Question 1

-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 expenditure.E) All of the above
F) A) and B)

Question 2

The relationship between the multiplier and the MPC is

Accepted Answer

A)   that as the MPC increases, so does the value of the multiplier.
B)   that as the MPC increases, the value of the multiplier decreases.
C)   unrelated because the multiplier relates to the MPS, not the MPC.
D)   converging at higher incomes.E) A) and B)
F) All of the above

Question 3

The aggregate expenditure curve shows

Accepted Answer

A)   how consumption changes in response to a change in disposable income.
B)   how planned aggregate expenditure and real GDP are related.
C)   a negative relationship between the price level and real GDP.
D)   Both answers B and C are correct.E) A) and B)
F) A) and C)

Question 4

In the very short run, the components of aggregate planned expenditure that depend on the level of real GDP are

Accepted Answer

A)   planned consumption expenditure and planned imports.
B)   planned investment and planned imports.
C)   planned investment and planned exports.
D)   planned government expenditure on goods and services and planned imports.E) All of the above
F) B) and D)

Question 5

The relationship between net exports and GDP makes the slope of the aggregate expenditure curve

Accepted Answer

A)   flatter than it would be otherwise.
B)   steeper than it would be otherwise.
C)   neither flatter nor steeper than it would be otherwise.
D)   steeper at low levels of GDP and flatter at high levels of GDP.E) A) and B)
F) C) and D)

Question 6

In an article regarding Bangladesh's economy, the author suggests that the government ..."[g]ive double tax breaks on investment dollars. Give a tax break to R&D [research and development]. Give a tax break on donations to educational institutions." www.groundreport.com, March 24, 2008
Suppose the multiplier in Bangladesh is 2. As a result of enacting the proposed policies, which of the following describe possible outcomes in the short run?
I. an $20 billion increase in investment will increase aggregate expenditure by $40 billion.
II. the AE curve will shift upward.
III. there will be an unplanned increase in inventories.

Accepted Answer

A)   I,II and III
B)   I and II only
C)   I and III only
D)   II and III onlyE) A) and B)
F) A) and C)

Question 7

A movement along the consumption function is the result of changes in

Accepted Answer

A)   the real interest rate.
B)   disposable income.
C)   expected future income.
D)   the price levelE) All of the above
F) A) and D)

Question 8

A change in which of the following changes the slope of the aggregate expenditure curve?

Accepted Answer

A)   an increase in autonomous government expenditures
B)   an increase in the marginal propensity to consume
C)   a decrease in autonomous consumption expenditures
D)   All of the above answers are correct because they all change the slope of the aggregate expenditure curve.E) C) and D)
F) A) and B)

Question 9

In the third quarter of 2008, investment in the U.S. totaled $1.4 trillion and in 2007, investment was $1.3 trillion. The change in investment

Accepted Answer

A)   is a change in autonomous expenditure.
B)   is a change in equilibrium expenditure.
C)   is a change in induced expenditure.
D)   will increase the multiplier.E) All of the above
F) A) and B)

Question 10

Because of changes in the ________, the long-run effect of a $10 increase in investment on real GDP equals ________.

Accepted Answer

A)   interest rate; zero
B)   interest rate; $10
C)   money wage rate and price level; zero
D)   money wage rate and price level; $10E) A) and B)
F) B) and D)

Question 11

The slope of the saving function is equal to

Accepted Answer

A)   the MPS.
B)   the MPC.
C)   1- MPS.
D)   None of the above answers is correct.E) B) and C)
F) C) and D)

Question 12

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.E) B) and C)
F) None of the above

Question 13

A movement along the saving function occurs when

Accepted Answer

A)   the real interest rate rises.
B)   wealth increases.
C)   disposable income decreases.
D)   None of the above answers is correct.E) B) and C)
F) C) and D)

Question 14

"The global financial crisis has had a considerable impact on China's export growth, which will continue to show weakness with recession in the U.S. and Europe," said a report by JP Morgan & Co. www.money.cnn.com, 11/11/2008
If Chinese exports continue to decline, the AE curve will shift ________, the price level will ________ in the long run and real GDP will ________ in the long run.

Accepted Answer

A)   downward; decrease; not change
B)   downward; decrease; decrease
C)   decrease; not change; not change
D)   upward; decrease; not changeE) A) and C)
F) A) and B)

Question 15

The multiplier is greater than 1 because

Accepted Answer

A)   most households are unable to save.
B)   household spending exceeds income.
C)   one person's spending becomes another's income.
D)   corporate spending exceeds corporate income.E) B) and C)
F) A) and D)

Question 16

The slope of the aggregate expenditure curve equals the change in

Accepted Answer

A)   planned expenditure divided by the change in real GDP.
B)   autonomous expenditure divided by the change in real GDP.
C)   government expenditure divided by the change in real GDP.
D)   real GDP divided by the change in planned expenditure.E) All of the above
F) B) and D)

Question 17

Mauritius, an island off the coast of Africa, competes with other countries producing goods with low-skilled labor. In 2006, it was reported that its "... factories have been exposed to ... competition from China, India and other Asian mass producers." As a result, "the main export industry has seen a 30 per cent reduction in volume ..." www.ft.com, 3/13/2006
The story describes

Accepted Answer

A)   a decrease in autonomous expenditure.
B)   a decrease in induced expenditure.
C)   an unplanned decrease in inventories.
D)   an increase in equilibrium expenditure.E) A) and D)
F) B) and C)

Question 18

Suppose the equilibrium level of expenditure is $18 trillion. If real GDP is $17 trillion, then inventories are ________ their target levels and real GDP will ________.

Accepted Answer

A)   above; increase
B)   above; decrease
C)   below; increase
D)   below; decreaseE) All of the above
F) B) and C)

Question 19

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 20

In an article regarding Bangladesh's economy, the author suggests that the government ..."[g]ive double tax breaks on investment dollars. Give a tax break to R&D [research and development]. Give a tax break on donations to educational institutions." www.groundreport.com, March 24, 2008
The increase in investment is considered ________ and will generate a larger increase in ________.

Accepted Answer

A)   equilibrium spending; autonomous expenditure
B)   autonomous expenditure; induced expenditure
C)   induced expenditure; autonomous expenditure
D)   autonomous expenditure; multiplier spending.E) A) and B)
F) A) and C)

Exam 11: Expenditure Multipliers

The relationship between the multiplier and the MPC is

Correct Answer
verified

In the very short run, the components of aggregate planned expenditure that depend on the level of real GDP are

Correct Answer
verified

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A change in which of the following changes the slope of the aggregate expenditure curve?

Correct Answer
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Because of changes in the , the long-run effect of a $10 increase in investment on real GDP equals .

Correct Answer
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The multiplier is greater than 1 because

Correct Answer
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The slope of the aggregate expenditure curve equals the change in

Correct Answer
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A movement along the consumption function is the result of changes in

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

Correct Answer
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A movement along the saving function occurs when

Correct Answer
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The aggregate expenditure curve shows

Correct Answer
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The slope of the saving function is equal to

Correct Answer
verified

The relationship between net exports and GDP makes the slope of the aggregate expenditure curve

Correct Answer
verified

Correct Answer
verified

In the third quarter of 2008, investment in the U.S. totaled $1.4 trillion and in 2007, investment was $1.3 trillion. The change in investment

Correct Answer
verified

Suppose the equilibrium level of expenditure is $18 trillion. If real GDP is $17 trillion, then inventories are their target levels and real GDP will .

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

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

Correct Answer
verified

Exam 11: Expenditure Multipliers

The relationship between the multiplier and the MPC is

Correct AnswerverifiedShow Answer

In the very short run, the components of aggregate planned expenditure that depend on the level of real GDP are

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A change in which of the following changes the slope of the aggregate expenditure curve?

Correct AnswerverifiedShow Answer

Because of changes in the ________, the long-run effect of a $10 increase in investment on real GDP equals ________.

Correct AnswerverifiedShow Answer

The multiplier is greater than 1 because

Correct AnswerverifiedShow Answer

The slope of the aggregate expenditure curve equals the change in

Correct AnswerverifiedShow Answer

A movement along the consumption function is the result of changes in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A movement along the saving function occurs when

Correct AnswerverifiedShow Answer

The aggregate expenditure curve shows

Correct AnswerverifiedShow Answer

The slope of the saving function is equal to

Correct AnswerverifiedShow Answer

The relationship between net exports and GDP makes the slope of the aggregate expenditure curve

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the third quarter of 2008, investment in the U.S. totaled $1.4 trillion and in 2007, investment was $1.3 trillion. The change in investment

Correct AnswerverifiedShow Answer

Suppose the equilibrium level of expenditure is $18 trillion. If real GDP is $17 trillion, then inventories are ________ their target levels and real GDP will ________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Because of changes in the , the long-run effect of a $10 increase in investment on real GDP equals .

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Suppose the equilibrium level of expenditure is $18 trillion. If real GDP is $17 trillion, then inventories are their target levels and real GDP will .

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