equilibrium expenditure occurs when

Use the figure below to answer the following questions. Figure 27.2.1 There are no exports or imports in this economy. -Refer to Figure 27.2.1. When real GDP is equal to Ya, then aggregate planned expenditure

Use the table below to answer the following questions. 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. The multiplier

An increase in autonomous expenditure shifts the AE curve

When firms reduce their target level of inventories, equilibrium expenditure ________ and real GDP ________.

When disposable income increases,

Use the information below to answer the following questions. Fact 27.3.1 An economy has a fixed price level, no imports, and no income taxes. MPC is 0.5 and real GDP is $200 billion. Businesses increase investment by $2 billion. -Consider Fact 27.3.1. The increase in real GDP is

A rise in the price level

A rise in the price level

Complete the following sentence. A household

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Everything else remaining the same, an increase in the marginal propensity to consume the slope of the AE curve and equilibrium expenditure.

When firms reduce their target level of inventories, equilibrium expenditure and real GDP .