Question 1

All of the following are components of aggregate expenditure except

Accepted Answer

Actual investment spending is not considered a component of aggregate expenditure in the context of macroeconomic models, which typically differentiate between planned investment (part of aggregate expenditure) and actual investment (which can differ from planned due to unplanned inventory changes).

Question 2

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.

Accepted Answer

The aggregate expenditure model primarily examines the relationship between total spending and real GDP in the short run, under the assumption that the price level remains constant.

Question 3

A decrease in consumer confidence can put your job at risk if

Accepted Answer

A decrease in consumer confidence can lead to a decrease in aggregate expenditures, which can result in lower sales for businesses. If sales continue to fall and businesses cannot make a profit, they may have to lay off employees or even go out of business, putting jobs at risk.

Question 4

At macroeconomic equilibrium

Accepted Answer

At macroeconomic equilibrium, total spending (which includes consumption, investment, government spending, and net exports) equals total production (GDP).

Question 5

Inventories refer to

Accepted Answer

Inventories refer to goods that have been produced but not yet sold. This can include raw materials, work-in-progress, and finished goods that are waiting to be sold. Option A is incorrect because presold goods do not technically qualify as part of inventory until they are produced. Option C is incorrect because planned goods have not yet reached the production stage. Option D is incorrect because sold goods are no longer part of inventory. Option E is incorrect because sold goods waiting to be picked up by customers are considered accounts receivable, not inventory.

Question 6

Household spending on goods and services is known as

Accepted Answer

Household spending on goods and services is commonly known as consumption spending.

Question 7

An unplanned increase in inventories results from

Accepted Answer

An unplanned increase in inventories results from actual investment that is greater than planned investment. This means that firms have produced more goods than initially planned, leading to an increase in inventory levels.

Question 8

Actual investment spending does not include

Accepted Answer

Actual investment spending refers to spending on new capital equipment, new houses, and changes in inventories. Spending on consumer durable goods is considered consumption spending, not investment spending.

Question 9

Consumption spending is $22 million, planned investment spending is $7 million, actual investment spending is $7 million, government purchases are $9 million, and net export spending is $3 million.Based on this information, which of the following is true?

Accepted Answer

Aggregate expenditure can be calculated as follows: 
AE = Consumption spending + Planned investment spending + Government purchases + Net export spending 
= $22 million + $7 million + $9 million + $3 million 
= $41 million 
Since there is no information given about any change in inventories, we cannot determine whether there was an unplanned increase or decrease in inventories. However, since aggregate expenditure is equal to GDP in this case, we can conclude that the economy is in macroeconomic equilibrium.

Question 10

Consumption spending is $16 billion, planned investment spending is $4 billion, unplanned investment spending is $2 billion, government purchases are $6 billion, and net export spending is $1 billion.What is aggregate expenditure?

Accepted Answer

Aggregate expenditure is calculated as the sum of consumption spending, planned investment spending, government purchases, and net export spending. Therefore, it is $16 billion (consumption) + $4 billion (planned investment) + $6 billion (government purchases) + $1 billion (net exports) = $27 billion. Unplanned investment spending is not included in aggregate expenditure.

Question 11

As a result of the drop in the oil price and resulting drop in oil production in 2015, many Alberta companies including local Tim Hortons cut production and employment.The total amount of spending in the economy is known as

Accepted Answer

The total amount of spending in the economy is referred to as aggregate expenditure. This includes consumption, investment, government spending, and net exports. Deficit spending refers to a situation where the government spends more than it collects in revenue, planned investment spending refers to the amount of investment a company plans to make in a given period, equilibrium spending refers to the level of total spending where aggregate demand equals aggregate supply, and total production refers to the total output of goods and services in an economy. Thus, the most appropriate term for the total amount of spending in the economy is aggregate expenditure.

Question 12

All of the following are one of the four main categories of spending identified by John Maynard Keynes except

Accepted Answer

John Maynard Keynes identified consumption, investment, government purchases, and net exports as the four main categories of spending in an economy. Taxes are not considered a category of spending but rather a means through which the government finances its spending.

Question 13

The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by

Accepted Answer

The key idea of the aggregate expenditure model is that the level of GDP in any particular year is determined mainly by the level of aggregate expenditure, which includes consumption expenditure, investment expenditure, government expenditure, and net exports. The other options (investment spending, export spending, government spending, and household savings) are components of aggregate expenditure, but not the main determinants of GDP in the model.

Question 14

Consumption is $5 billion, planned investment spending is $8 billion, government purchases are $10 billion, and net exports are equal to $2 billion.If GDP during that same time period is equal to $27 billion, what unplanned changes in inventories occurred?

Accepted Answer

GDP is calculated as the sum of consumption, planned investment spending, government purchases, and net exports. In this case, GDP = $5 billion + $8 billion + $10 billion + $2 billion = $25 billion. However, the actual GDP is $27 billion, indicating an unplanned increase in inventories of $2 billion to make up the difference.

Question 15

When aggregate expenditure = GDP

Accepted Answer

When aggregate expenditure (AE) equals GDP, it means that the total spending in the economy is equal to its total output. This is also known as macroeconomic equilibrium, where there is no unplanned inventory accumulation or depletion, and there is no pressure for output or price changes. Hence, A is the correct answer. B, C, D, and E are incorrect, as they are not necessarily true or relevant when AE equals GDP.

Question 16

If inventories decline by more than analysts predict they will decline, this implies that

Accepted Answer

When inventories decline more than expected, it indicates that actual sales were higher than anticipated, leading to less inventory than planned. This means actual investment spending (which includes inventory changes) was less than planned, as businesses did not invest as much in maintaining or increasing inventory levels.

Question 17

The aggregate expenditure model focuses on the ________ relationship between real spending and ________.

Accepted Answer

The aggregate expenditure model focuses on the short-run relationship between real spending (aggregate expenditure) and real GDP.

Question 18

Economists first began studying the relationship between changes in aggregate expenditures and changes in GDP

Accepted Answer

Economists began studying the relationship between changes in aggregate expenditures and changes in GDP more intensively during the Great Depression, as they sought to understand and address the economic challenges of that era.

Question 19

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million.What is GDP?

Accepted Answer

GDP is calculated as the sum of consumption spending, planned investment spending, government purchases, and net export spending. Unplanned investment is not included. Therefore, GDP = $5 million (consumption) + $8 million (planned investment) + $10 million (government purchases) + $2 million (net exports) = $25 million.

Question 20

The formula for aggregate expenditure is

Accepted Answer

Aggregate expenditure (AE) is the total amount spent on the nation's goods and services and is calculated as the sum of consumer spending (C), investment (I), government spending (G), and net exports (NX), which is exports minus imports. Thus, AE = C + I + G + NX.

Quiz 8: Aggregate Expenditure and Output in the Short Run