Question 1

Actual expenditure might differ from planned expenditure because

Accepted Answer

A)  actual consumption expenditure differs from planned consumption expenditure. 
B)  actual investment differs from planned investment. 
C)  actual government expenditure differs from planned government expenditure. 
D)  actual net exports differ from planned net exports.

Question 2

In general, an increase in autonomous expenditure that is NOT created by a change in the price level results in a

Accepted Answer

A)  rightward shift of the AD curve. 
B)  movement upward along the AD curve. 
C)  movement downward along the AD curve. 
D)  leftward shift of the AD curve.

Question 3

The short-run multiplier is equal to 3, real GDP equals potential GDP of $8,000, and the price level is equal to 100. Suppose that government expenditure decreases by $200. The long-run effect of the decrease in government expenditure changes real GDP by

Accepted Answer

A)  a decrease of 600. 
B)  an increase of 600. 
C)  nothing; that is, in the long run real GDP equals $8,000. 
D)  a decrease of $200 because in the long-run, the multiplier is 1.

Question 4

A fall in the price level shifts the AE curve ________ and ________ equilibrium expenditure.

Accepted Answer

A)  upward; increases 
B)  upward; decreases 
C)  downward; increases 
D)  downward; decreases

Question 5

What is the marginal propensity to consume? Why it is an important concept?

Accepted Answer

The answer of What is the marginal propensity to consume?...

Question 6

Because the short-run aggregate expenditure model assumes that the price level is ________, its predicted effect of changes in autonomous expenditure on equilibrium output is ________ than the prediction of the AD/SAS model.

Accepted Answer

A)  fixed; greater 
B)  fixed; less 
C)  flexible; greater 
D)  flexible; less

Question 7

Components of induced aggregate expenditure include government expenditure, investment and consumption expenditure.

Accepted Answer

A) True 
 B)False

Question 8

Suppose the consumption function is given by the equation C = 100 + 0.8YD, where YD is disposable income. What is the marginal propensity to consume?

Accepted Answer

A)  0.2 
B)  0.8 
C)  2.0 
D)  100

Question 9

A decrease in autonomous expenditure shifts the AE curve

Accepted Answer

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

Question 10

Where the consumption function crosses the 45° line

Accepted Answer

A)  consumption expenditure equals saving. 
B)  saving is positive. 
C)  saving is negative. 
D)  consumption expenditure equals disposable income.

Question 11

Aggregate expenditure equals

Accepted Answer

A)  C + I + G + X - M. 
B)  C + I + G + X + M. 
C)  C + I + G. 
D)  C + I + G + X.

Question 12

If the slope of the AE curve is 0.60, the value of the multiplier is

Accepted Answer

A)  2.5. 
B)  0.4. 
C)  1.67. 
D)  4.0.

Question 13

If there are no taxes or imports and MPC = 0.5, the multiplier equals

Accepted Answer

A)  0.5. 
B)  5.0. 
C)  6.0. 
D)  2.0.

Question 14

Which of the following is NOT an autonomous expenditure in the aggregate expenditure model?

Accepted Answer

A)  investment 
B)  government expenditures 
C)  imports 
D)  exports

Question 15

What is unplanned investment? How does it occur?

Accepted Answer

The answer of What is unplanned investment? How does it...

Question 16

-In the above table, there are no taxes and no imports or exports. The value of the multiplier for this economy is

Accepted Answer

A)  0.75. 
B)  1.33. 
C)  4.0. 
D)  0.25.

Question 17

If the slope of the saving function is 0.27, then the marginal propensity to

Accepted Answer

A)  import is less than 0.27. 
B)  save is 0.73. 
C)  consume is 0.73. 
D)  consume is 0.27.

Question 18

The marginal propensity to save (MPS) is equal to the

Accepted Answer

A)  slope of the savings function. 
B)  slope of the 45 degree-line. 
C)  reciprocal value of the MPC. 
D)  difference between consumption and income.

Question 19

In 2013 the government increased Social Security income taxes by 2 percentage points and increased the income tax rate on Americans making more than $400,000 by 4.6 percentage points. These tax hikes

Accepted Answer

A)  decreased the size of the multiplier. 
B)  increased the size of the multiplier. 
C)  had no effect on the size of the multiplier. 
D)  None of the above answers are correct because the effect on the size of the multiplier is ambiguous.

Question 20

How do imports and income taxes affect the multiplier? Why do they have this effect?

Accepted Answer

The answer of How do imports and income taxes affect...

Exam 11: Expenditure Multipliers