Question 1

The slope of the AE curve equals

Accepted Answer

A) aggregate expenditure divided by real GDP. 
B) the change in aggregate expenditure divided by the change in real GDP. 
C) the change in consumption divided by the change in real GDP. 
D) the change in consumption plus government expenditure divided by the change in aggregate income. 
E) the change in income divided by the change in autonomous expenditure. 
A) aggregate expenditure divided by real GDP. 
B) the change in aggregate expenditure divided by the change in real GDP. 
C) the change in consumption divided by the change in real GDP. 
D) the change in consumption plus government expenditure divided by the change in aggregate income. 
E) the change in income divided by the change in autonomous expenditure.

Question 2

The slope of the aggregate planned expenditure curve is equal to

Accepted Answer

A) [b(1 - t)- m]. 
B) the marginal propensity to consume. 
C) the marginal propensity to import. 
D) 1 minus the marginal propensity to import. 
E) the autonomous expenditure multiplier. 
A) [b(1 - t)- m]. 
B) the marginal propensity to consume. 
C) the marginal propensity to import. 
D) 1 minus the marginal propensity to import. 
E) the autonomous expenditure multiplier.

Question 3

The marginal propensity to consume

Accepted Answer

A) is equal to zero when disposable income equals consumption expenditure. 
B) is equal to 1 minus the slope of the saving function. 
C) is negative when saving is positive. 
D) increases as the economy moves upward along the consumption function. 
E) is greater than the slope of the 45-degree line. 
A) is equal to zero when disposable income equals consumption expenditure. 
B) is equal to 1 minus the slope of the saving function. 
C) is negative when saving is positive. 
D) increases as the economy moves upward along the consumption function. 
E) is greater than the slope of the 45-degree line.

Question 4

You observe that unplanned inventories are increasing. You predict that there will be

Accepted Answer

A) a trough. 
B) a business cycle. 
C) a recession. 
D) an expansion. 
E) a collapse of the stock market. 
A) a trough. 
B) a business cycle. 
C) a recession. 
D) an expansion. 
E) a collapse of the stock market.

Question 5

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 aggregate planned expenditure is

Accepted Answer

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

Question 6

In an economy, autonomous spending is $20 trillion and the slope of the AE curve is 0.8. Equilibrium expenditure is ________. With a fixed price level, the multiplier is ________.

Accepted Answer

A) $25 trillion; 1.25 
B) $100 trillion; 1.25 
C) $25 trillion; 5 
D) $20 trillion; 4 
E) $100 trillion; 5 
A) $25 trillion; 1.25 
B) $100 trillion; 1.25 
C) $25 trillion; 5 
D) $20 trillion; 4 
E) $100 trillion; 5

Question 7

Suppose that the economy is at full employment when government expenditure increases by $10 billion. In the long run

Accepted Answer

A) the price level rises with no change in real GDP. 
B) real GDP increases and the price level remains constant. 
C) neither real GDP nor the price level change. 
D) the price level falls with no change in real GDP. 
E) real GDP increases by an unknown amount. 
A) the price level rises with no change in real GDP. 
B) real GDP increases and the price level remains constant. 
C) neither real GDP nor the price level change. 
D) the price level falls with no change in real GDP. 
E) real GDP increases by an unknown amount.

Question 8

Use the figure below to answer the following questions.
   
Figure 27.2.2
The economy depicted does not engage in international trade and has no government. Planned aggregate expenditure (AE)is equal to the sum of consumption expenditure (C)and investment (I).
-Refer to Figure 27.2.2. Equilibrium expenditure is

Accepted Answer

A) $100 billion. 
B) $300 billion. 
C) $250 billion. 
D) $200 billion. 
E) $400 billion. 
A) $100 billion. 
B) $300 billion. 
C) $250 billion. 
D) $200 billion. 
E) $400 billion.

Question 9

In the long run, the multiplier

Accepted Answer

A) has a larger effect on real GDP than it has in the short run, because the multiplier effect has a longer time period to exert its impact on the economy. 
B) has a larger effect on real GDP than it has in the short run, because there are more induced expenditures in the long run. 
C) has a larger effect on real GDP than it has in the short run because of changes in the price level. 
D) has a smaller effect on real GDP than it has in the short run because of changes in the price level. 
E) can have a smaller or larger effect on real GDP than it has in the short run. 
A) has a larger effect on real GDP than it has in the short run, because the multiplier effect has a longer time period to exert its impact on the economy. 
B) has a larger effect on real GDP than it has in the short run, because there are more induced expenditures in the long run. 
C) has a larger effect on real GDP than it has in the short run because of changes in the price level. 
D) has a smaller effect on real GDP than it has in the short run because of changes in the price level. 
E) can have a smaller or larger effect on real GDP than it has in the short run.

Question 10

Use the figure below to answer the following questions.
   
Figure 27.3.1
The economy shown in the graph does not engage in international trade and has no government. Planned aggregate expenditure equals the sum of consumption expenditure (C)and investment (I).
-Refer to Figure 27.3.1. If investment increases by $25 billion, then real GDP increases by

Accepted Answer

A) $25 billion. 
B) $125 billion. 
C) $50 billion. 
D) $100 billion. 
E) $75 billion. 
A) $25 billion. 
B) $125 billion. 
C) $50 billion. 
D) $100 billion. 
E) $75 billion.

Question 11

An increase in investment shifts the AE curve upward by an amount equal to the ________, and shifts the AD curve rightward by an amount equal to the ________.

Accepted Answer

A) change in investment; change in investment times the multiplier 
B) change in investment times the multiplier; change in investment times the multiplier 
C) change in investment times the multiplier; change in investment 
D) change in investment; change in investment 
E) change in investment divided by the multiplier; change in investment 
A) change in investment; change in investment times the multiplier 
B) change in investment times the multiplier; change in investment times the multiplier 
C) change in investment times the multiplier; change in investment 
D) change in investment; change in investment 
E) change in investment divided by the multiplier; change in investment

Question 12

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 $500 billion, saving is equal to

Accepted Answer

A) disposable income. 
B) zero. 
C) $20 billion. 
D) consumption expenditure. 
E) $40 billion. 
A) disposable income. 
B) zero. 
C) $20 billion. 
D) consumption expenditure. 
E) $40 billion.

Question 13

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 consume is

Accepted Answer

A) increasing as YD increases. 
B) equal to 1 when YD equals $600. 
C) 0.75. 
D) 0.25. 
E) 1.33. 
A) increasing as YD increases. 
B) equal to 1 when YD equals $600. 
C) 0.75. 
D) 0.25. 
E) 1.33.

Question 14

Use the information below to answer the following questions.
Fact 27.1.1
In an economy, when disposable income increases from $400 billion to $500 billion, consumption expenditure increases from $480 billion to $540 billion.
-Consider Fact 27.1.1. When disposable income increases from $400 billion to $500 billion, saving

Accepted Answer

A) increases by $40 billion. 
B) increases by an unknown amount. 
C) decreases by an unknown amount. 
D) increases by $60 billion. 
E) decreases by $60 billion. 
A) increases by $40 billion. 
B) increases by an unknown amount. 
C) decreases by an unknown amount. 
D) increases by $60 billion. 
E) decreases by $60 billion.

Question 15

Which of the following events would shift the consumption function upward?

Accepted Answer

A) an increase in disposable income 
B) a decrease in disposable income 
C) a decrease in wealth 
D) a decrease in expected future disposable income 
E) an increase in wealth 
A) an increase in disposable income 
B) a decrease in disposable income 
C) a decrease in wealth 
D) a decrease in expected future disposable income 
E) an increase in wealth

Question 16

Use the information below to answer the following questions.
Fact 27.5.1
The economy of Beverly Hills has a consumption function of C = 10 + 0.8Y, investment equal to 6, government expenditure equal to 10, exports equal to 10, and an import function of M = 0.1Y.
-Refer to Fact 27.5.1. What is the equation for the aggregate expenditure curve for this economy?

Accepted Answer

A) AE = 16 + 0.7Y 
B) AE = 36 - 0.7Y 
C) AE = 26 + 0.8Y 
D) AE = 36 + 0.9Y 
E) AE = 36 + 0.7Y 
A) AE = 16 + 0.7Y 
B) AE = 36 - 0.7Y 
C) AE = 26 + 0.8Y 
D) AE = 36 + 0.9Y 
E) AE = 36 + 0.7Y

Question 17

As the aggregate expenditure curve becomes steeper, the value of the multiplier becomes

Accepted Answer

A) equal to the marginal propensity to save. 
B) larger. 
C) smaller. 
D) negative. 
E) greater than 1. 
A) equal to the marginal propensity to save. 
B) larger. 
C) smaller. 
D) negative. 
E) greater than 1.

Question 18

If investment increases by $200, and as a result income increases by $800, then the

Accepted Answer

A) multiplier is 1/4. 
B) slope of the AE curve is 0.75. 
C) slope of the AE curve is 1/4. 
D) multiplier is 3. 
E) none of the above 
A) multiplier is 1/4. 
B) slope of the AE curve is 0.75. 
C) slope of the AE curve is 1/4. 
D) multiplier is 3. 
E) none of the above

Question 19

Suppose that investment decreases by $15 billion. If the multiplier is 2.5, the aggregate demand curve

Accepted Answer

A) shifts leftward by a horizontal distance of $37.5 billion. 
B) shifts leftward by a horizontal distance greater than $37.5 billion. 
C) shifts leftward by a horizontal distance less than $37.5 billion. 
D) shifts upward by a vertical distance of $37.5 billion. 
E) is not affected. 
A) shifts leftward by a horizontal distance of $37.5 billion. 
B) shifts leftward by a horizontal distance greater than $37.5 billion. 
C) shifts leftward by a horizontal distance less than $37.5 billion. 
D) shifts upward by a vertical distance of $37.5 billion. 
E) is not affected.

Question 20

Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2. Investment increases by $10 billion. In the short run ________, and in the long run ________.

Accepted Answer

A) real GDP increases by less than $20 billion; real GDP does not change 
B) real GDP increases by more than $20 billion; real GDP does not change 
C) real GDP does not change; real GDP increases by at least $20 billion 
D) real GDP does not change; real GDP increases by less than $20 billion 
E) real GDP does not change; real GDP does not change 
A) real GDP increases by less than $20 billion; real GDP does not change 
B) real GDP increases by more than $20 billion; real GDP does not change 
C) real GDP does not change; real GDP increases by at least $20 billion 
D) real GDP does not change; real GDP increases by less than $20 billion 
E) real GDP does not change; real GDP does not change

Exam 27: Expenditure Multipliers

The slope of the AE curve equals

The slope of the aggregate planned expenditure curve is equal to

The marginal propensity to consume

You observe that unplanned inventories are increasing. You predict that there will be

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 aggregate planned expenditure is

In an economy, autonomous spending is $20 trillion and the slope of the AE curve is 0.8. Equilibrium expenditure is ________. With a fixed price level, the multiplier is ________.

Suppose that the economy is at full employment when government expenditure increases by $10 billion. In the long run

In the long run, the multiplier

An increase in investment shifts the AE curve upward by an amount equal to the ________, and shifts the AD curve rightward by an amount equal to the ________.

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 $500 billion, saving is equal to

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 consume is

Which of the following events would shift the consumption function upward?

As the aggregate expenditure curve becomes steeper, the value of the multiplier becomes

If investment increases by $200, and as a result income increases by $800, then the

Suppose that investment decreases by $15 billion. If the multiplier is 2.5, the aggregate demand curve

Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2. Investment increases by $10 billion. In the short run ________, and in the long run ________.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

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

Macro Only: International Trade Policy

Filters

In an economy, autonomous spending is $20 trillion and the slope of the AE curve is 0.8. Equilibrium expenditure is . With a fixed price level, the multiplier is .

An increase in investment shifts the AE curve upward by an amount equal to the , and shifts the AD curve rightward by an amount equal to the .

Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2. Investment increases by $10 billion. In the short run , and in the long run .