Question 1

The formula for the multiplier in an open economy is

Accepted Answer

A) 1/(1 + slope of the AE curve). 
B) 1/(1 - marginal propensity to import). 
C) 1/(1 + marginal propensity to import). 
D) 1/(1 - slope of the AE curve). 
E) 1/(1 - MP
C) . 
A) 1/(1 + slope of the AE curve). 
B) 1/(1 - marginal propensity to import). 
C) 1/(1 + marginal propensity to import). 
D) 1/(1 - slope of the AE curve). 
E) 1/(1 - MP
C) .

Question 2

If a household's disposable income increases from $12,000 to $22,000 and at the same time its consumption expenditure increases from $4,000 to $9,000, then

Accepted Answer

A) the household is dissaving. 
B) the slope of the consumption function is 0.6. 
C) the slope of the consumption function is 0.5. 
D) the marginal propensity to consume over this range is negative. 
E) the marginal propensity to save over this range is negative. 
A) the household is dissaving. 
B) the slope of the consumption function is 0.6. 
C) the slope of the consumption function is 0.5. 
D) the marginal propensity to consume over this range is negative. 
E) the marginal propensity to save over this range is negative.

Question 3

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. Consumption and disposable income are equal

Accepted Answer

A) at all points along the consumption function. 
B) when saving equals $40 billion and disposable income equals $540 billion. 
C) when disposable income is $500 billion. 
D) when disposable income is $600 billion. 
E) when disposable income is greater than or equal to $500 billion. 
A) at all points along the consumption function. 
B) when saving equals $40 billion and disposable income equals $540 billion. 
C) when disposable income is $500 billion. 
D) when disposable income is $600 billion. 
E) when disposable income is greater than or equal to $500 billion.

Question 4

As real GDP decreases,

Accepted Answer

A) induced consumption decreases. 
B) planned investment increases. 
C) exports increase. 
D) imports increase. 
E) induced consumption increases. 
A) induced consumption decreases. 
B) planned investment increases. 
C) exports increase. 
D) imports increase. 
E) induced consumption increases.

Question 5

In a recent study, the University of Underfunded argued that it created four times as many jobs as people that it hired directly. This argument illustrates the idea

Accepted Answer

A) of the marginal propensity to consume. 
B) of the multiplier. 
C) of government spending. 
D) of the tax multiplier. 
E) that universities are wasting taxpayers' dollars. 
A) of the marginal propensity to consume. 
B) of the multiplier. 
C) of government spending. 
D) of the tax multiplier. 
E) that universities are wasting taxpayers' dollars.

Question 6

If consumption expenditure for a household increases from $300 to $500 when disposable income increases from $200 to $500, the marginal propensity to consume is

Accepted Answer

A) equal to 1. 
B) equal to 0.75. 
C) equal to 1.33. 
D) negative. 
E) equal to 0.67. 
A) equal to 1. 
B) equal to 0.75. 
C) equal to 1.33. 
D) negative. 
E) equal to 0.67.

Question 7

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. Autonomous expenditure is

Accepted Answer

A) $100 billion. 
B) $125 billion. 
C) $50 billion. 
D) $500 billion. 
E) zero. 
A) $100 billion. 
B) $125 billion. 
C) $50 billion. 
D) $500 billion. 
E) zero.

Question 8

The marginal propensity to save

Accepted Answer

A) equals 1 - MPC. 
B) is between zero and 1/2. 
C) is greater than 1. 
D) is greater than 1 but less than 2. 
E) is negative. 
A) equals 1 - MPC. 
B) is between zero and 1/2. 
C) is greater than 1. 
D) is greater than 1 but less than 2. 
E) is negative.

Question 9

Suppose the multiplier is 2.5 and investment increases by $20 billion. Starting at potential GDP, in the long run, equilibrium real GDP

Accepted Answer

A) increases by $50 billion. 
B) increases by more than $50 billion. 
C) decreases by less than $50 billion. 
D) does not change. 
E) increases by less than $50 billion. 
A) increases by $50 billion. 
B) increases by more than $50 billion. 
C) decreases by less than $50 billion. 
D) does not change. 
E) increases by less than $50 billion.

Question 10

If the marginal propensity to save is 0.2, then

Accepted Answer

A) the marginal propensity to consume is larger than 0.8. 
B) the marginal propensity to consume is 0.8. 
C) the marginal propensity to consume is also 0.2. 
D) the slope of the consumption function is 0.2. 
E) the slope of the saving function is 0.8. 
A) the marginal propensity to consume is larger than 0.8. 
B) the marginal propensity to consume is 0.8. 
C) the marginal propensity to consume is also 0.2. 
D) the slope of the consumption function is 0.2. 
E) the slope of the saving function is 0.8.

Question 11

Use the table below to answer the following questions.
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.

Question 12

If the saving function is S = -25 + 0.4YD, then the consumption function is

Accepted Answer

A) C = 25 + 0.6Y. 
B) C = -25 + 0.4YD. 
C) C = 25 - 0.4YD. 
D) C = 25 + 0.6YD. 
E) C = 25 + 0.4YD. 
A) C = 25 + 0.6Y. 
B) C = -25 + 0.4YD. 
C) C = 25 - 0.4YD. 
D) C = 25 + 0.6YD. 
E) C = 25 + 0.4YD.

Question 13

An economy has a fixed price level, no imports, and no income taxes. MPC is 0.5 and real GDP is $300 billion. Businesses increase investment by $10 billion. The new level of real GDP is

Accepted Answer

A) $320 billion. 
B) $20 billion. 
C) $5 billion. 
D) $305 billion. 
E) $300 billion. 
A) $320 billion. 
B) $20 billion. 
C) $5 billion. 
D) $305 billion. 
E) $300 billion.

Question 14

If aggregate planned expenditure is less than 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 15

Use the figure below to answer the following questions.
   
Figure 27.2.3
There are no taxes in this economy.
-In Figure 27.2.3, the marginal propensity to consume, assuming no income taxes, is

Accepted Answer

A) 0.3. 
B) 0.6. 
C) 0.9. 
D) 1.0. 
E) 0.93. 
A) 0.3. 
B) 0.6. 
C) 0.9. 
D) 1.0. 
E) 0.93.

Question 16

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. Equilibrium real GDP

Accepted Answer

A) is decreasing. 
B) is equal to Ya. 
C) is equal to Yb. 
D) is equal to Yc. 
E) can be any of Ya, Yb, or Yc depending on what is happening to inventories. 
A) is decreasing. 
B) is equal to Ya. 
C) is equal to Yb. 
D) is equal to Yc. 
E) can be any of Ya, Yb, or Yc depending on what is happening to inventories.

Question 17

The fact that imports increase as real GDP increases implies that imports are part of

Accepted Answer

A) marginal expenditure. 
B) autonomous expenditure. 
C) consumption expenditure. 
D) equilibrium expenditure. 
E) induced expenditure. 
A) marginal expenditure. 
B) autonomous expenditure. 
C) consumption expenditure. 
D) equilibrium expenditure. 
E) induced expenditure.

Question 18

Table 27.2.1
  
-Table 27.2.1 gives the aggregate expenditure schedule. Equilibrium expenditure is equal to

Accepted Answer

A) $4 trillion. 
B) $3 trillion. 
C) $5 trillion. 
D) zero. 
E) $2 trillion. 
A) $4 trillion. 
B) $3 trillion. 
C) $5 trillion. 
D) zero. 
E) $2 trillion.

Question 19

A shift in the aggregate expenditure curve as a result of a rise in the price level,

Accepted Answer

A) shifts the aggregate demand curve leftward. 
B) has no effect on the aggregate demand curve. 
C) shifts the aggregate demand curve rightward. 
D) creates a movement down along the aggregate demand curve. 
E) creates a movement up along the aggregate demand curve. 
A) shifts the aggregate demand curve leftward. 
B) has no effect on the aggregate demand curve. 
C) shifts the aggregate demand curve rightward. 
D) creates a movement down along the aggregate demand curve. 
E) creates a movement up along the aggregate demand curve.

Question 20

Use the information below to answer the following question.
Fact 27.1.2 Canadians' Wealth Rises
Gains in stock markets and increased house prices boosted Canadians' wealth in the first quarter of 2014. On a per capita basis, household wealth rose to $222,600. Statistics Canada also reported that consumption expenditure increased by $4 billion in the first quarter of 2014.
Source: Toronto Star, September 11, 2014, and Statistics Canada
-Consider Fact 27.1.2. A rise in household wealth does all of the following except

Accepted Answer

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

Exam 27: Expenditure Multipliers

The formula for the multiplier in an open economy is

If a household's disposable income increases from $12,000 to $22,000 and at the same time its consumption expenditure increases from $4,000 to $9,000, then

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. Consumption and disposable income are equal

As real GDP decreases,

In a recent study, the University of Underfunded argued that it created four times as many jobs as people that it hired directly. This argument illustrates the idea

If consumption expenditure for a household increases from $300 to $500 when disposable income increases from $200 to $500, the marginal propensity to consume is

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. Autonomous expenditure is

The marginal propensity to save

Suppose the multiplier is 2.5 and investment increases by $20 billion. Starting at potential GDP, in the long run, equilibrium real GDP

If the marginal propensity to save is 0.2, then

Use the table below to answer the following questions. 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

If the saving function is S = -25 + 0.4YD, then the consumption function is

An economy has a fixed price level, no imports, and no income taxes. MPC is 0.5 and real GDP is $300 billion. Businesses increase investment by $10 billion. The new level of real GDP is

If aggregate planned expenditure is less than real GDP, then inventories

Use the figure below to answer the following questions. Figure 27.2.3 There are no taxes in this economy. -In Figure 27.2.3, the marginal propensity to consume, assuming no income taxes, is

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. Equilibrium real GDP

The fact that imports increase as real GDP increases implies that imports are part of

Table 27.2.1 -Table 27.2.1 gives the aggregate expenditure schedule. Equilibrium expenditure is equal to

A shift in the aggregate expenditure curve as a result of a rise in the price level,

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