Question 1

Compared to the magnitude of the multiplier in an economy without imports,the multiplier in an identical economy with imports is
A)exactly the same.
B)smaller only if imports exceed exports.
C)always smaller.
D)larger only if exports exceed imports.
E)always larger.

Accepted Answer

The multiplier in an economy with imports is always smaller compared to an economy without imports because some portion of the increased spending resulting from the initial injection will leak out of the economy in the form of imports. This means that the total increase in output and income will be smaller. Therefore, the correct answer is C, always smaller.

Question 2

When the price level ________,equilibrium expenditure ________ and the quantity of real GDP demanded ________.
A)rises;increases;decreases
B)rises;decreases;increases
C)falls;increases;decreases
D)rises;increases;increases
E)falls;increases;increases

Accepted Answer

When the price level falls, consumers have more purchasing power, leading to an increase in overall spending (equilibrium expenditure increases). This increase in spending leads to a higher quantity of real GDP demanded, as goods and services become relatively cheaper.

Question 3

The multiplier effect
A)reinforces the negative effects of any reduction in spending.
B)explains what causes a recession.
C)explains how the economy recovers from a recession.
D)has no impact on equilibrium expenditure.
E)explains what causes an expansion.

Accepted Answer

The answer of The multiplier effect
A)reinforces the negative effects of...

Question 4

During 2015,exports increase from $1.0 trillion to $1.5 trillion.If the slope of the aggregate planned expenditure (AE)curve is 0.75,real GDP increases by
A)$1.0 trillion.
B)$6.0 trillion.
C)$4.0 trillion.
D)$8.0 trillion.
E)$2.0 trillion.

Accepted Answer

The answer of During 2015,exports increase from $1.0 trillion to...

Question 5

If the economy is in the expansion phase of a business cycle and investment increases,when the multiplier effect kicks in,the expansion
A)reverses.
B)is not affected.
C)picks up speed.
D)slows down.
E)peaks.

Accepted Answer

When the economy is in the expansion phase, it means that the level of economic activity is increasing. If investment increases, it will further boost economic activity, leading to an increase in income, consumption, and more investment. This is referred to as the multiplier effect. As a result, the expansion phase will pick up speed and continue to grow, leading to a further increase in economic activity. Therefore, the correct choice is C.

Question 6

The smaller the slope of the aggregate planned expenditure (AE)curve,the
A)larger are imports.
B)larger the marginal tax rate.
C)larger the multiplier.
D)smaller the multiplier.
E)larger are exports.

Accepted Answer

A smaller slope of the AE curve indicates a smaller marginal propensity to consume, leading to a smaller multiplier effect.

Question 7

The ________ the marginal propensity to import,the ________ the multiplier.
A)larger;larger
B)larger;smaller
C)larger;more negative
D)smaller;smaller
E)None of the above is correct,because the expenditure multiplier is not related to the marginal propensity to import.

Accepted Answer

The larger the marginal propensity to import, the larger the leakage from the circular flow of income and the smaller the multiplier effect on aggregate demand. This is because a higher propensity to import means that a larger portion of each additional dollar of income will be spent on imports rather than domestic goods and services, leading to a reduced increase in total spending throughout the economy. Therefore, choice B is the correct answer.

Question 8

If the expenditure multiplier is 5,the slope of the aggregate expenditure (AE)curve is
A)0.8.
B)0.7.
C)0.5.
D)0.6.
E)0.2.

Accepted Answer

The slope of the AE curve is equal to the expenditure multiplier divided by (1 + the expenditure multiplier). Therefore, if the expenditure multiplier is 5, the slope of the AE curve is 5 / (1 + 5) = 0.8.

Question 9

The quantity of real GDP demanded on the AD curve is the equilibrium real GDP when
A)aggregate planned expenditure is greater than real GDP.
B)equilibrium expenditure is greater than real GDP.
C)aggregate planned expenditure equals real GDP.
D)aggregate planned expenditure is less than real GDP.
E)the price level equals the equilibrium price level.

Accepted Answer

The AD curve represents the aggregate planned expenditure at each price level. At the equilibrium point on the AD curve, aggregate planned expenditure equals real GDP, meaning that the quantity of real GDP demanded is equal to the actual quantity produced in the economy.

Question 10

During the start of an expansion,aggregate planned expenditure
A)is slowly decreasing.
B)increases the magnitude of the expenditure multiplier.
C)decreases the magnitude of the expenditure multiplier.
D)exceeds real GDP.
E)is less than real GDP.

Accepted Answer

During the start of an expansion, aggregate planned expenditure exceeds real GDP, which indicates that the economy is in a phase where spending is ramping up, leading to increased production and potentially to economic growth.

Question 11

The ________ the marginal tax rate,the ________ the expenditure multiplier.
A)larger;larger
B)smaller;smaller
C)larger;more negative
D)smaller;larger
E)None of the above is correct,because the expenditure multiplier is not related to the marginal tax rate.

Accepted Answer

The smaller the marginal tax rate, the larger the expenditure multiplier. This is because a smaller tax rate means people have more disposable income to spend, which will increase their consumption and therefore increase the overall expenditure multiplier.

Question 12

An increase in the price level shifts the AE curve
A)downward and does not shift the AD curve.
B)downward and shifts the AD curve rightward.
C)upward and shifts the AD curve rightward.
D)downward and shifts the AD curve leftward.
E)upward and shifts the AD curve leftward.

Accepted Answer

The answer of An increase in the price level shifts...

Question 13

________ can trigger a recession.
A)Equality between aggregate expenditure and real GDP
B)An increase in the expenditure multiplier
C)An increase in autonomous expenditure
D)A decrease in autonomous expenditure
E)An increase in induced expenditure

Accepted Answer

A decrease in autonomous expenditure (such as a decrease in government spending or investment) can lead to a decrease in aggregate demand, which can cause a recession.

Question 14

If the slope of the aggregate expenditure curve is 0.75,the expenditure multiplier is equal to
A)4.00.
B)0.25.
C)5.00.
D)1.33.
E)0.75.

Accepted Answer

The expenditure multiplier is calculated as 1/(1 - slope of the aggregate expenditure curve), so with a slope of 0.75, the multiplier is 1/(1 - 0.75) = 4.00.

Question 15

As the economy turns the corner into a recession,the level of unplanned inventories ________ and firms ________ production.
A)increases;begin to increase
B)decreases;begin to decrease
C)increases;begin to decrease
D)increases;do not change
E)decreases;begin to increase

Accepted Answer

As the economy turns into a recession, demand for goods and services decreases. This means that firms are producing more goods than they can sell, leading to unplanned inventories. In response to this, firms begin to decrease production in order to match their output with the reduced demand. Therefore, the level of unplanned inventories increases and firms begin to decrease production.

Question 16

A change in the price level ________ the AE curve and ________ the AD curve.
A)shifts;results in a movement along
B)has no effect on;results in a movement along
C)results in a movement along;shifts
D)shifts;shifts
E)results in a movement along;results in a movement along

Accepted Answer

The answer of A change in the price level ________...

Question 17

The level of equilibrium expenditure at each price level determines
A)the points on the AD curve.
B)the price level.
C)the points on the AE curve.
D)aggregate planned production.
E)full employment.

Accepted Answer

The level of equilibrium expenditure at each price level determines the points on the Aggregate Demand (AD) curve, as it reflects the total spending in the economy at different price levels.

Question 18

During 2015,a country reported that its real GDP increased by $3.0 billion.If the slope of its aggregate planned expenditure curve is 0.9,then which of the following might have led to the increase in real GDP?
A)Imports increased by $0.3 billion.
B)Government expenditure on goods and services increased by $3 billion.
C)Exports increased by $0.3 billion.
D)Investment decreased by $0.3 billion.
E)Exports decreased by $0.3 billion.

Accepted Answer

The answer of During 2015,a country reported that its real...

Question 19

An increase in the price level leads to
A)a leftward movement along both the AE and AD curves.
B)a downward shift in the AE curve and a movement upward along the AD curve.
C)an upward shift in the AE curve and a movement upward along the AD curve.
D)a downward shift in both the AE and AD curves.
E)a downward shift in the AD curve and a movement downward along the AE curve.

Accepted Answer

An increase in the price level typically leads to a decrease in the real value of money, which can reduce consumption and investment. This is represented by a downward shift in the Aggregate Expenditure (AE) curve. However, on the Aggregate Demand (AD) curve, an increase in the price level is shown by a movement up along the curve, as the AD curve reflects the relationship between the price level and the quantity of goods and services demanded.

Question 20

The ________ the marginal tax rate,the ________ the effect on aggregate expenditure from a change in investment.
A)larger;larger
B)larger;smaller
C)smaller;smaller
D)smaller;larger
E)More information about the effect on GDP is needed to answer the question.

Accepted Answer

The answer of The ________ the marginal tax rate,the ________...

Quiz 12: Aggregate Expenditure Multiplier

Compared to the magnitude of the multiplier in an economy without imports,the multiplier in an identical economy with imports is

When the price level ,equilibrium expenditure and the quantity of real GDP demanded .

The multiplier effect

During 2015,exports increase from $1.0 trillion to $1.5 trillion.If the slope of the aggregate planned expenditure (AE) curve is 0.75,real GDP increases by

If the economy is in the expansion phase of a business cycle and investment increases,when the multiplier effect kicks in,the expansion

The smaller the slope of the aggregate planned expenditure (AE) curve,the

The the marginal propensity to import,the the multiplier.

If the expenditure multiplier is 5,the slope of the aggregate expenditure (AE) curve is

The quantity of real GDP demanded on the AD curve is the equilibrium real GDP when

During the start of an expansion,aggregate planned expenditure

The the marginal tax rate,the the expenditure multiplier.

An increase in the price level shifts the AE curve

________ can trigger a recession.

If the slope of the aggregate expenditure curve is 0.75,the expenditure multiplier is equal to

As the economy turns the corner into a recession,the level of unplanned inventories and firms production.

A change in the price level the AE curve and the AD curve.

The level of equilibrium expenditure at each price level determines

During 2015,a country reported that its real GDP increased by $3.0 billion.If the slope of its aggregate planned expenditure curve is 0.9,then which of the following might have led to the increase in real GDP?

An increase in the price level leads to

The the marginal tax rate,the the effect on aggregate expenditure from a change in investment.