Question 1

An inflationary output gap exists when the current level of output is _______ full employment GDP.

Accepted Answer

A)   below
B)   above
C)   equal to
D)   decreasing rapidly relative to

Question 2

Suppose Chen receives a promotion that earns him an additional $20,000 per year. If the MPC is 0.9, how much of the additional $20,000 that Chen earns will be spent?

Accepted Answer

A)   $20,000
B)   $2,500
C)   $17,500
D)   $18,000

Question 3

If the MPC is 0.75, and the government cuts spending by $100 billion, the overall effect on GDP will be:

Accepted Answer

A)   a decrease of $400 billion.
B)   an increase of $250 billion.
C)   a decrease of $250 billion.
D)   an increase of $400 billion.

Question 4

Suppose Erin receives an inheritance worth $50,000. If her MPC is 0.75, how much of the additional $50,000 that Erin earns will be spent?

Accepted Answer

A)   $50,000
B)   $12,500
C)   $37,500
D)   $40,000

Question 5

A(n)  _______ relationship exists between profitability and investment spending.

Accepted Answer

A)   negative
B)   positive
C)   indirect
D)   constant

Question 6

The figure shows planned aggregate expenditure and output for an economy. 2. This level of GDP would be considered: A)  inflationary. B)  recessionary. C)  a long-run level of output. D)  unsustainable over time." class="answers-bank-image d-inline" rel="preload" > Suppose that the economy's output is Y2. This level of GDP would be considered:

Accepted Answer

A)   inflationary.
B)   recessionary.
C)   a long-run level of output.
D)   unsustainable over time.

Question 7

Which of the following does not influence autonomous spending?

Accepted Answer

A)   Financial and housing wealth
B)   Interest rates
C)   Income
D)   Export demand

Question 8

In general, households with lower wealth tend to have a(n)  _______ MPC relative to wealthier households.

Accepted Answer

A)   lower
B)   higher
C)   similar
D)   identical

Question 9

The marginal propensity to consume:

Accepted Answer

A)   is the amount by which consumption increases when after-tax income increases by $1.
B)   is closely linked to the multiplier effect of government spending.
C)   is a value between 0 and 1.
D)   All of these are true.

Question 10

If the marginal propensity to consume is 0.25, it would mean that:

Accepted Answer

A)   $0.25 of an additional $1 of individuals' after-tax income is spent on consumption.
B)   $0.25 of an additional $1 of individuals' after-tax income is saved.
C)   $0.75 of an additional $1 of individuals' after-tax income is spent on consumption.
D)   None of these are true.

Question 11

Which of the following is not an example of a transfer payment?

Accepted Answer

A)   Social Security payments
B)   Sales tax
C)   Unemployment benefits
D)   Workman's compensation

Question 12

Which of the following scenarios would increase the net exports component of aggregate expenditure?

Accepted Answer

A)   The dollar increases in value relative to other currencies.
B)   Countries in the European Union experience a long period of economic growth.
C)   A series of recalls for domestic automobiles shifts preferences towards foreign cars and trucks.
D)   The United States experiences a long period of economic growth.

Question 13

Which of the following scenarios would cause investment to increase?

Accepted Answer

A)   The Federal Reserve announces an increase in the interest rate.
B)   Housing prices increase.
C)   A free trade agreement increases overall exports.
D)   The U.S. government announces a plan to tax the ad revenue of large tech companies.

Question 14

Which of the following describes the relationship between production and inventories?

Accepted Answer

A)   If planned inventories are greater than actual inventories, firms should increase production.
B)   If planned inventories are less than actual inventories, firms should decrease production.
C)   If planned inventories are less than actual inventories, firms should increase production.
D)   If planned inventories are greater than actual inventories, firms should decrease production.

Question 15

The figure shows planned aggregate expenditure and output for an economy. 1, there should be _______ in production because PAE is _______ actual output. A)  an increase; less than B)  an increase; greater than C)  no change; equal to D)  a decrease; greater than" class="answers-bank-image d-inline" rel="preload" > If output in this economy is Y1, there should be _______ in production because PAE is _______ actual output.

Accepted Answer

A)   an increase; less than
B)   an increase; greater than
C)   no change; equal to
D)   a decrease; greater than

Question 16

When PAE is less than Y, inventories should:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain the same.
D)   decrease slightly before sharply increasing.

Question 17

If spending increases by $200, and GDP increases by $1,000 as a result, what must the MPC be?

Accepted Answer

A)   0.80
B)   0.75
C)   4
D)   5

Question 18

If the domestic income of a nation's citizens decreases, net exports will likely:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain constant.
D)   There is not enough information to determine what will happen.

Question 19

Suppose a housing bubble inflates house prices to new records. What will happen to overall consumption in this economy?

Accepted Answer

A)   It will decrease.
B)   It will stay the same.
C)   It will increase.
D)   The impact on consumption is unclear.

Question 20

A(n)  _______ relationship exists between expected future income and consumption.

Accepted Answer

A)   negative
B)   positive
C)   indirect
D)   constant

Exam 11: Aggregateexpenditures

Suppose Chen receives a promotion that earns him an additional $20,000 per year. If the MPC is 0.9, how much of the additional $20,000 that Chen earns will be spent?

Correct AnswerverifiedShow Answer

In general, households with lower wealth tend to have a(n) _______ MPC relative to wealthier households.

Correct AnswerverifiedShow Answer

The figure shows planned aggregate expenditure and output for an economy. If output in this economy is Y1, there should be _______ in production because PAE is _______ actual output.

Correct AnswerverifiedShow Answer

The figure shows planned aggregate expenditure and output for an economy. Suppose that the economy's output is Y2. This level of GDP would be considered:

Correct AnswerverifiedShow Answer

A(n) _______ relationship exists between expected future income and consumption.

Correct AnswerverifiedShow Answer

An inflationary output gap exists when the current level of output is _______ full employment GDP.

Correct AnswerverifiedShow Answer

If spending increases by $200, and GDP increases by $1,000 as a result, what must the MPC be?

Correct AnswerverifiedShow Answer

Which of the following scenarios would increase the net exports component of aggregate expenditure?

Correct AnswerverifiedShow Answer

Suppose a housing bubble inflates house prices to new records. What will happen to overall consumption in this economy?

Correct AnswerverifiedShow Answer

Which of the following does not influence autonomous spending?

Correct AnswerverifiedShow Answer

If the MPC is 0.75, and the government cuts spending by $100 billion, the overall effect on GDP will be:

Correct AnswerverifiedShow Answer

Which of the following describes the relationship between production and inventories?

Correct AnswerverifiedShow Answer

When PAE is less than Y, inventories should:

Correct AnswerverifiedShow Answer

The marginal propensity to consume:

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Suppose Erin receives an inheritance worth $50,000. If her MPC is 0.75, how much of the additional $50,000 that Erin earns will be spent?

Correct AnswerverifiedShow Answer

A(n) _______ relationship exists between profitability and investment spending.

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 0.25, it would mean that:

Correct AnswerverifiedShow Answer

If the domestic income of a nation's citizens decreases, net exports will likely:

Correct AnswerverifiedShow Answer

Which of the following is not an example of a transfer payment?

Correct AnswerverifiedShow Answer

Which of the following scenarios would cause investment to increase?

Correct AnswerverifiedShow Answer

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The figure shows planned aggregate expenditure and output for an economy. If output in this economy is Y₁, there should be _ in production because PAE is _ actual output.

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The figure shows planned aggregate expenditure and output for an economy. Suppose that the economy's output is Y₂. This level of GDP would be considered:

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