Question 1

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

Accepted Answer

A) Price level increases raise real wealth,which causes consumption spending and aggregate expenditure to decline. 
B) Price level increases cause firms and consumers to hold more money,which raises the interest rate.Higher interest rates lower consumption and planned investment expenditures,which lowers aggregate expenditure. 
C) Price level increases in the United States relative to other countries raise net exports,which lowers aggregate expenditure. 
D) As the price level rises,government spending falls,which lowers aggregate expenditure. 
A) Price level increases raise real wealth,which causes consumption spending and aggregate expenditure to decline. 
B) Price level increases cause firms and consumers to hold more money,which raises the interest rate.Higher interest rates lower consumption and planned investment expenditures,which lowers aggregate expenditure. 
C) Price level increases in the United States relative to other countries raise net exports,which lowers aggregate expenditure. 
D) As the price level rises,government spending falls,which lowers aggregate expenditure. B

Question 2

An decrease in the price level in the United States will shift the aggregate expenditure line downward.

Accepted Answer

A) True 
 B)False  False

Question 3

Explain how a stock market crash has the potential to lead to a recession in an economy.

Accepted Answer

A stock market crash is essentially a substantial decrease in the average price of stocks.Stocks are a part of real wealth.A stock market crash decreases the value of stocks which decreases real wealth.Real wealth is an important determinant of consumption spending.If real wealth declines,so does consumption spending.Therefore,a stock market crash will result in a decline in consumer expenditures.This will result in a decline in GDP.If the decrease in GDP is substantial enough,this can lead to a recession.

Question 4

All of the following are components of aggregate expenditure except

Accepted Answer

A) consumption spending. 
B) net export spending. 
C) actual investment spending. 
D) government spending. 
A) consumption spending. 
B) net export spending. 
C) actual investment spending. 
D) government spending.

Question 5

If an increase in autonomous consumption spending of $10 million results in a $50 million increase in equilibrium real GDP,then

Accepted Answer

A) the MPC is 0.5. 
B) the MPC is 0.75. 
C) the MPC is 0.8. 
D) the MPC is 0.9. 
A) the MPC is 0.5. 
B) the MPC is 0.75. 
C) the MPC is 0.8. 
D) the MPC is 0.9.

Question 6

What impact does a higher price level have on interest rates,wealth,and investment spending?

Accepted Answer

A higher price level reduces t

Question 7

If consumption is defined as C = 2,400 + 0.9Y,then the marginal propensity to consume is 0.9.

Accepted Answer

A) True 
 B)False

Question 8

When aggregate expenditure = GDP,

Accepted Answer

A) macroeconomic equilibrium occurs. 
B) the federal budget is balanced. 
C) net exports equal zero. 
D) saving equals zero. 
A) macroeconomic equilibrium occurs. 
B) the federal budget is balanced. 
C) net exports equal zero. 
D) saving equals zero.

Question 9

Table 12-11
  
-Refer to Figure 12-3.Suppose that government spending increases,shifting up the aggregate expenditure line.GDP increases from GDP1 to GDP2,and this amount is $200 billion.If the MPC is 0.8,then what is the distance between N and L or by how much did government spending change?

Accepted Answer

A) $16 billion 
B) $40 billion 
C) $200 billion 
D) $1,000 billion 
A) $16 billion 
B) $40 billion 
C) $200 billion 
D) $1,000 billion

Question 10

Examples of assets that are included in household wealth would be

Accepted Answer

A) stocks,bonds,and savings accounts. 
B) stocks,loans owed,and savings accounts. 
C) stocks,bonds,and mortgages. 
D) stocks,credit cards,and savings accounts. 
A) stocks,bonds,and savings accounts. 
B) stocks,loans owed,and savings accounts. 
C) stocks,bonds,and mortgages. 
D) stocks,credit cards,and savings accounts.

Question 11

Article Summary
Although growing at only half the average rate following the seven previous recessions, consumer spending has increased 9 percent since the end of the 2007-2009 recession, and consumer confidence has been on the rise as household finances, the job market, and the housing market continue to improve. The Federal Reserve projects a 3% - 3.5% growth rate for the economy in 2014, up from the recent average of 2%. Debt payments have fallen to an average of 15.69% of after-tax income for households, the lowest level in 30 years, and lower debt payments leave households with more to spend on consumer goods.
Source: Neil Shah, "Pocketbooks Begin to Open As Household Wealth Grows," Wall Street Journal, June 25, 2013.

-Refer to the Article Summary.The increase in consumer spending discussed in the article summary was due in part to lower debt payments which have resulted in an increase in disposable income.The increase in consumption resulting from the increase in disposable income caused a(n)________ the aggregate expenditure curve.

Accepted Answer

A) movement up along 
B) movement down along 
C) downward shift of 
D) upward shift of 
A) movement up along 
B) movement down along 
C) downward shift of 
D) upward shift of

Question 12

If the marginal propensity to save is 0.25,then a $10,000 decrease in disposable income will

Accepted Answer

A) increase consumption by $7,500. 
B) increase consumption by $2,500. 
C) decrease consumption by $7,500. 
D) decrease consumption by $2,500. 
A) increase consumption by $7,500. 
B) increase consumption by $2,500. 
C) decrease consumption by $7,500. 
D) decrease consumption by $2,500.

Question 13

If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years,then

Accepted Answer

A) investment spending will fall. 
B) investment spending will rise. 
C) investment spending will remain unaffected. 
D) investment spending will rise and then fall. 
A) investment spending will fall. 
B) investment spending will rise. 
C) investment spending will remain unaffected. 
D) investment spending will rise and then fall.

Question 14

A stock market crash which causes stock prices to fall should cause

Accepted Answer

A) a decrease in consumption spending. 
B) an increase in consumption spending. 
C) an increase in wealth. 
D) no change in consumption spending. 
A) a decrease in consumption spending. 
B) an increase in consumption spending. 
C) an increase in wealth. 
D) no change in consumption spending.

Question 15

Table 12-11
  
-Refer to Figure 12-3.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP2 to GDP1.If the MPC is 0.8,then what is the change in GDP?

Accepted Answer

A) -$4 million 
B) -$5 million 
C) -$25 million 
D) -$40 million 
A) -$4 million 
B) -$5 million 
C) -$25 million 
D) -$40 million

Question 16

If inflation in the United States is higher than inflation in other countries,what will be the effect on net exports for the United States?

Accepted Answer

A) Net exports will rise as U.S.exports increase. 
B) Net exports will rise as U.S.imports decrease. 
C) Net exports will decrease as U.S.exports decrease. 
D) Net exports will decrease as U.S.imports decrease. 
A) Net exports will rise as U.S.exports increase. 
B) Net exports will rise as U.S.imports decrease. 
C) Net exports will decrease as U.S.exports decrease. 
D) Net exports will decrease as U.S.imports decrease.

Question 17

Economists think that the marginal propensity to consume for the U.S.economy is somewhere around 0.9.Based on our simple multiplier formula,this would imply that the multiplier for the United States should be around 10.However,economists agree that the spending multiplier is closer to 2.What might explain this supposed anomaly?

Accepted Answer

The formula for the multiplier,M = @#IMG-DLM& ,is

Question 18

When aggregate expenditure is more than GDP,which of the following is true?

Accepted Answer

A) There was an unplanned decrease in inventories. 
B) Firms spent less on capital goods than they planned. 
C) Households bought fewer new homes than they planned. 
D) All of the above must be true when aggregate expenditure is more than GDP. 
A) There was an unplanned decrease in inventories. 
B) Firms spent less on capital goods than they planned. 
C) Households bought fewer new homes than they planned. 
D) All of the above must be true when aggregate expenditure is more than GDP.

Question 19

Firms in a small economy anticipated that inventories would grow over the past year by $500,000.Over that year,inventories actually grew by only $400,000.This implies that

Accepted Answer

A) aggregate expenditure that year was greater than GDP that year. 
B) there was an unplanned increase in inventories that year. 
C) there was a planned increase in inventories that year. 
D) aggregate expenditure that year was equal to GDP that year. 
A) aggregate expenditure that year was greater than GDP that year. 
B) there was an unplanned increase in inventories that year. 
C) there was a planned increase in inventories that year. 
D) aggregate expenditure that year was equal to GDP that year.

Question 20

Figure 12-2  
-Refer to Figure 12-2.Suppose that the level of GDP associated with point N is potential GDP.If the U.S.economy is currently at point K,

Accepted Answer

A) firms are operating above capacity. 
B) the economy is at full employment. 
C) the economy is in recession. 
D) the level of unemployment is equal to the natural rate. 
A) firms are operating above capacity. 
B) the economy is at full employment. 
C) the economy is in recession. 
D) the level of unemployment is equal to the natural rate.

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

An decrease in the price level in the United States will shift the aggregate expenditure line downward.

Explain how a stock market crash has the potential to lead to a recession in an economy.

All of the following are components of aggregate expenditure except

If an increase in autonomous consumption spending of $10 million results in a $50 million increase in equilibrium real GDP,then

What impact does a higher price level have on interest rates,wealth,and investment spending?

If consumption is defined as C = 2,400 + 0.9Y,then the marginal propensity to consume is 0.9.

When aggregate expenditure = GDP,

Table 12-11 -Refer to Figure 12-3.Suppose that government spending increases,shifting up the aggregate expenditure line.GDP increases from GDP₁ to GDP₂,and this amount is $200 billion.If the MPC is 0.8,then what is the distance between N and L or by how much did government spending change?

Examples of assets that are included in household wealth would be

If the marginal propensity to save is 0.25,then a $10,000 decrease in disposable income will

If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years,then

A stock market crash which causes stock prices to fall should cause

Table 12-11 -Refer to Figure 12-3.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP₂ to GDP₁.If the MPC is 0.8,then what is the change in GDP?

If inflation in the United States is higher than inflation in other countries,what will be the effect on net exports for the United States?

When aggregate expenditure is more than GDP,which of the following is true?

Firms in a small economy anticipated that inventories would grow over the past year by $500,000.Over that year,inventories actually grew by only $400,000.This implies that

Figure 12-2 -Refer to Figure 12-2.Suppose that the level of GDP associated with point N is potential GDP.If the U.S.economy is currently at point K,

Economics: Foundations and Models

Trade-Offs,comparative Advantage,and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 12: Aggregate Expenditure and Output in the Short Run

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

An decrease in the price level in the United States will shift the aggregate expenditure line downward.

Explain how a stock market crash has the potential to lead to a recession in an economy.

All of the following are components of aggregate expenditure except

If an increase in autonomous consumption spending of $10 million results in a $50 million increase in equilibrium real GDP,then

What impact does a higher price level have on interest rates,wealth,and investment spending?

If consumption is defined as C = 2,400 + 0.9Y,then the marginal propensity to consume is 0.9.

When aggregate expenditure = GDP,

Table 12-11 -Refer to Figure 12-3.Suppose that government spending increases,shifting up the aggregate expenditure line.GDP increases from GDP1 to GDP2,and this amount is $200 billion.If the MPC is 0.8,then what is the distance between N and L or by how much did government spending change?

Examples of assets that are included in household wealth would be

If the marginal propensity to save is 0.25,then a $10,000 decrease in disposable income will

If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years,then

A stock market crash which causes stock prices to fall should cause

Table 12-11 -Refer to Figure 12-3.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP2 to GDP1.If the MPC is 0.8,then what is the change in GDP?

If inflation in the United States is higher than inflation in other countries,what will be the effect on net exports for the United States?

When aggregate expenditure is more than GDP,which of the following is true?

Firms in a small economy anticipated that inventories would grow over the past year by $500,000.Over that year,inventories actually grew by only $400,000.This implies that

Figure 12-2 -Refer to Figure 12-2.Suppose that the level of GDP associated with point N is potential GDP.If the U.S.economy is currently at point K,

Economics: Foundations and Models

Trade-Offs,comparative Advantage,and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Table 12-11 -Refer to Figure 12-3.Suppose that government spending increases,shifting up the aggregate expenditure line.GDP increases from GDP₁ to GDP₂,and this amount is $200 billion.If the MPC is 0.8,then what is the distance between N and L or by how much did government spending change?

Table 12-11 -Refer to Figure 12-3.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP₂ to GDP₁.If the MPC is 0.8,then what is the change in GDP?