Question 1

If AE = 100 + 0.7Y and Y = 300, then unplanned inventories

Accepted Answer

A) increase by 10. 
B) increase by 200. 
C) decrease by 10. 
D) decrease by 200. 
E) do not change and equilibrium exists. 
A) increase by 10. 
B) increase by 200. 
C) decrease by 10. 
D) decrease by 200. 
E) do not change and equilibrium exists.

Question 2

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 multiplier for this economy?

Accepted Answer

A) 1.43 
B) 3.33 
C) 0.3 
D) 10 
E) 5 
A) 1.43 
B) 3.33 
C) 0.3 
D) 10 
E) 5

Question 3

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, at the equilibrium level of real GDP, induced expenditure is

Accepted Answer

A) $28 billion. 
B) $150 billion. 
C) $225 billion. 
D) $347 billion. 
E) $375 billion. 
A) $28 billion. 
B) $150 billion. 
C) $225 billion. 
D) $347 billion. 
E) $375 billion.

Question 4

Which of the following quotations illustrates an increase in aggregate expenditure?

Accepted Answer

A) "The new stadium will generate $200 million in spin off 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) Both A and B 
A) "The new stadium will generate $200 million in spin off 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) Both A and B

Question 5

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 $100 billion,

Accepted Answer

A) real GDP is less than aggregate planned expenditure, and firms increase production. 
B) aggregate planned expenditure is greater than real GDP, and firms decrease production. 
C) real GDP is greater than aggregate planned expenditure, and firms decrease production. 
D) aggregate planned expenditure equals real GDP, and the economy is in equilibrium. 
E) aggregate planned expenditure is less than real GDP, and firms increase production. 
A) real GDP is less than aggregate planned expenditure, and firms increase production. 
B) aggregate planned expenditure is greater than real GDP, and firms decrease production. 
C) real GDP is greater than aggregate planned expenditure, and firms decrease production. 
D) aggregate planned expenditure equals real GDP, and the economy is in equilibrium. 
E) aggregate planned expenditure is less than real GDP, and firms increase production.

Question 6

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. What is the slope of the AE curve?

Accepted Answer

A) 0.8 
B) 0.6 
C) 0.75 
D) 1 
E) 1.3 
A) 0.8 
B) 0.6 
C) 0.75 
D) 1 
E) 1.3

Question 7

If there is an unplanned increase 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) less than real GDP and firms decrease 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) less than real GDP and firms decrease investment.

Question 8

If the marginal propensity to consume is 0.85, what change in consumption expenditure would you expect if disposable income increases by $200 million?

Accepted Answer

A) $20 million 
B) $170 million 
C) $180 million 
D) $1,800 million 
E) $18 million 
A) $20 million 
B) $170 million 
C) $180 million 
D) $1,800 million 
E) $18 million

Question 9

An increase in autonomous consumption

Accepted Answer

A) shifts the consumption function upward. 
B) shifts the consumption function downward. 
C) creates a movement downward along the consumption function. 
D) creates a movement upward along the consumption function. 
E) changes the slope of the consumption function. 
A) shifts the consumption function upward. 
B) shifts the consumption function downward. 
C) creates a movement downward along the consumption function. 
D) creates a movement upward along the consumption function. 
E) changes the slope of the consumption function.

Question 10

If an economy's real GDP increases from $100 billion to $150 billion, and at the same time its imports increase from $40 billion to $50 billion, then the marginal propensity to import

Accepted Answer

A) decreases from 0.4 to 0.2. 
B) is greater than 0.2 and less than 0.4. 
C) is 0.2. 
D) is 0.36. 
E) is 0.4. 
A) decreases from 0.4 to 0.2. 
B) is greater than 0.2 and less than 0.4. 
C) is 0.2. 
D) is 0.36. 
E) is 0.4.

Question 11

The consumption function shows the relationship between consumption expenditure and

Accepted Answer

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

Question 12

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. If YD is $400, then saving is

Accepted Answer

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

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 equilibrium level of real GDP is

Accepted Answer

A) $525 billion. 
B) $550 billion. 
C) $450 billion. 
D) $500 billion. 
E) $600 billion. 
A) $525 billion. 
B) $550 billion. 
C) $450 billion. 
D) $500 billion. 
E) $600 billion.

Question 14

All else constant, a decrease in the income tax rate will result in

Accepted Answer

A) a movement down along the aggregate expenditure curve. 
B) an upward shift of the AE curve with no change in its slope. 
C) a downward shift of the AE curve with no change in its slope. 
D) a decrease in the consumption expenditure. 
E) an AE curve with a steeper slope. 
A) a movement down along the aggregate expenditure curve. 
B) an upward shift of the AE curve with no change in its slope. 
C) a downward shift of the AE curve with no change in its slope. 
D) a decrease in the consumption expenditure. 
E) an AE curve with a steeper slope.

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, autonomous expenditure is

Accepted Answer

A) $10 billion. 
B) $100 billion. 
C) $150 billion. 
D) $347 billion. 
E) $375 billion. 
A) $10 billion. 
B) $100 billion. 
C) $150 billion. 
D) $347 billion. 
E) $375 billion.

Question 16

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

Accepted Answer

A) rises; the economy returns to full employment 
B) rises; the short-run aggregate supply curve is upward sloping 
C) remains at 100; the aggregate demand curve shifts horizontally, which keeps the price level constant 
D) remains at 100; the economy initially moves to an above full-employment equilibrium. To return to full employment, aggregate demand decreases 
E) falls; investment only increases as the price level falls 
A) rises; the economy returns to full employment 
B) rises; the short-run aggregate supply curve is upward sloping 
C) remains at 100; the aggregate demand curve shifts horizontally, which keeps the price level constant 
D) remains at 100; the economy initially moves to an above full-employment equilibrium. To return to full employment, aggregate demand decreases 
E) falls; investment only increases as the price level falls

Question 17

The aggregate expenditure curve shows the relationship between aggregate planned expenditure and

Accepted Answer

A) disposable income. 
B) real GDP. 
C) the interest rate. 
D) consumption expenditure. 
E) the price level. 
A) disposable income. 
B) real GDP. 
C) the interest rate. 
D) consumption expenditure. 
E) the price level.

Question 18

The multiplier shows that as ________ expenditure changes, real GDP changes by ________ amount.

Accepted Answer

A) autonomous; an even larger 
B) autonomous; the same 
C) induced; the same 
D) induced; an even larger 
E) induced; a smaller 
A) autonomous; an even larger 
B) autonomous; the same 
C) induced; the same 
D) induced; an even larger 
E) induced; a smaller

Question 19

Which of the following quotations illustrates a decrease in aggregate expenditure?

Accepted Answer

A) "The new stadium will generate $200 million in spin off 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) Both C and D 
A) "The new stadium will generate $200 million in spin off 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) Both C and D

Question 20

When the consumption function lies below the 45° line, households

Accepted Answer

A) spend all of any increase in disposable income. 
B) consume more than their disposable income. 
C) are saving some portion of their disposable income. 
D) save all of any increase in disposable income. 
E) are dissaving. 
A) spend all of any increase in disposable income. 
B) consume more than their disposable income. 
C) are saving some portion of their disposable income. 
D) save all of any increase in disposable income. 
E) are dissaving.

Exam 27: Expenditure Multipliers

If AE = 100 + 0.7Y and Y = 300, then unplanned 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, at the equilibrium level of real GDP, induced expenditure is

Which of the following quotations illustrates an increase in aggregate 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. What is the slope of the AE curve?

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

If the marginal propensity to consume is 0.85, what change in consumption expenditure would you expect if disposable income increases by $200 million?

An increase in autonomous consumption

If an economy's real GDP increases from $100 billion to $150 billion, and at the same time its imports increase from $40 billion to $50 billion, then the marginal propensity to import

The consumption function shows the relationship between consumption expenditure 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. If YD is $400, then saving 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. The equilibrium level of real GDP is

All else constant, a decrease in the income tax rate will result in

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, autonomous expenditure is

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

The aggregate expenditure curve shows the relationship between aggregate planned expenditure and

The multiplier shows that as ________ expenditure changes, real GDP changes by ________ amount.

Which of the following quotations illustrates a decrease in aggregate expenditure?

When the consumption function lies below the 45° line, households

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

The multiplier shows that as expenditure changes, real GDP changes by amount.