Question 1

The tastes for foreign goods and services generally has a ______ relationship with aggregate expenditure.

Accepted Answer

A)   negative
B)   positive
C)   skewed
D)   constantE) C) and D)
F) None of the above

Question 2

An inflationary output gap is defined to be when the current level of output is:

Accepted Answer

A)   below full employment GDP.
B)   above full employment GDP.
C)   equivalent to full employment GDP.
D)   high enough to cause an unexpected amount of inflation.E) B) and D)
F) B) and C)

Question 3

actual output. C)  no change in production since PAE = actual output. D)  a decrease in production since PAE > actual output." class="answers-bank-image d-inline" rel="preload" > In Figure 1 above if the economy were at Y1 then we would expect there to be:

Accepted Answer

A)   an increase in production since PAE 
B)   an increase in production since PAE > actual output.
C)   no change in production since PAE = actual output.
D)   a decrease in production since PAE > actual output.E) All of the above
F) C) and D)

Question 4

Which of the following is not a primary determinant of consumption spending?

Accepted Answer

A)   Interest rates on savings
B)   Real income
C)   Wealth
D)   Rate of return on capitalE) A) and C)
F) A) and D)

Question 5

When PAE < Y the economic response for inventories should be:

Accepted Answer

A)   inventories will increase.
B)   inventories will decrease.
C)   there will be no change in inventories.
D)   inventories should decrease initially and then sharply increase.E) None of the above
F) A) and C)

Question 6

The marginal propensity to consume (MPC)  is defined to be:

Accepted Answer

A)   the change in consumption divided by the change in disposable income.
B)   total income divided by total consumption.
C)   total consumption divided by the change in disposable income.
D)   the change in consumption divided by total disposable income.E) C) and D)
F) B) and C)

Question 7

If the MPC = 0.9 and a household obtains $20,000 more dollars then how much would the household spend of the additional $20,000?

Accepted Answer

A)   $20,000
B)   $2,500
C)   $17,500
D)   $18,000E) All of the above
F) A) and B)

Question 8

If the domestic income of a nation's citizens increase thus causing consumption spending to increase, then we generally expect net export spending to:

Accepted Answer

A)   increase as well because as consumption increases we also buy more foreign goods and services.
B)   decrease as well because as consumption increases we also buy more foreign goods and services.
C)   remain constant because when we increase domestic purchases it is directly offset by a reduction in foreign purchases.
D)   there is not enough information to determine what would happen.E) A) and B)
F) A) and C)

Question 9

When we compare PAE and actual output (Y)  if PAE is greater than Y we expect that:

Accepted Answer

A)   eventually production will decrease.
B)   eventually production will increase.
C)   there will be no change in aggregate production.
D)   the government will intervene by cutting down on taxes.E) B) and C)
F) All of the above

Question 10

Which component of consumption has a negative or indirect relationship with consumption?

Accepted Answer

A)   Expected future income
B)   Real income
C)   Wealth
D)   Interest ratesE) All of the above
F) None of the above

Question 11

Net Exports are defined to be:

Accepted Answer

A)   Imports − Exports.
B)   Imports + Exports.
C)   Exports − Imports.
D)   Exports − Investment.E) All of the above
F) A) and D)

Question 12

If the expected profitability of a business activity increased we might expect investment spending to:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain constant.
D)   there is not enough information to determine what would happen.E) None of the above
F) A) and B)

Question 13

The Keynesian equilibrium is defined to be when:

Accepted Answer

A)   planned inventories equal to actual inventories, which leads to national income equal to planned aggregate expenditure.
B)   planned investment is equal to domestic consumption.
C)   planned inventories equal to actual inventories, which leads to national net income equal to planned aggregate expenditure.
D)   planned spending is equal to expected spending from households.E) All of the above
F) A) and B)

Question 14

Using Figure 3 above the distance between what 2 lines illustrate an inflationary expenditure gap?

Accepted Answer

A)   PAE2 to PAE3
B)   PAE1 to PAE2
C)   Y1 to Y2
D)   Y2 to Y3E) A) and B)
F) A) and C)

Question 15

If the government wishes to increase GDP by $1,200b, and the MPC is 0.75, it should:

Accepted Answer

A)   increase its spending by $300b.
B)   decrease its spending by $300b.
C)   increase its spending by $900b.
D)   decrease its spending by $900b.E) A) and B)
F) A) and C)

Question 16

The effect of government spending or tax cuts on national income is measured by the:

Accepted Answer

A)   multiplier.
B)   output gap.
C)   aggregator.
D)   tax rate.E) A) and B)
F) B) and D)

Question 17

Using Figure 2 above, suppose that the economy started at PAE2. A potential change that could cause the economy to go from PAE2 to PAE1 might be:

Accepted Answer

A)   wealth level decreases.
B)   interest rates decrease.
C)   expected profitability of investments increase.
D)   domestic income decreases.E) A) and B)
F) None of the above

Question 18

When PAE decreases then the economy will move towards:

Accepted Answer

A)   lower levels of equilibrium GDP.
B)   higher levels of equilibrium GDP.
C)   constant levels of GDP.
D)   higher levels of equilibrium aggregate expenditure.E) A) and D)
F) None of the above

Question 19

If the government wishes to increase GDP by $1,000b, and the MPC is 0.6, it should increase its spending by:

Accepted Answer

A)   $250b.
B)   $400b.
C)   $600b.
D)   $1,000b.E) All of the above
F) B) and C)

Question 20

The simplified spending multiplier is calculated as:

Accepted Answer

A)   1/(1 − MP
C)  .
B)   −1/(1 − MP
C)  .
C)   −MPC/(1 − MP
C)  .
D)   (1 − MP
C)   × −MPC.E) A) and C)
F) A) and B)

Exam 11: Aggregate Expenditure

If the MPC = 0.9 and a household obtains $20,000 more dollars then how much would the household spend of the additional $20,000?

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The tastes for foreign goods and services generally has a ______ relationship with aggregate expenditure.

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Using Figure 2 above, suppose that the economy started at PAE2. A potential change that could cause the economy to go from PAE2 to PAE1 might be:

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Using Figure 3 above the distance between what 2 lines illustrate an inflationary expenditure gap?

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Which of the following is not a primary determinant of consumption spending?

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If the domestic income of a nation's citizens increase thus causing consumption spending to increase, then we generally expect net export spending to:

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If the expected profitability of a business activity increased we might expect investment spending to:

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When we compare PAE and actual output (Y) if PAE is greater than Y we expect that:

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The Keynesian equilibrium is defined to be when:

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When PAE < Y the economic response for inventories should be:

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The marginal propensity to consume (MPC) is defined to be:

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In Figure 1 above if the economy were at Y1 then we would expect there to be:

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When PAE decreases then the economy will move towards:

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Which component of consumption has a negative or indirect relationship with consumption?

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An inflationary output gap is defined to be when the current level of output is:

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The effect of government spending or tax cuts on national income is measured by the:

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Net Exports are defined to be:

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The simplified spending multiplier is calculated as:

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If the government wishes to increase GDP by $1,000b, and the MPC is 0.6, it should increase its spending by:

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If the government wishes to increase GDP by $1,200b, and the MPC is 0.75, it should:

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