Question 1

Refer to the diagram for a private closed economy. The $400 level of GDP is

Accepted Answer

A)  that output at which saving is zero. 
B)  too high because consumption exceeds investment. 
C)  unsustainable because aggregate expenditures exceed GDP. 
D)  unsustainable because aggregate expenditures are less than GDP.

Question 2

Refer to the diagram for a private closed economy. At the $400 level of GDP,

Accepted Answer

A)  aggregate expenditures exceed GDP, with the result that GDP will rise. 
B)  consumption is $350 and planned investment is zero, so aggregate expenditures are $350. 
C)  consumption is $300 and planned investment is $50, so aggregate expenditures are $350. 
D)  consumption is $300 and actual investment is $100, so aggregate expenditures are $400.

Question 3

$$\begin{array} { | c | c | c | } 
\hline G D P ( Y ) & \text { Consumption (C) } & \text { Investment (I) } \
\hline \$ 0 & \$ 60 & \$ 30 \
\hline 100 & 120 & 40 \
\hline 200 & 180 & 50 \
\hline 300 & 240 & 60 \
\hline 400 & 300 & 70 \
\hline 500 & 360 & 80 \
\hline
\end{array}$$ (Advanced analysis) The table gives data for a private closed economy. The letters Y, C, S, and I are used to represent real GDP, consumption, saving, and investment, respectively. Equilibrium Y (= GDP)
Is

Accepted Answer

A)  $100. 
B)  $200. 
C)  $300. 
D)  $400.

Question 4

Refer to the diagrams. Other things equal, an interest rate increase will

Accepted Answer

A)  shift curve A to the right and shift curve B upward. 
B)  shift curve A to the left and shift curve B downward. 
C)  leave curve A in place but shift curve B downward. 
D)  leave curve A in place but shift curve B upward.

Question 5

(Advanced analysis) In a private closed economy, (a) the marginal propensity to save is 0.25, (b) consumption equals income at $120 billion, and (c) the level of investment is $40 billion. What is the
Equilibrium level of income?

Accepted Answer

A)  $280 billion 
B)  $320 billion 
C)  $262 billion 
D)  $198 billion

Question 6

$\begin{array}{|c|c|c|c|c|c|}
\hline
\begin{array}{c}
\text { Domestic Output } \
(G D P=D I)
\end{array} & \begin{array}{c}
\text { Aggregate } \
\text { Expenditures, } \
\text { Closed Economy }
\end{array} & \text { Exports } & \text { Imports } & \text { Net Exports } & \begin{array}{c}
\text { Aggregate } \
\text { Expenditures, Open } \
\text { Economy }
\end{array} \
\hline \$ 200 & \$ 230 & \$ 30 & \$ 20 & \$- &\$- \
\hline 250 & 270 & 30 & 20 & -&- \
\hline 300 & 310 & 30 & 20 & -& - \
\hline 350 & 350 & 30 & 20 & -& - \
\hline 400 & 390 & 30 & 20 & -& - \
\hline 450 & 430 & 30 & 20 & -& - \
\hline 500 & 470 & 30 & 20 & -& - \
\hline
\end{array}$ Complete the accompanying table and answer the question based on the resulting data. All ?gures are in billions of dollars. For the open economy, the equilibrium GDP and the multiplier are

Accepted Answer

A)  $300 and 2.5. 
B)  $450 and 5. 
C)  $400 and 4. 
D)  $400 and 5.

Question 7

At the equilibrium GDP for a private open economy,

Accepted Answer

A)  net exports may be either positive or negative. 
B)  imports will always exceed exports. 
C)  exports will always exceed imports. 
D)  exports and imports will be equal.

Question 8

$$\begin{array} { l } 
C = 40 + 0.8 Y \
I _ { g } = 40 \
X = 20 \
M = 30
\end{array}$$ (Advanced analysis) The equations give information for a private open economy. The letters $$Y , C , I _ { g } , X$$ and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in
Billions of dollars. In equilibrium, saving is

Accepted Answer

A)  $20. 
B)  $30. 
C)  $40. 
D)  $50.

Question 9

Refer to the diagram for a private closed economy. Gross investment

Accepted Answer

A)  is positively related to the level of GDP. 
B)  is negatively related to the level of GDP. 
C)  is independent of the level of GDP. 
D)  must be subtracted from consumption to determine aggregate expenditures.

Question 10

Refer to the diagram for a private closed economy. The equilibrium GDP is

Accepted Answer

A)  $60 billion. 
B)  $180 billion. 
C)  between $60 and $180 billion. 
D)  $60 billion at all levels of GDP.

Question 11

Refer to the diagram for a private closed economy. At the $300 level of GDP,

Accepted Answer

A)  aggregate expenditures and GDP are equal. 
B)  consumption is $200 and planned investment is $50. 
C)  saving exceeds planned investment. 
D)  consumption plus saving is $400.

Question 12

$$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Possible Levels of Domestic Output and } \
\text { Income (GDP = DI) }
\end{array} & \text { Consumption } \
\hline \$ 320 & \$ 320 \
\hline 330 & 327 \
\hline 340 & 334 \
\hline 350 & 341 \
\hline 360 & 348 \
\hline 370 & 355 \
\hline 380 & 362 \
\hline
\end{array}$$ The table gives data for a private closed economy. If gross investment is $12 billion, the equilibrium level of GDP will be

Accepted Answer

A)  $380. 
B)  $370. 
C)  $360. 
D)  $350.

Question 13

In a mixed open economy, the equilibrium GDP exists where

Accepted Answer

A)  $C _ { a } + I _ { g } + X _ { n } \text { intersects the 45-degree line. }$ 
B)  $C _ { a } + I _ { g } = S _ { a } + T + X$ 
C)  $C _ { a } + I _ { g } + X _ { n } + G = \text { GDP. }$ 
D)  $C _ { a } + I _ { g } + X _ { n } = S _ { a } + T$

Question 14

$$\begin{array} { l } 
C = 40 + 0.8 Y \
I _ { g } = 40 \
X = 20 \
M = 30
\end{array}$$ (Advanced analysis) The equations give information for a private open economy. The letters $Y , C , I _ { g } , X$ and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in
Billions of dollars. The equilibrium GDP (=Y) in the economy is

Accepted Answer

A)  $200. 
B)  $245. 
C)  $320. 
D)  $350.

Question 15

Suppose the economy is operating at its full-employment, noninﬂationary GDP and the MPC is 0.75. The federal government now ﬁnds that it must increase spending on military goods by $21 billion in
Response to deterioration in the international political situation. To sustain full-employment,
Noninﬂationary GDP, government must

Accepted Answer

A)  reduce taxes by $28 billion. 
B)  reduce transfer payments by $21 billion. 
C)  increase taxes by $21 billion. 
D)  increase taxes by $28 billion.

Question 16

(Advanced analysis) The given equations describe consumption and investment (in billions of dollars) for a private closed economy.
C = 60 + 0.6Y
I = I0 = 30
In equilibrium, the level of consumption spending will be

Accepted Answer

A)  170. 
B)  270. 
C)  160. 
D)  195.

Question 17

Refer to the diagrams. Other things equal, an interest rate reduction coupled with a rightward shift in curve A will

Accepted Answer

A)  shift curve B upward. 
B)  shift curve B downward. 
C)  have no effect on curve B. 
D)  reduce GDP.

Question 18

An upward shift of the aggregate expenditures schedule might be caused by

Accepted Answer

A)  a decrease in exports, with no change in imports. 
B)  a decrease in imports, with no change in exports. 
C)  an increase in exports, with an equal decrease in investment spending. 
D)  an increase in imports, with no change in exports.

Question 19

Refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when

Accepted Answer

A)  C + Ig cuts the 45-degree line. 
B)  GDP is $180 billion. 
C)  GDP is $60 billion. 
D)  GDP is also zero.

Question 20

SA=−20 + 0.4Y 
Ig = 25 − 3i
(Advanced analysis) The equations refer to a private closed economy, where S is saving, Ig is gross
Investment, i is the real interest rate, and Y is GDP. If the real interest rate is 5 (percent), investment will
Be

Accepted Answer

A)  $10 and the equilibrium GDP will be $75. 
B)  $15 and the equilibrium GDP will be $100. 
C)  $10 and the equilibrium GDP will be $120. 
D)  $15 and the equilibrium GDP will be $180.

Exam 11: The Aggregate Expenditures Model