Question 1

"If aggregate planned expenditure exceeds real GDP, then real GDP will increase." Explain whether the previous sentence is correct or incorrect.

Accepted Answer

The answer of "If aggregate planned expenditure exceeds real GDP,...

Question 2

-The figure shows Tropical Isle's aggregate planned expenditure curve. When aggregate planned expenditure is $2 trillion, aggregate planned expenditure is ________ than real GDP, firms' inventories ________, and firms ________ their production.

Accepted Answer

A)  greater; increase; decrease 
B)  less; decrease; increase 
C)  less; increase; decrease 
D)  greater; decrease; increase

Question 3

1 - MPC equals

Accepted Answer

A)  autonomous consumption. 
B)  the marginal propensity to save. 
C)  induced consumption. 
D)  the net national product.

Question 4

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

Accepted Answer

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

Question 5

The government estimates that the fiscal policy multiplier is 2.0. In this case an increase in government expenditure of $500 billion increases real GDP by ________ and results in an increase in induced expenditure of ________.

Accepted Answer

A)  $500 billion; $0 
B)  $500 billion; $500 billion 
C)  $1,000 billion; $1,000 billion 
D)  $1,000 billion; $500 billion

Question 6

The short-run impact changes in autonomous spending have on real GDP and the price level depends on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 7

In general, the flatter the aggregate expenditure curve, the

Accepted Answer

A)  greater the autonomous expenditure. 
B)  larger the marginal propensity to consume. 
C)  larger the multiplier. 
D)  smaller the multiplier.

Question 8

Assume there are no taxes or imports. The government estimates that between 2012 and 2013 disposable income decreased by $400 billion and consumption expenditure decreased by $280 billion. Based on these data, the multiplier equals

Accepted Answer

A)  0.33. 
B)  0.7. 
C)  1.42. 
D)  3.33.

Question 9

If investment decreases, the AE curve shifts

Accepted Answer

A)  upward and the AD curve shifts rightward. 
B)  downward and the AD curve shifts leftward. 
C)  upward and there is a movement along the AD curve. 
D)  downward and there is a movement along the AD curve.

Question 10

If the change in autonomous investment equals $1 trillion and the change in real GDP equals $4 trillion, the multiplier equals 1/4.

Accepted Answer

A) True 
 B)False

Question 11

-The figure shows Tropical Isle's aggregate planned expenditure curve. When aggregate planned expenditure is $4 trillion, aggregate planned expenditure is ________ than real GDP, firms' inventories ________, and firms ________ their production.

Accepted Answer

A)  greater; increase; decrease 
B)  less; decrease; increase 
C)  greater, decrease; increase 
D)  less, increase; decrease

Question 12

-In the above figure, autonomous expenditure is equal to

Accepted Answer

A)  $0. 
B)  $12 trillion. 
C)  $14 trillion. 
D)  $16 trillion.

Question 13

-In the above table, the marginal propensity to consume equals

Accepted Answer

A)  0.90. 
B)  0.75. 
C)  0.80. 
D)  0.85.

Question 14

-In the above figure, the multiplier is equal to

Accepted Answer

A)  zero. 
B)  one. 
C)  two. 
D)  three.

Question 15

-In the above figure, when disposable income is $12 trillion , induced consumption equals

Accepted Answer

A)  $4 trillion. 
B)  $8 trillion. 
C)  $12 trillion. 
D)  $16 trillion.

Question 16

The slope of the consumption function is

Accepted Answer

A)  less than the slope of the 45-degree line but not equal to zero. 
B)  greater than the slope of the 45-degree line. 
C)  equal to the slope of the 45-degree line. 
D)  equal to zero.

Question 17

The multiplier is the ratio of the

Accepted Answer

A)  change in real GDP to the change in autonomous expenditures. 
B)  equilibrium level of real GDP to the change in induced expenditures. 
C)  change in induced expenditures to the change in autonomous expenditures. 
D)  change in autonomous expenditures to the change in real GDP.

Question 18

Suppose that the slope of the AE curve is 0.80. Then an increase of investment of $10 billion leads to an increase in equilibrium real GDP equal to

Accepted Answer

A)  $8.0 billion. 
B)  $10.0 billion. 
C)  $12.5 billion. 
D)  $50.0 billion.

Question 19

An estimate of the MPC in the U.S. is 0.90.
Paul Krugman, the 2008 Nobel Prize winner in economics, stated, "... you'd be hard pressed to argue for an overall multiplier as high as 2."
Www)nytimes.com, 11/10/2008
What factors could explain the difference between the MPC and Krugman's estimate of the multiplier?

Accepted Answer

A)  exports and investment 
B)  investment and imports 
C)  imports and taxes 
D)  taxes and investment

Question 20

-In the above figure, autonomous expenditure along AE? equals

Accepted Answer

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

Exam 11: Expenditure Multipliers