Question 1

Suppose that investment increases by $10 billion. If the multiplier is 2, the AD curve

Accepted Answer

A) shifts rightward by the horizontal distance $20 billion. 
B) shifts rightward by a horizontal distance greater than $20 billion. 
C) shifts rightward by a horizontal distance less than $20 billion. 
D) is not affected. 
E) shifts upward by a vertical distance equal to $20 billion. 
A) shifts rightward by the horizontal distance $20 billion. 
B) shifts rightward by a horizontal distance greater than $20 billion. 
C) shifts rightward by a horizontal distance less than $20 billion. 
D) is not affected. 
E) shifts upward by a vertical distance equal to $20 billion.

Question 2

Disposable income is

Accepted Answer

A) used for consumption only. 
B) aggregate income minus taxes plus transfer payments. 
C) aggregate income plus transfer payments. 
D) aggregate income minus taxes. 
E) aggregate income minus transfer payments. 
A) used for consumption only. 
B) aggregate income minus taxes plus transfer payments. 
C) aggregate income plus transfer payments. 
D) aggregate income minus taxes. 
E) aggregate income minus transfer payments.

Question 3

An increase in the price level

Accepted Answer

A) shifts the AE curve upward and increases equilibrium expenditure. 
B) shifts the AE curve upward and decreases equilibrium expenditure. 
C) shifts the AE curve downward and increases equilibrium expenditure. 
D) shifts the AE curve downward and decreases equilibrium expenditure. 
E) has no impact on the AE curve. 
A) shifts the AE curve upward and increases equilibrium expenditure. 
B) shifts the AE curve upward and decreases equilibrium expenditure. 
C) shifts the AE curve downward and increases equilibrium expenditure. 
D) shifts the AE curve downward and decreases equilibrium expenditure. 
E) has no impact on the AE curve.

Question 4

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. When real GDP is $300 billion, real GDP

Accepted Answer

A) is less than aggregate planned expenditure by $25 billion, and firms decrease production. 
B) exceeds aggregate planned expenditure by $25 billion, and firms increase production. 
C) is the same as aggregate planned expenditure, and firms do not change production. 
D) exceeds aggregate planned expenditure by $25 billion, and firms decrease production. 
E) exceeds aggregate planned expenditure by $50 billion, and firms increase production. 
A) is less than aggregate planned expenditure by $25 billion, and firms decrease production. 
B) exceeds aggregate planned expenditure by $25 billion, and firms increase production. 
C) is the same as aggregate planned expenditure, and firms do not change production. 
D) exceeds aggregate planned expenditure by $25 billion, and firms decrease production. 
E) exceeds aggregate planned expenditure by $50 billion, and firms increase production.

Question 5

Use the table below to answer the following questions.
Table 27.1.2
  
-Refer to Table 27.1.2. When saving is zero, what is the level of disposable income?

Accepted Answer

A) $325 
B) $400 
C) $475 
D) $550 
E) $625 
A) $325 
B) $400 
C) $475 
D) $550 
E) $625

Question 6

The saving function shows the relationship between saving and

Accepted Answer

A) the interest rate. 
B) the price level. 
C) disposable income. 
D) consumption. 
E) nominal income. 
A) the interest rate. 
B) the price level. 
C) disposable income. 
D) consumption. 
E) nominal income.

Question 7

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. Based on the information in the table, saving would be $125 if YD were

Accepted Answer

A) $1,000. 
B) $1,100. 
C) $1,200. 
D) $1,300. 
E) $900. 
A) $1,000. 
B) $1,100. 
C) $1,200. 
D) $1,300. 
E) $900.

Question 8

You are given the following information about the Canadian economy. Autonomous consumption expenditure is $50 billion, investment is $200 billion, and government expenditure is $250 billion. The marginal propensity to consume is 0.7 and net taxes are $250 billion. Net taxes are assumed to be constant and not vary with income. Exports are $500 billion and imports are $450 billion. The consumption function in billions of dollars is

Accepted Answer

A) C = 50 + 0.7Y. 
B) C = 0.7(Y - 250). 
C) C = 50 + 0.7(Y - 250). 
D) C = 50 + 0.7(YD - 250). 
E) C = 50 + 0.7Y - 250. 
A) C = 50 + 0.7Y. 
B) C = 0.7(Y - 250). 
C) C = 50 + 0.7(Y - 250). 
D) C = 50 + 0.7(YD - 250). 
E) C = 50 + 0.7Y - 250.

Question 9

Which of the following quotations illustrates the idea of the multiplier?

Accepted Answer

A) "The new stadium will generate $200 million in spinoff spending." 
B) "Higher expected profits are leading to higher investment spending by business, and will lead to higher consumer spending." 
C) "The projected cuts in government jobs will hurt the local retail industry." 
D) "Taking the grain elevator out of our small town will destroy 300 jobs." 
E) All of the above 
A) "The new stadium will generate $200 million in spinoff spending." 
B) "Higher expected profits are leading to higher investment spending by business, and will lead to higher consumer spending." 
C) "The projected cuts in government jobs will hurt the local retail industry." 
D) "Taking the grain elevator out of our small town will destroy 300 jobs." 
E) All of the above

Question 10

Everything else remaining the same, autonomous consumption

Accepted Answer

A) increases as disposable income decreases. 
B) increases as disposable income increases. 
C) does not change as disposable income changes. 
D) is usually assumed to be zero. 
E) decreases as disposable income decreases. 
A) increases as disposable income decreases. 
B) increases as disposable income increases. 
C) does not change as disposable income changes. 
D) is usually assumed to be zero. 
E) decreases as disposable income decreases.

Question 11

In an economy, autonomous spending is $20 trillion and the slope of the AE curve is 0.8. The equation of the AE curve is

Accepted Answer

A) AE = 0.2Y-20. 
B) AE = 20 + 0.2Y. 
C) AE = 20 + 0.8Y. 
D) AE = 0.8Y - 20. 
E) AE = 20 - 0.8Y. 
A) AE = 0.2Y-20. 
B) AE = 20 + 0.2Y. 
C) AE = 20 + 0.8Y. 
D) AE = 0.8Y - 20. 
E) AE = 20 - 0.8Y.

Question 12

The aggregate expenditure curve and the aggregate demand curve are

Accepted Answer

A) not related at all. 
B) the same curve, just with different names. 
C) linked because if the price level rises, the aggregate expenditure curve shifts downward, and the aggregate demand curve shifts leftward. 
D) linked because if the price level rises, the aggregate expenditure curve shifts downward, and there is a movement up along the aggregate demand curve. 
E) linked because if the price level rises, the aggregate expenditure curve shifts downward, and there is a movement down along the aggregate demand curve. 
A) not related at all. 
B) the same curve, just with different names. 
C) linked because if the price level rises, the aggregate expenditure curve shifts downward, and the aggregate demand curve shifts leftward. 
D) linked because if the price level rises, the aggregate expenditure curve shifts downward, and there is a movement up along the aggregate demand curve. 
E) linked because if the price level rises, the aggregate expenditure curve shifts downward, and there is a movement down along the aggregate demand curve.

Question 13

Use the figure below to answer the following questions.
   
Figure 27.1.2
-Refer to Figure 27.1.2. The marginal propensity to consume is

Accepted Answer

A) 800. 
B) 0.8. 
C) 0.2. 
D) 0.25. 
E) 0.75. 
A) 800. 
B) 0.8. 
C) 0.2. 
D) 0.25. 
E) 0.75.

Question 14

The difference in the influence of a multiplier between the short run and the long run is that

Accepted Answer

A) the multiplier effect is larger in the long run. 
B) the multiplier effect is zero in the long run. 
C) the multiplier effect is zero in the short run. 
D) there is no multiplier effect in the short run. 
E) the multiplier effect depends on potential GDP in the long run. 
A) the multiplier effect is larger in the long run. 
B) the multiplier effect is zero in the long run. 
C) the multiplier effect is zero in the short run. 
D) there is no multiplier effect in the short run. 
E) the multiplier effect depends on potential GDP in the long run.

Question 15

The marginal propensity to consume is the

Accepted Answer

A) fraction of the first dollar of disposable income received that is saved. 
B) fraction of the first dollar of disposable income received that is consumed. 
C) fraction of the last dollar of disposable income received that is saved. 
D) fraction of a change in disposable income that is spent on consumption. 
E) total amount of consumption divided by the total amount of disposable income. 
A) fraction of the first dollar of disposable income received that is saved. 
B) fraction of the first dollar of disposable income received that is consumed. 
C) fraction of the last dollar of disposable income received that is saved. 
D) fraction of a change in disposable income that is spent on consumption. 
E) total amount of consumption divided by the total amount of disposable income.

Question 16

Use the figure below to answer the following question.
   
Figure 27.3.2
-In Figure 27.3.2, the multiplier is

Accepted Answer

A) 0.25. 
B) 1.00. 
C) 1.60. 
D) 2.50. 
E) 10. 
A) 0.25. 
B) 1.00. 
C) 1.60. 
D) 2.50. 
E) 10.

Question 17

If there is an unplanned decrease in inventories, aggregate planned expenditure is

Accepted Answer

A) greater than real GDP, and firms increase production. 
B) greater than real GDP, and firms decrease production. 
C) less than real GDP, and firms increase production. 
D) less than real GDP, and firms decrease production. 
E) greater than real GDP, and firms increase investment. 
A) greater than real GDP, and firms increase production. 
B) greater than real GDP, and firms decrease production. 
C) less than real GDP, and firms increase production. 
D) less than real GDP, and firms decrease production. 
E) greater than real GDP, and firms increase investment.

Question 18

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. The marginal propensity to consume is

Accepted Answer

A) 0.75. 
B) 0.80. 
C) 0.60. 
D) 0.40. 
E) 0.25. 
A) 0.75. 
B) 0.80. 
C) 0.60. 
D) 0.40. 
E) 0.25.

Question 19

Suppose there is an increase in exports. Assuming the price level is held constant, which one of the following best describes the sequence of changes in the economy?

Accepted Answer

A) Autonomous expenditure increases, induced expenditure increases, real GDP increases, and the price level rises. 
B) Induced expenditure increases, autonomous expenditure increases, real GDP increases, and consumption increases. 
C) Induced expenditure increases, real GDP increases, autonomous expenditure increases, and the price level increases, lowering autonomous expenditure and real GDP increases by a smaller amount. 
D) Induced expenditure increases, real GDP increases, autonomous expenditure increases, real GDP increases more, autonomous expenditure increases again, etc. 
E) Autonomous expenditure increases, real GDP increases, induced expenditure increases, real GDP increases more, induced expenditure increases again, and the process continues until equilibrium expenditure is reached. 
A) Autonomous expenditure increases, induced expenditure increases, real GDP increases, and the price level rises. 
B) Induced expenditure increases, autonomous expenditure increases, real GDP increases, and consumption increases. 
C) Induced expenditure increases, real GDP increases, autonomous expenditure increases, and the price level increases, lowering autonomous expenditure and real GDP increases by a smaller amount. 
D) Induced expenditure increases, real GDP increases, autonomous expenditure increases, real GDP increases more, autonomous expenditure increases again, etc. 
E) Autonomous expenditure increases, real GDP increases, induced expenditure increases, real GDP increases more, induced expenditure increases again, and the process continues until equilibrium expenditure is reached.

Question 20

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. Based on the information in the table, if YD were zero, then

Accepted Answer

A) consumption would be zero. 
B) consumption would be $150. 
C) saving would be zero. 
D) consumption would be -$150. 
E) consumption would be $100. 
A) consumption would be zero. 
B) consumption would be $150. 
C) saving would be zero. 
D) consumption would be -$150. 
E) consumption would be $100.

Exam 27: Expenditure Multipliers

Suppose that investment increases by $10 billion. If the multiplier is 2, the AD curve

Disposable income is

An increase in the price level

Use the table below to answer the following questions. Table 27.1.2 -Refer to Table 27.1.2. When saving is zero, what is the level of disposable income?

The saving function shows the relationship between saving and

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. Based on the information in the table, saving would be $125 if YD were

Which of the following quotations illustrates the idea of the multiplier?

Everything else remaining the same, autonomous consumption

In an economy, autonomous spending is $20 trillion and the slope of the AE curve is 0.8. The equation of the AE curve is

The aggregate expenditure curve and the aggregate demand curve are

Use the figure below to answer the following questions. Figure 27.1.2 -Refer to Figure 27.1.2. The marginal propensity to consume is

The difference in the influence of a multiplier between the short run and the long run is that

The marginal propensity to consume is the

Use the figure below to answer the following question. Figure 27.3.2 -In Figure 27.3.2, the multiplier is

If there is an unplanned decrease in inventories, aggregate planned expenditure is

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. The marginal propensity to consume is

Suppose there is an increase in exports. Assuming the price level is held constant, which one of the following best describes the sequence of changes in the economy?

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. Based on the information in the table, if YD were zero, then

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