Question 1

Why do economists care about aggregate expenditures?

Accepted Answer

The answer of Why do economists care about aggregate expenditures?...

Question 2

If economists forecast a decrease in aggregate expenditure,which of the following is likely to occur?
A) GDP will rise.
B) GDP will fall.
C) Wages will rise.
D) Inventories will fall.

Accepted Answer

Aggregate expenditure measures the total amount spent in the economy on final goods and services. A decrease in aggregate expenditure means that consumers, businesses, and the government are spending less on goods and services, which would cause a decrease in GDP. Therefore, GDP will most likely fall. Choice A is incorrect because if GDP were to rise, it would mean that aggregate expenditure had increased, which contradicts the initial forecast of a decrease. Choice C is incorrect because a decrease in aggregate expenditure is likely to lead to a decrease in demand for goods and services, which would put downward pressure on wages. Choice D is also incorrect because a decrease in aggregate expenditure suggests that businesses are selling less than they anticipated, which would cause inventories to rise, not fall.

Question 3

When aggregate expenditure is more than GDP,which of the following is true?
A) There was an unplanned decrease in inventories.
B) Firms spent less on capital goods than they planned.
C) Households bought fewer new homes than they planned.
D) All of the above must be true when aggregate expenditure is more than GDP.

Accepted Answer

When aggregate expenditure is more than GDP, it means that there was higher demand for goods and services than what was produced, leading to a decrease in inventories. Firms may have sold more goods than expected, leading to lower inventories. However, there is no direct implication for capital goods spending or household purchases of new homes.

Question 4

Firms in a small economy planned that inventories would grow over the past year by $500,000.Over that year,inventories did grow by exactly $500,000.This implies that
A) aggregate expenditure that year was equal to GDP that year.
B) there was an unplanned increase in inventories that year.
C) there was an unplanned decrease in inventories that year.
D) aggregate expenditure that year was greater than GDP that year.

Accepted Answer

The fact that inventories grew as planned means that firms had enough sales to match their expectations, indicating that the aggregate expenditure was equal to the GDP. There was no unplanned increase or decrease in inventories.

Question 5

Which is the largest component of aggregate expenditure?
A) planned investment expenditures
B) consumption expenditures
C) government expenditures
D) net export expenditures

Accepted Answer

Consumption expenditures are typically the largest component of aggregate expenditure, accounting for around two-thirds of total expenditure in most economies.

Question 6

The five most important variables that determine the level of consumption are
A) disposable income, wealth, expected future income, price level, and interest rate
B) wealth, savings account balances, checking account balances, stock portfolio balances, and bond portfolio balances
C) government purchases, interest rates, income, taxes, and transfers
D) government purchases, saving account balances, wealth, interest rates, portfolio balances

Accepted Answer

Disposable income is the amount of money a household has available after paying taxes; wealth is the accumulation of past savings; expected future income is an important determinant of current spending; price level affects the purchasing power of income; and interest rates affect the cost and availability of credit. Therefore, these variables have a direct impact on consumption levels. Options B and D are not as significant as they mainly focus on financial assets rather than income and price level. Option C includes government variables that can indirectly impact consumption levels but are not as directly related as the variables in option A.

Question 7

If planned investment is greater than actual investment,then aggregate expenditure is less than GDP.

Accepted Answer

The answer of If planned investment is greater than actual...

Question 8

Explain,in detail,how the adjustment to macroeconomic equilibrium occurs when spending is less than production.Be sure to discuss how inventories play a crucial role in the adjustment process.State what happens to GDP and employment during the adjustment process.

Accepted Answer

The answer of Explain,in detail,how the adjustment to macroeconomic equilibrium...

Question 9

A decrease in Social Security payments will
A) decrease consumption spending.
B) decrease investment spending.
C) decrease government spending.
D) decrease export spending.

Accepted Answer

Social Security payments are a form of government transfer payments, which are included in disposable income. A decrease in Social Security payments will decrease disposable income, which will in turn decrease consumption spending as people have less money to spend on goods and services. Option B, C, and D are not directly affected by Social Security payments.

Question 10

Firms in a small economy planned that inventories would grow over the past year by $300,000.Over that year,inventories actually grew by $400,000.This implies that
A) aggregate expenditure that year was less than GDP that year.
B) there was an unplanned decrease in inventories that year.
C) there was a planned decrease in inventories that year.
D) aggregate expenditure that year was equal to GDP that year.

Accepted Answer

When inventories grow more than planned, it implies that firms sold less than they expected, meaning aggregate expenditure was less than the GDP.

Question 11

In a small economy in 2011,aggregate expenditure was $800 million while GDP that year was $850 million.Which of the following can explain the difference between aggregate expenditure and GDP that year?
A) Aggregate expenditure is always less than GDP in developed countries.
B) Firm investment in inventories was less than anticipated in 2011.
C) Firm investment in inventories was greater than anticipated in 2011.
D) Aggregate expenditure is always less than GDP in developing countries.

Accepted Answer

The difference between aggregate expenditure and GDP can be explained by unplanned changes in inventories. If firm investment in inventories was greater than anticipated, it means that not all produced goods were sold, leading to a higher GDP compared to aggregate expenditure.

Question 12

If aggregate expenditure is less than GDP,how will the economy reach macroeconomic equilibrium?
A) Inventories will decline, and GDP and employment will decline.
B) Inventories will rise, and GDP and employment will decline.
C) Inventories will decline, and GDP and employment will rise.
D) Inventories will rise, and GDP and employment will rise.

Accepted Answer

When aggregate expenditure is less than GDP, it means that the total spending in the economy is less than what the economy is producing. This leads to an accumulation of unsold goods, causing inventories to rise. Businesses respond by reducing production, which leads to a decline in GDP and employment until macroeconomic equilibrium is reached.

Question 13

Aggregate expenditure includes consumption spending,unplanned investment spending,government purchases,and net exports.

Accepted Answer

Aggregate expenditure includes consumption spending, planned investment spending, government purchases, and net exports, not unplanned investment spending.

Question 14

If firms find that consumers are purchasing more than expected,which of the following would you expect?
A) Aggregate expenditure will likely be greater than GDP.
B) Aggregate expenditure will likely be less than GDP.
C) The economy will adjust to macroeconomic equilibrium as inventories rise, and production and employment fall.
D) The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment fall.

Accepted Answer

The answer of If firms find that consumers are purchasing...

Question 15

Table 23-1
 
-Refer to Table 23-1.Using the table above,compute aggregate expenditure and identify the macroeconomic equilibrium.

Accepted Answer

The answer of Table 23-1
 
-Refer to Table 23-1.Using the...

Question 16

________ in taxes will decrease consumption spending,and ________ in transfer payments will increase consumption spending.
A) An increase; an increase
B) A decrease; an increase
C) An increase; a decrease
D) A decrease; a decrease

Accepted Answer

An increase in taxes will decrease disposable income, reducing consumption spending. Hence, option A is incorrect. An increase in transfer payments (such as welfare or unemployment benefits) will increase disposable income, which can lead to an increase in consumption spending. Thus, option C is also incorrect. Hence, the correct choice is B.

Question 17

If aggregate expenditure is more than GDP,then inventories fall and GDP rises.

Accepted Answer

If aggregate expenditure is higher than GDP, it means that demand is greater than supply. This leads to businesses selling out their inventories, and in order to meet the demand, they will have to produce more. This results in a rise in GDP.

Question 18

Which of the following will cause a direct increase in consumption spending?
A) an increase in planned investment
B) an increase in government spending
C) an increase in disposable income
D) a decrease in net export spending

Accepted Answer

An increase in disposable income (such as through a tax cut or increase in wages) directly increases consumption spending because consumers have more money available to spend on goods and services. Option A, B, and D may indirectly impact consumption spending but do not directly cause an increase in consumption spending.

Question 19

If firms sell exactly what they expected to sell,all of the following will be true except
A) aggregate expenditure will be greater than GDP.
B) there is no unplanned change in inventories.
C) inventories will not change, and GDP and employment will remain stable.
D) aggregate expenditure will be equal to GDP.

Accepted Answer

If firms sell exactly what they expected to sell, then aggregate expenditure will be equal to planned expenditure and not greater than GDP.

Question 20

________ is defined as the value of a household's assets minus the value of its liabilities.
A) Household income
B) Household wealth
C) Personal household consumption
D) Planned household investment

Accepted Answer

Household wealth is precisely defined as the difference between the total market value of all assets and the total amount of outstanding liabilities. Household income, personal household consumption, and planned household investment are not related to this definition.

Quiz 12: Aggregate Expenditure and Output in the Short Run

Why do economists care about aggregate expenditures?

If economists forecast a decrease in aggregate expenditure,which of the following is likely to occur?

When aggregate expenditure is more than GDP,which of the following is true?

Firms in a small economy planned that inventories would grow over the past year by $500,000.Over that year,inventories did grow by exactly $500,000.This implies that

Which is the largest component of aggregate expenditure?

The five most important variables that determine the level of consumption are

If planned investment is greater than actual investment,then aggregate expenditure is less than GDP.

Explain,in detail,how the adjustment to macroeconomic equilibrium occurs when spending is less than production.Be sure to discuss how inventories play a crucial role in the adjustment process.State what happens to GDP and employment during the adjustment process.

A decrease in Social Security payments will

Firms in a small economy planned that inventories would grow over the past year by $300,000.Over that year,inventories actually grew by $400,000.This implies that

In a small economy in 2011,aggregate expenditure was $800 million while GDP that year was $850 million.Which of the following can explain the difference between aggregate expenditure and GDP that year?

If aggregate expenditure is less than GDP,how will the economy reach macroeconomic equilibrium?

Aggregate expenditure includes consumption spending,unplanned investment spending,government purchases,and net exports.

If firms find that consumers are purchasing more than expected,which of the following would you expect?

Table 23-1 -Refer to Table 23-1.Using the table above,compute aggregate expenditure and identify the macroeconomic equilibrium.

in taxes will decrease consumption spending,and in transfer payments will increase consumption spending.

If aggregate expenditure is more than GDP,then inventories fall and GDP rises.

Which of the following will cause a direct increase in consumption spending?

If firms sell exactly what they expected to sell,all of the following will be true except

________ is defined as the value of a household's assets minus the value of its liabilities.