Question 1

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the slope of the aggregate expenditures curve is 0.8?

Accepted Answer

A)  1
B)  4
C)  5
D)  Cannot be determined without information on marginal propensity to consume.

Question 2

Use the following to answer questions 
Exhibit: Consumption and Real GDP 
-(Exhibit: Consumption and Real GDP) 
The marginal propensity to consume equals

Accepted Answer

A)  0.
B)  0.5.
C)  1.0.
D)  2.0.

Question 3

Use the following to answer questions 
Exhibit: Aggregate Expenditures (AE) 
in a Simplified Economy
 P = Planned Investment.Consider a simple economy that is made up of only two sectors, households and firms, and that all investment is autonomous.Further, disposable personal income = real GDP.Suppose autonomous investment rises by $50 billion.In the short run, this will cause A) an increase in equilibrium AE of $100 billion, a shift to the right of the aggregate demand (AD) curve of $100 billion, and an increase in Y of more than $100 billion. B) an increase in autonomous AE of $50 billion, a shift to the right of the AD curve of $100 billion, and an increase in Y of less than $100 billion. C) an increase in autonomous AE of $50 billion, a shift to the right of the AD curve of $100 billion, and an increase in Y of more than $200 billion. D) an increase in equilibrium AE of $50 billion, a shift to the right of the AD curve of $300 billion, and an increase in Y of less than $300 billion." class="answers-bank-image d-inline" rel="preload" >
-(Exhibit: Aggregate Expenditures (AE) 
In a Simplified Economy) 
Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment.Consider a simple economy that is made up of only two sectors, households and firms, and that all investment is autonomous.Further, disposable personal income = real GDP.Suppose autonomous investment rises by $50 billion.In the short run, this will cause

Accepted Answer

A)  an increase in equilibrium AE of $100 billion, a shift to the right of the aggregate demand (A
D)  curve of $100 billion, and an increase in Y of more than $100 billion.
B)  an increase in autonomous AE of $50 billion, a shift to the right of the AD curve of $100 billion, and an increase in Y of less than $100 billion.
C)  an increase in autonomous AE of $50 billion, a shift to the right of the AD curve of $100 billion, and an increase in Y of more than $200 billion.
D)  an increase in equilibrium AE of $50 billion, a shift to the right of the AD curve of $300 billion, and an increase in Y of less than $300 billion.

Question 4

Use the following to answer questions 
Exhibit: Aggregate Expenditures Curve
Figure 13-6 P = Planned Investment, G = Government Purchases.Further, IP and G are autonomous.If real GDP produced is $4,000, how will equilibrium be restored in the economy? A) Policymakers must conduct contractionary policies to move the economy toward its equilibrium real GDP. B) Firms will reduce their output in subsequent periods, moving the economy toward its equilibrium real GDP. C) The price level must rise to reduce aggregate expenditures and restore equilibrium. D) The price level must fall to increase aggregate expenditures and restore equilibrium." class="answers-bank-image d-inline" rel="preload" >
-(Exhibit: Aggregate Expenditures Curve) 
Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases.Further, IP and G are autonomous.If real GDP produced is $4,000, how will equilibrium be restored in the economy?

Accepted Answer

A)  Policymakers must conduct contractionary policies to move the economy toward its equilibrium real GDP.
B)  Firms will reduce their output in subsequent periods, moving the economy toward its equilibrium real GDP.
C)  The price level must rise to reduce aggregate expenditures and restore equilibrium.
D)  The price level must fall to increase aggregate expenditures and restore equilibrium.

Question 5

Use the following to answer questions 
Exhibit: Consumption and Real GDP 
-The average annual income that people expect to receive for the remainder of their lives is called

Accepted Answer

A)  lifetime income.
B)  permanent income.
C)  disposable personal income.
D)  current income.

Question 6

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.If government purchases increases by $200 billion, the aggregate expenditures curve will shift up by

Accepted Answer

A)  $200 billion.
B)  $200 billion * the multiplier.
C)  $200 billion * marginal propensity to consume.
D)  $200 billion * (1 ÷ marginal propensity to consume) .

Question 7

Disposable personal income is

Accepted Answer

A)  the income households receive after paying personal taxes and personal debt.
B)  the income households earn from supplying labor services for the production of aggregate output.
C)  the income households receive after paying personal taxes.
D)  the income households have leftover after paying personal taxes and purchasing necessities.

Question 8

If consumption is given by C = $10 billion + 0.5Y, and autonomous planned investment,
government purchases, and net exports amount to $5 billion, then aggregate expenditures are
$20 billion if Y = $10 billion.

Accepted Answer

A) True 
 B)False

Question 9

Use the following to answer questions 
Exhibit: Consumption and Real GDP 
-According to the permanent income hypothesis,

Accepted Answer

A)  a change in income regarded as permanent will have a greater impact on saving than on consumption.
B)  a change in income regarded as temporary will have a greater impact on saving than on consumption.
C)  regardless of whether a change in disposable personal income is permanent or temporary; people will change consumption by moving along the consumption function.
D)  a change in income regarded as temporary will not affect consumption much since it will have little effect on average lifetime income.

Question 10

Expenditures that do not vary with the level of real GDP are called

Accepted Answer

A)  exogenous aggregate expenditures.
B)  induced aggregate expenditures.
C)  endogenous aggregate expenditures.
D)  autonomous aggregate expenditures.

Question 11

Use the following to answer questions 
Exhibit: Income and Consumption
 
-The amount of consumption that would take place if real GDP were zero is called

Accepted Answer

A)  induced consumption.
B)  exogenous consumption.
C)  autonomous consumption.
D)  break even consumption.

Question 12

Use the following to answer questions 
Exhibit: Real GDP and the Multiplier
 
-(Exhibit: Real GDP and the Multiplier) 
If government purchases increase by $100 billion, the aggregate expenditures curve will shift up by $_______ billion.

Accepted Answer

A)  100
B)  250
C)  400
D)  500

Question 13

The multiplier is found by dividing the change in equilibrium real GDP by the change in autonomous aggregate expenditures.

Accepted Answer

A) True 
 B)False

Question 14

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.The marginal propensity to consume is 0.8.Suppose the equilibrium level of real GDP at the prevailing price is $500 billion below potential real GDP.All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?

Accepted Answer

A)  $625 billion
B)  $500 billion
C)  $400 billion
D)  $100 billion

Question 15

Use the following to answer questions 
Exhibit: Aggregate Expenditures Curve
Figure 13-6 
-(Exhibit: Aggregate Expenditures Curve) 
Suppose the government purchases economy rise by $100.What is the new equilibrium level of real GDP?

Accepted Answer

A)  $1,700
B)  $1,800
C)  $1,900
D)  $2,100

Question 16

A change in autonomous aggregate expenditures will shift aggregate demand by an amount
equal to the change in autonomous aggregate expenditures times the multiplier.

Accepted Answer

A) True 
 B)False

Question 17

Let AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment,
G = Government Purchases.Consider a simple aggregate expenditures model, where
AE = C + IP + G and all components of aggregate expenditures except consumption are autonomous.In this model, the multiplier is _____.

Accepted Answer

A)  1 ÷ (1 -MPS) where MPS = marginal propensity to save
B)  1 ÷ MPC where MPC = marginal propensity to consume
C)  1 ÷ MPS where MPS = marginal propensity to save
D)  MPC ÷ MPS ÷ ∆Y

Question 18

The current income theory assumes that current consumption is based on the average
income people expect to receive for the remainder of their lives.

Accepted Answer

A) True 
 B)False

Question 19

Use the following to answer questions 
Exhibit: Real GDP and the Multiplier
 
-(Exhibit: Real GDP and the Multiplier) 
What is the value of the multiplier?

Accepted Answer

A)  2.5
B)  3
C)  5
D)  15

Question 20

If an economy is in equilibrium,

Accepted Answer

A)  planned investment equals zero.
B)  unplanned investment equals zero.
C)  there is no change in inventories.
D)  inventories equals zero.

Exam 13: Consumption and the Aggregate Expenditures Model

The multiplier is found by dividing the change in equilibrium real GDP by the change in autonomous aggregate expenditures.

Correct Answer
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Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.If government purchases increases by $200 billion, the aggregate expenditures curve will shift up by

Correct Answer
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Use the following to answer questions Exhibit: Real GDP and the Multiplier -(Exhibit: Real GDP and the Multiplier) What is the value of the multiplier?

Correct Answer
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Expenditures that do not vary with the level of real GDP are called

Correct Answer
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If consumption is given by C = $10 billion + 0.5Y, and autonomous planned investment, government purchases, and net exports amount to $5 billion, then aggregate expenditures are $20 billion if Y = $10 billion.

Correct Answer
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Disposable personal income is

Correct Answer
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Use the following to answer questions Exhibit: Aggregate Expenditures Curve Figure 13-6 -(Exhibit: Aggregate Expenditures Curve) Suppose the government purchases economy rise by $100.What is the new equilibrium level of real GDP?

Correct Answer
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Use the following to answer questions Exhibit: Consumption and Real GDP -(Exhibit: Consumption and Real GDP) The marginal propensity to consume equals

Correct Answer
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If an economy is in equilibrium,

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Use the following to answer questions Exhibit: Real GDP and the Multiplier -(Exhibit: Real GDP and the Multiplier) If government purchases increase by $100 billion, the aggregate expenditures curve will shift up by $_______ billion.

Correct Answer
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Use the following to answer questions Exhibit: Consumption and Real GDP -According to the permanent income hypothesis,

Correct Answer
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Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases.Consider a simple aggregate expenditures model, where AE = C + I_P + G and all components of aggregate expenditures except consumption are autonomous.In this model, the multiplier is _____.

Correct Answer
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The current income theory assumes that current consumption is based on the average income people expect to receive for the remainder of their lives.

Correct Answer
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In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the slope of the aggregate expenditures curve is 0.8?

Correct Answer
verified

Use the following to answer questions Exhibit: Consumption and Real GDP -The average annual income that people expect to receive for the remainder of their lives is called

Correct Answer
verified

A change in autonomous aggregate expenditures will shift aggregate demand by an amount equal to the change in autonomous aggregate expenditures times the multiplier.

Correct Answer
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Use the following to answer questions Exhibit: Income and Consumption -The amount of consumption that would take place if real GDP were zero is called

Correct Answer
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Exam 13: Consumption and the Aggregate Expenditures Model

The multiplier is found by dividing the change in equilibrium real GDP by the change in autonomous aggregate expenditures.

Correct AnswerverifiedShow Answer

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.If government purchases increases by $200 billion, the aggregate expenditures curve will shift up by

Correct AnswerverifiedShow Answer

Use the following to answer questions Exhibit: Real GDP and the Multiplier -(Exhibit: Real GDP and the Multiplier) What is the value of the multiplier?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Expenditures that do not vary with the level of real GDP are called

Correct AnswerverifiedShow Answer

If consumption is given by C = $10 billion + 0.5Y, and autonomous planned investment, government purchases, and net exports amount to $5 billion, then aggregate expenditures are $20 billion if Y = $10 billion.

Correct AnswerverifiedShow Answer

Disposable personal income is

Correct AnswerverifiedShow Answer

Use the following to answer questions Exhibit: Aggregate Expenditures Curve Figure 13-6 -(Exhibit: Aggregate Expenditures Curve) Suppose the government purchases economy rise by $100.What is the new equilibrium level of real GDP?

Correct AnswerverifiedShow Answer

Use the following to answer questions Exhibit: Consumption and Real GDP -(Exhibit: Consumption and Real GDP) The marginal propensity to consume equals

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If an economy is in equilibrium,

Correct AnswerverifiedShow Answer

Use the following to answer questions Exhibit: Real GDP and the Multiplier -(Exhibit: Real GDP and the Multiplier) If government purchases increase by $100 billion, the aggregate expenditures curve will shift up by $_______ billion.

Correct AnswerverifiedShow Answer

Use the following to answer questions Exhibit: Consumption and Real GDP -According to the permanent income hypothesis,

Correct AnswerverifiedShow Answer

Let AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases.Consider a simple aggregate expenditures model, where AE = C + IP + G and all components of aggregate expenditures except consumption are autonomous.In this model, the multiplier is _____.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The current income theory assumes that current consumption is based on the average income people expect to receive for the remainder of their lives.

Correct AnswerverifiedShow Answer

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the slope of the aggregate expenditures curve is 0.8?

Correct AnswerverifiedShow Answer

Use the following to answer questions Exhibit: Consumption and Real GDP -The average annual income that people expect to receive for the remainder of their lives is called

Correct AnswerverifiedShow Answer

A change in autonomous aggregate expenditures will shift aggregate demand by an amount equal to the change in autonomous aggregate expenditures times the multiplier.

Correct AnswerverifiedShow Answer

Use the following to answer questions Exhibit: Income and Consumption -The amount of consumption that would take place if real GDP were zero is called

Correct AnswerverifiedShow Answer

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Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases.Consider a simple aggregate expenditures model, where AE = C + I_P + G and all components of aggregate expenditures except consumption are autonomous.In this model, the multiplier is _____.

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