Question 1

In the long run, the multiplier

Accepted Answer

A)  is greater than 1 because of the position and slope of the SAS curve. 
B)  is twice the short-run multiplier. 
C)  is zero. 
D)  depends on the slope of the AD curve.

Question 2

In an economy, the multiplier is 3. If government expenditure increases by $1 million, then in the short run, the price level ________ and real GDP ________ $3 million.

Accepted Answer

A)  falls; decreases by less than 
B)  rises; equals 
C)  rises; increases by less than 
D)  rises; decreases by less than

Question 3

If the multiplier is 4.0 and investment decreases by $2.5 billion, the AD curve

Accepted Answer

A)  shifts rightward by $10 billion. 
B)  shifts rightward by less than $10 billion. 
C)  shifts leftward by $10 billion. 
D)  shifts leftward by more than $30 billion.

Question 4

Which of the following statements is FALSE?

Accepted Answer

A)  Disposable income - saving = consumption expenditure. 
B)  Consumption expenditure + saving = disposable income. 
C)  Saving = disposable income - consumption expenditure. 
D)  Consumption expenditure = saving - disposable income.

Question 5

The sum of the components of aggregate expenditure that are not influenced by real GDP is called

Accepted Answer

A)  induced expenditures. 
B)  the MPC. 
C)  autonomous expenditures. 
D)  autonomous consumption.

Question 6

-In the above figure, at a disposable income level of $2 trillion, saving equals

Accepted Answer

A)  disposable income. 
B)  zero. 
C)  $4 trillion. 
D)  consumption expenditures.

Question 7

Between 2012 and 2013 real GDP increased by $600 billion and imports increased by $90 billion. Based on these data, the marginal propensity to import equals

Accepted Answer

A)  0.15. 
B)  0.25. 
C)  0.90 
D)  6.67.

Question 8

An increase in U.S. exports because of increasing foreign incomes represents ________ in the United States.

Accepted Answer

A)  an increase in autonomous expenditure 
B)  a decrease in autonomous expenditure 
C)  an increase in induced expenditure 
D)  a decrease in induced expenditure

Question 9

The consumption function relates the consumption expenditure decisions of households to

Accepted Answer

A)  the level of disposable income. 
B)  investment decisions of firms. 
C)  saving decisions of households. 
D)  the nominal interest rate.

Question 10

-In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. What is the unplanned inventory change when GDP is equal to $400?

Accepted Answer

A)  $26 
B)  -$26 
C)  $5 
D)  -$5

Question 11

Suppose that in 2014, firms discover that their inventories are falling below their planned levels. Which of the following statements is CORRECT?

Accepted Answer

A)  The level of aggregate savings must equal the level of desired investment. 
B)  Even though firms are trying, they are unable to maximize profits. 
C)  Aggregate demand is less than aggregate supply. 
D)  Real GDP is less than equilibrium expenditure.

Question 12

When disposable income is 0, consumption is $2000. Then

Accepted Answer

A)  saving = $0. 
B)  saving = -$2000. 
C)  saving = $2000. 
D)  the MPC = 0.2.

Question 13

In the short run with fixed prices, an increase in investment of $100 billion

Accepted Answer

A)  increases real GDP by $100 billion. 
B)  increases real GDP by less than $100 billion. 
C)  increases real GDP by more than $100 billion. 
D)  decreases real GDP by $100 billion because of the decrease in induced expenditures.

Question 14

In general, the steeper the aggregate expenditure curve, the

Accepted Answer

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

Question 15

Explain the relationships between real GDP, aggregate planned expenditure, induced expenditure, and unplanned investment.

Accepted Answer

The answer of Explain the relationships between real GDP, aggregate...

Question 16

What is the consumption function? What factor leads to a movement along the consumption function?

Accepted Answer

The answer of What is the consumption function? What factor...

Question 17

-In the above figure, AE? is the aggregate planned expenditure curve and then investment increases by an additional $3 trillion. As a result, the new equilibrium GDP will be

Accepted Answer

A)  $3 trillion. 
B)  $6 trillion. 
C)  $12 trillion. 
D)  None of the above answers is correct.

Question 18

Between 2012 and 2013 the government reports that investment decreased by $400 billion. The government also estimates that the marginal propensity to save is 0.20. If the entire decrease in investment is autonomous, then real GDP

Accepted Answer

A)  decreases by $2000 billion. 
B)  increases by $2000 billion. 
C)  decreases by $80 billion. 
D)  decreases by $320 billion

Question 19

In the third quarter of 2008, investment in the U.S. totaled $1.4 trillion and in 2007, investment was $1.3 trillion. In addition, third quarter real GDP was $11 trillion. Suppose the MPC in the U.S. is 0.80.
Ignoring the effects of imports and taxes, the multiplier is ________ and the change in investment will decrease equilibrium expenditure by ________.

Accepted Answer

A)  2; $1 trillion 
B)  5; $1 trillion 
C)  2; $200 million 
D)  5; $500 million

Question 20

Taking into account the upward-sloping short-run aggregate supply curve, the short-run effect of an increase in government expenditure on real GDP is that

Accepted Answer

A)  real GDP increases by more in the short run than in the long run. 
B)  real GDP increases by the same amount in the short run as in the long run. 
C)  real GDP increases by less in the short run than in the long run. 
D)  real GDP does not change in the short run because the price level increases.

Exam 11: Expenditure Multipliers