Question 1

Which of the following correctly describes how an increase in the price level affects consumption spending?

Accepted Answer

A)  An increase in the price level raises real wealth,which causes consumption to increase.
B)  An increase in the price level decreases the amount of money a household needs to buy goods and raises the interest rate,which causes consumption to increase.
C)  An increase in the price level increases the amount of money a household needs to buy goods and raises the interest rate,which causes consumption to increase.
D)  An increase in the price level lowers real wealth,which causes consumption to decrease.E) A) and D)
F) B) and C)

Question 2

Ceteris paribus,how does a recession in the United States affect U.S.net exports?

Accepted Answer

As GDP decreases in the United States du...

Question 3

Firms in a small economy planned that inventories would grow over the past year by $300,000.Over that year,inventories actually grew by $400,000.This implies that

Accepted Answer

A)  aggregate expenditure that year was less than GDP that year.
B)  there was an unplanned decrease in inventories that year.
C)  there was a planned decrease in inventories that year.
D)  aggregate expenditure that year was equal to GDP that year.E) None of the above
F) B) and D)

Question 4

The formula for aggregate expenditure is

Accepted Answer

A)  AE = C + I + G.
B)  AE = C + I + G - NX.
C)  AE = C + I + G + NX.
D)  AE = C + I + depreciation - NX.E) A) and B)
F) A) and D)

Question 5

Which of the following will reduce consumer expenditures?

Accepted Answer

A)  a decrease in interest rates
B)  a general increase in housing prices
C)  a decrease in expected future income
D)  a decrease in the price levelE) B) and C)
F) None of the above

Question 6

If planned aggregate expenditure is less than total production

Accepted Answer

A)  actual inventories will equal planned inventories.
B)  firms will experience an unplanned decrease in inventories.
C)  GDP will decrease.
D)  the economy is in equilibrium.E) B) and C)
F) None of the above

Question 7

Equations for C,I,G,and NX are given below.If the equilibrium level of GDP is $32,000,what will the new equilibrium level of GDP be if government spending increases to 2,500? C = 5,000 + (MPC) Y
I = 1,500
G = 2,000
NX = -500

Accepted Answer

A)  $32,500
B)  $34,000
C)  $38,000
D)  $42,000E) C) and D)
F) A) and C)

Question 8

The key idea of the aggregate expenditure model is that in any particular year,the level of ________ is determined mainly by the level of aggregate expenditure.

Accepted Answer

A)  frictional unemployment
B)  export spending
C)  government spending
D)  GDPE) B) and C)
F) A) and D)

Question 9

If the marginal propensity to save is 0.25,then a $10,000 decrease in disposable income will

Accepted Answer

A)  increase consumption by $7,500.
B)  increase consumption by $2,500.
C)  decrease consumption by $7,500.
D)  decrease consumption by $2,500.E) B) and C)
F) All of the above

Question 10

During a(n) ________ many firms experience reduced profits,which reduces ________ and investment spending.

Accepted Answer

A)  expansion; business confidence
B)  recession; cash flow
C)  expansion; cash flow
D)  recession; government spendingE) A) and B)
F) A) and C)

Question 11

U.S.net export spending falls when

Accepted Answer

A)  the price level in the United States falls relative to the price level in other countries.
B)  the growth rate of U.S.GDP is faster than the growth rate of GDP in other countries.
C)  the value of the U.S.dollar decreases relative to other currencies.
D)  the inflation rate is lower in the United States relative to other countries.E) All of the above
F) A) and C)

Question 12

All of the following are components of aggregate expenditure except

Accepted Answer

A)  consumption spending.
B)  net export spending.
C)  actual investment spending.
D)  government spending.E) A) and D)
F) None of the above

Question 13

How does an increase in government spending affect the aggregate expenditure line?

Accepted Answer

A)  It shifts the aggregate expenditure line upward.
B)  It shifts the aggregate expenditure line downward.
C)  It increases the slope of the aggregate expenditure line.
D)  It decreases the slope of the aggregate expenditure line.E) B) and C)
F) A) and D)

Question 14

Autonomous expenditure is a type of expenditure that does not depend on

Accepted Answer

A)  wealth.
B)  expectations.
C)  rates.
D)  GDP.E) B) and D)
F) A) and B)

Question 15

Consumption spending will ________ when disposable income ________.

Accepted Answer

A)  increase; increases
B)  increase; decreases
C)  decrease; increases
D)  change unpredictably; decreasesE) C) and D)
F) A) and B)

Question 16

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run,assuming ________ is constant.

Accepted Answer

A)  total production; total income; real GDP
B)  total spending; real GDP; total income
C)  total spending; real GDP; the price level
D)  total income; real GDP; the price levelE) A) and B)
F) A) and C)

Question 17

A general formula for the multiplier is

Accepted Answer

A)    .
B)    .
C)    .
D)   E) A) and B)
F) A) and C)

Question 18

________ is equal to consumption spending plus planned investment spending plus government purchases plus net exports.

Accepted Answer

A)  Full employment GDP
B)  Short-run aggregate supply
C)  Planned inventory investment
D)  Planned aggregate expenditureE) All of the above
F) B) and C)

Question 19

Inventories refer to

Accepted Answer

A)  goods which have been presold before they are produced.
B)  goods that have been produced but not yet sold.
C)  goods that have been planned but not yet produced.
D)  goods that have been produced and sold in the same year.E) None of the above
F) C) and D)

Question 20

Why do economists care about aggregate expenditures?

Accepted Answer

Increases and decreases in aggregate exp...

Exam 12: Aggregate Expenditure and Output in the Short Run

Equations for C,I,G,and NX are given below.If the equilibrium level of GDP is $32,000,what will the new equilibrium level of GDP be if government spending increases to 2,500? C = 5,000 + (MPC) Y I = 1,500 G = 2,000 NX = -500

Correct AnswerverifiedShow Answer

________ is equal to consumption spending plus planned investment spending plus government purchases plus net exports.

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A general formula for the multiplier is

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Inventories refer to

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Which of the following correctly describes how an increase in the price level affects consumption spending?

Correct AnswerverifiedShow Answer

Consumption spending will ________ when disposable income ________.

Correct AnswerverifiedShow Answer

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run,assuming ________ is constant.

Correct AnswerverifiedShow Answer

Ceteris paribus,how does a recession in the United States affect U.S.net exports?

Correct AnswerverifiedAs GDP decreases in the United States du...View AnswerShow Answer

Why do economists care about aggregate expenditures?

Correct AnswerverifiedIncreases and decreases in aggregate exp...View AnswerShow Answer

If the marginal propensity to save is 0.25,then a $10,000 decrease in disposable income will

Correct AnswerverifiedShow Answer

How does an increase in government spending affect the aggregate expenditure line?

Correct AnswerverifiedShow Answer

Autonomous expenditure is a type of expenditure that does not depend on

Correct AnswerverifiedShow Answer

During a(n) ________ many firms experience reduced profits,which reduces ________ and investment spending.

Correct AnswerverifiedShow Answer

Which of the following will reduce consumer expenditures?

Correct AnswerverifiedShow Answer

U.S.net export spending falls when

Correct AnswerverifiedShow Answer

Firms in a small economy planned that inventories would grow over the past year by $300,000.Over that year,inventories actually grew by $400,000.This implies that

Correct AnswerverifiedShow Answer

The key idea of the aggregate expenditure model is that in any particular year,the level of ________ is determined mainly by the level of aggregate expenditure.

Correct AnswerverifiedShow Answer

The formula for aggregate expenditure is

Correct AnswerverifiedShow Answer

All of the following are components of aggregate expenditure except

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If planned aggregate expenditure is less than total production

Correct AnswerverifiedShow Answer

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Consumption spending will when disposable income .

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The aggregate expenditure model focuses on the relationship between and in the short run,assuming is constant.

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As GDP decreases in the United States du...
View Answer

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Increases and decreases in aggregate exp...
View Answer

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During a(n) many firms experience reduced profits,which reduces and investment spending.

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