Question 1

-The above figure shows the AE curve and 45° line for an economy.
a) If real GDP equals $8 trillion, how do firmsʹ inventories compare to their planned inventories?
b) If real GDP equals $16 trillion, how do firmsʹ inventories compare to their planned inventories?
c) What is the equilibrium level of expenditure? Why is this amount the equilibrium?

Accepted Answer

The answer of  
-The above figure shows the AE...

Question 2

In the short run, an upward shift in the aggregate expenditure curve leads to a leftward shift in the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 3

Suppose that the slope of the AE curve is 0.80. If prices remain constant and government expenditure increases by $10 billion, what will be the change in real GDP?

Accepted Answer

A)  $2 billion 
B)  $8 billion 
C)  $50 billion 
D)  $10 billion

Question 4

What is the difference between induced and autonomous expenditure? Which components of aggregate expenditure fall under which category?

Accepted Answer

The answer of What is the difference between induced and...

Question 5

Changes in which of the following will affect the size of the multiplier?
I. marginal propensity to import
II. marginal propensity to consume
III. marginal income tax rate

Accepted Answer

A)  I, II, and III 
B)  I only 
C)  I and II only 
D)  II only

Question 6

When Audreyʹs disposable income is $40,000, her consumption expenditure is $39,000. When her disposable income is $50,000, Audreyʹs consumption expenditure is $47,000. What is Audreyʹs marginal propensity to consume?

Accepted Answer

The answer of When Audreyʹs disposable income is $40,000, her...

Question 7

In the short run, a factor that leads to changes in U.S. imports is

Accepted Answer

A)  U.S. exports. 
B)  the level of income in foreign nations. 
C)  the real interest rate. 
D)  U.S. real GDP.

Question 8

If the price level is constant and the slope of the AE curve is 0.75, a decrease in investment of $100 leads to a decrease in real GDP of

Accepted Answer

A)  $400. 
B)  $800. 
C)  $25. 
D)  $100.

Question 9

-In the above figure, a change in autonomous consumption to $4 trillion with no change to the MPC
Would cause the consumption function to

Accepted Answer

A)  become flatter. 
B)  shift upward. 
C)  become steeper. 
D)  shift downward.

Question 10

$$\begin{array} { | l | l | l | l | } 
\hline \begin{array} { l } 
\text { Real GDP } \
\text { (dollars) }
\end{array} & \begin{array} { l } 
\text { Consumption } \
\text { expenditure } \
\text { (dollars) }
\end{array} & \begin{array} { l } 
\text { Investment } \
\text { (dollars) }
\end{array} & \begin{array} { l } 
\text { Government } \
\text { expenditure } \
\text { (dollars) }
\end{array} \
\hline 3,000 & 2,500 & 500 & 500 \
\hline 4,000 & 3,250 & 500 & 500 \
\hline 5,000 & 4,000 & 500 & 500 \
\hline 6,000 & 4,750 & 500 & 500 \
\hline 7,000 & 5,500 & 500 & 500 \
\hline 8,000 & 6,250 & 500 & 500 \
\hline
\end{array}$$
-In the above table, there are no taxes and no imports or exports. If current real GDP is equal to
$7,000, then firms will

Accepted Answer

A)  not change production because $7,000 is the equilibrium level of real GDP. 
B)  decrease production to restore inventories to their target level. 
C)  increase production to rebuild inventories to their target level. 
D)  None of the above answers is correct.

Question 11

If there are no income taxes or imports, the multiplier equals

Accepted Answer

A)  1/1 - marginal propensity to invest). 
B)  1/1 - marginal propensity to consume). 
C)  1/1 - marginal propensity to import). 
D)  1/1 - marginal propensity to save).

Question 12

What is the mathematical formula for the multiplier? Why is there a multiplier?

Accepted Answer

The answer of What is the mathematical formula for the...

Question 13

An economy has no imports and no taxes. The marginal propensity to save is 0.2. The multiplier is
___________ so a___________  increase in autonomous expenditure increases equilibrium expenditure by
$60 billion.

Accepted Answer

A)  10; $6 billion 
B)  1.25; $48 billion 
C)  5; $12 billion 
D)  none of the above answers are correct.

Question 14

Mauritius, an island off the coast of Africa, competes with other countries producing goods with low-skilled labor. In 2006, it was reported that its ʺ... factories have been exposed to ... competition from China, India and other Asian mass producers.ʺ As a result, ʺthe main export industry has seen a 30 per cent reduction in volume ...ʺ
The decrease in exports represents a change in __________expenditure and will cause __________.

Accepted Answer

A)  autonomous; a downward shift in the AE curve and a leftward shift in the AD curve 
B)  induced; an upward shift in the AE curve and a leftward shift in the AD curve 
C)  induced; a downward shift in the AE curve and a leftward shift in the AD curve 
D)  autonomous; a downward shift in the AE curve and a rightward shift in the AD curve

Question 15

An increase in expected future income___________.

Accepted Answer

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

Question 16

-In the above figure, equilibrium expenditure along AE2 is

Accepted Answer

A)  $12 trillion. 
B)  $6 trillion. 
C)  $3 trillion. 
D)  an amount not given in the above answers.

Question 17

-In the above figure, when disposable income is greater than $12 trillion, then

Accepted Answer

A)  savings are negative. 
B)  savings are positive. 
C)  the MPS is negative. 
D)  the MPC is greater than 1.

Question 18

An increase in disposable income shifts

Accepted Answer

A)  both the consumption and savings functions upward. 
B)  neither the consumption function or the savings function because it leads to a movement along both the consumption and savings function. 
C)  the consumption function upward and leads to a movement along the savings function. 
D)  both the consumption and savings functions downward.

Question 19

A decrease in autonomous expenditure shifts the AE curve

Accepted Answer

A)  downward and makes it steeper. 
B)  downward and leaves its slope unchanged. 
C)  downward and makes it flatter. 
D)  upward and makes it steeper.

Question 20

$$\begin{array} { | l | l | l | l | } 
\hline \begin{array} { l } 
\text { Real GDP } \
\text { (dollars) }
\end{array} & \begin{array} { l } 
\text { Consumption } \
\text { expenditure } \
\text { (dollars) }
\end{array} & \begin{array} { l } 
\text { Investment } \
\text { (dollars) }
\end{array} & \begin{array} { l } 
\text { Government } \
\text { expenditure } \
\text { (dollars) }
\end{array} \
\hline 3,000 & 2,500 & 500 & 500 \
\hline 4,000 & 3,250 & 500 & 500 \
\hline 5,000 & 4,000 & 500 & 500 \
\hline 6,000 & 4,750 & 500 & 500 \
\hline 7,000 & 5,500 & 500 & 500 \
\hline 8,000 & 6,250 & 500 & 500 \
\hline
\end{array}$$
-In the above table, there are no taxes and no imports or exports. The change in unplanned inventories when real GDP is $7,000 is

Accepted Answer

A)  $500. 
B)  -$500. 
C)  $1,500. 
D)  $6,500.

Exam 11: Expenditure Multipliers: the Keynesian Model

In the short run, an upward shift in the aggregate expenditure curve leads to a leftward shift in the short-run aggregate supply curve.

Suppose that the slope of the AE curve is 0.80. If prices remain constant and government expenditure increases by $10 billion, what will be the change in real GDP?

What is the difference between induced and autonomous expenditure? Which components of aggregate expenditure fall under which category?

Changes in which of the following will affect the size of the multiplier? I. marginal propensity to import II. marginal propensity to consume III. marginal income tax rate

When Audreyʹs disposable income is $40,000, her consumption expenditure is $39,000. When her disposable income is $50,000, Audreyʹs consumption expenditure is $47,000. What is Audreyʹs marginal propensity to consume?

In the short run, a factor that leads to changes in U.S. imports is

If the price level is constant and the slope of the AE curve is 0.75, a decrease in investment of $100 leads to a decrease in real GDP of

-In the above figure, a change in autonomous consumption to $4 trillion with no change to the MPC Would cause the consumption function to

If there are no income taxes or imports, the multiplier equals

What is the mathematical formula for the multiplier? Why is there a multiplier?

An economy has no imports and no taxes. The marginal propensity to save is 0.2. The multiplier is _ so a_ increase in autonomous expenditure increases equilibrium expenditure by $60 billion.

An increase in expected future income___________.

-In the above figure, equilibrium expenditure along AE₂is

-In the above figure, when disposable income is greater than $12 trillion, then

An increase in disposable income shifts

A decrease in autonomous expenditure shifts the AE curve

Exam 11: Expenditure Multipliers: the Keynesian Model

In the short run, an upward shift in the aggregate expenditure curve leads to a leftward shift in the short-run aggregate supply curve.

Suppose that the slope of the AE curve is 0.80. If prices remain constant and government expenditure increases by $10 billion, what will be the change in real GDP?

What is the difference between induced and autonomous expenditure? Which components of aggregate expenditure fall under which category?

Changes in which of the following will affect the size of the multiplier? I. marginal propensity to import II. marginal propensity to consume III. marginal income tax rate

When Audreyʹs disposable income is $40,000, her consumption expenditure is $39,000. When her disposable income is $50,000, Audreyʹs consumption expenditure is $47,000. What is Audreyʹs marginal propensity to consume?

In the short run, a factor that leads to changes in U.S. imports is

If the price level is constant and the slope of the AE curve is 0.75, a decrease in investment of $100 leads to a decrease in real GDP of

-In the above figure, a change in autonomous consumption to $4 trillion with no change to the MPC Would cause the consumption function to

If there are no income taxes or imports, the multiplier equals

What is the mathematical formula for the multiplier? Why is there a multiplier?

An economy has no imports and no taxes. The marginal propensity to save is 0.2. The multiplier is ___________ so a___________ increase in autonomous expenditure increases equilibrium expenditure by $60 billion.

An increase in expected future income___________.

-In the above figure, equilibrium expenditure along AE2 is

-In the above figure, when disposable income is greater than $12 trillion, then

An increase in disposable income shifts

A decrease in autonomous expenditure shifts the AE curve

An economy has no imports and no taxes. The marginal propensity to save is 0.2. The multiplier is _ so a_ increase in autonomous expenditure increases equilibrium expenditure by $60 billion.

-In the above figure, equilibrium expenditure along AE₂is