Question 1

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift downwards?
A) Firms become optimistic about future profits and increase investment spending.
B) The government reduces property tax rates.
C) The government cuts spending on education.
D) Households save a greater portion of any change in disposable income.

Accepted Answer

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Question 2

Table 13-3
All figures in billions of base-year dollars
 
-Refer to Table 13-3. What is the value of the marginal propensity to consume?
A) 0.5
B) 0.6
C) ⅔
D) 0.75

Accepted Answer

The answer of Table 13-3
All figures in billions of base-year...

Question 3

Suppose the slope of the aggregate expenditures curve is 0.75. An increase in autonomous investment expenditure of $6 billion would produce an ultimate increase in equilibrium real GDP of
A) $0.25 billion.
B) $6 billion.
C) $12 billion.
D) $24 billion.

Accepted Answer

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Question 4

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 marginal propensity to consume is 0.75?
A) 1
B) 4
C) 5
D) infinity

Accepted Answer

The answer of In the simple aggregate expenditure model where...

Question 5

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. If the consumption function is JC = $500 + 0.8Y, planned investment = $200, government purchases = $300,
Jnet exports = $100, and real GDP = $1,000, what is the amount of induced expenditures?
A) $500
B) $800
C) $1,100
D) $1,900

Accepted Answer

Induced expenditures are those that depend on the level of real GDP. In this case, only consumption depends on real GDP, indicated by the coefficient of 0.8. Therefore, induced expenditures can be calculated as 0.8 x $1,000 = $800.

Question 6

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift upwards?
A) Foreign economies go into a recession and buy less domestically produced goods.
B) Households become more present oriented and decrease the autonomous component of saving.
C) Firms expect future profits to fall and cut investments accordingly.
D) The government cuts spending on healthcare.

Accepted Answer

Since all components of aggregate expenditure are autonomous except consumption, an increase in autonomous consumption will shift the aggregate expenditures curve upwards. Therefore, if households become more present oriented and decrease the autonomous component of saving, they will have more disposable income to spend, causing an increase in consumption and shifting the aggregate expenditures curve upwards. None of the other options listed would cause an upward shift in the aggregate expenditures curve.

Question 7

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve increases, the multiplier
A) increases.
B) decreases.
C) remains constant.
D) is undefined.

Accepted Answer

The multiplier is equal to 1/(1-MPC), where MPC is the marginal propensity to consume. If the slope of the aggregate expenditures curve increases, the MPC must also increase. Therefore, the denominator of the multiplier formula (1-MPC) will decrease, resulting in an increase in the multiplier.

Question 8

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

Accepted Answer

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Question 9

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift downwards?
A) a decrease in taxes
B) an increase in imports
C) an increase in government spending
D) an increase in investment

Accepted Answer

An increase in imports means that more spending is going towards goods and services produced abroad, rather than domestically, which reduces the total amount of spending in the domestic economy and shifts the aggregate expenditures curve downwards.

Question 10

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

Accepted Answer

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Question 11

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. If the consumption function is JC = $500 + 0.8Y, planned investment = $200, government purchases = $300,
Jnet exports = $100, and real GDP = $1,000, what is the amount of autonomous expenditures?
A) $500
B) $1,000
C) $1,100
D) $1,900

Accepted Answer

Autonomous expenditures are those that do not depend on the level of real GDP. In this case, the only autonomous component of aggregate expenditure is consumption which has an intercept of $500. Therefore, autonomous expenditures = $500 (from consumption) + $200 (investment) + $300 (government purchases) + $100 (net exports) = $1,100.

Question 12

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. The marginal propensity to consume is 0.75. Suppose the equilibrium level of real GDP at the prevailing price is $600 billion below potential real GDP. All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?
A) $150 billion
B) $450 billion
C) $600 billion
D) $800 billion

Accepted Answer

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Question 13

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift upwards?
A) an increase in taxes
B) an increase in exports
C) a decrease in the national debt
D) a decrease in interest rate

Accepted Answer

Since all components of aggregate expenditure are autonomous except consumption, an increase in exports, which is an autonomous component, will cause the aggregate expenditures curve to shift upwards. Options A, C, and D do not directly affect autonomous components of aggregate expenditure and therefore will not cause a shift in the curve.

Question 14

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve decreases, the multiplier
A) increases.
B) decreases.
C) remains constant.
D) is undefined.

Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. If the slope of the aggregate expenditures curve decreases, this means the MPC has decreased, which would result in a smaller multiplier. Therefore, the correct choice is B, decreases.

Question 15

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. If the consumption function is JC = $500 + 0.8Y, planned investment = $200, government purchases = $300,
Jnet exports = $100, and real GDP = $1,000, what is the amount of aggregate expenditures?
A) $800
B) $1,000
C) $1,100
D) $1,900

Accepted Answer

Aggregate expenditure is calculated as the sum of consumption, investment, government purchases, and net exports. Consumption is $500 + 0.8($1,000) = $1,300. Adding investment ($200), government purchases ($300), and net exports ($100) gives $1,900.

Question 16

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $500 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?
A) The MPS = 0.8.
B) The MPC = 0.2
C) The MPS = 0.2.
D) The MPC = 5.

Accepted Answer

The answer of In the simple aggregate expenditure model where...

Question 17

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, the size of the multiplier depends on the
A) 45-degree line.
B) height of the consumption function.
C) slope of the aggregate demand curve.
D) slope of the aggregate expenditures curve.

Accepted Answer

The answer of In the simple aggregate expenditure model where...

Question 18

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 marginal propensity to save is 0.1?
A) 1
B) 4
C) 5
D) 10

Accepted Answer

The answer of In the simple aggregate expenditure model where...

Question 19

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

Accepted Answer

The answer of In the simple aggregate expenditure model where...

Question 20

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $1,000 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?
A) The multiplier is 2.5.
B) The MPC = 0.5.
C) The MPC = 0.75.
D) The MPC = 0.8.

Accepted Answer

The multiplier is calculated as 1/(1-MPC) in this case. Since all components of aggregate expenditure are autonomous except consumption, the MPC is (change in consumption/change in disposable income) = 1. Autonomous aggregate expenditures increased by $1,000 billion, which led to an increase in equilibrium real GDP by $2,500 billion. The multiplier is calculated as 2.5 (=$2,500 billion/$1,000 billion). Using the formula for the multiplier, we get 2.5 = 1/(1-MPC), which gives MPC=0.6. However, this value of MPC is not among the answer choices. The closest value to 0.6 among the answer choices is 0.75, but this value does not give us a multiplier of 2.5. Only choice A gives us a multiplier of 2.5.

Quiz 13: Consumption and the Aggregate Expenditures Model

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift downwards?

Table 13-3 All figures in billions of base-year dollars -Refer to Table 13-3. What is the value of the marginal propensity to consume?

Suppose the slope of the aggregate expenditures curve is 0.75. An increase in autonomous investment expenditure of $6 billion would produce an ultimate increase in equilibrium real GDP of

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 marginal propensity to consume is 0.75?

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift upwards?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve increases, the multiplier

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

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift downwards?

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift upwards?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve decreases, the multiplier

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $500 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, the size of the multiplier depends on the

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 marginal propensity to save is 0.1?

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?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $1,000 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?