Question 1

If the multiplier is 4,a $10 billion increase in autonomous investment will cause a
A) $10 billion increase in equilibrium investment
B) $40 billion increase in equilibrium investment
C) $40 billion increase in equilibrium real GDP demanded
D) $400 billion increase in equilibrium real GDP demanded
E) $40 billion increase in consumption spending

Accepted Answer

The answer of If the multiplier is 4,a $10 billion...

Question 2

If an increase in planned investment of $70 billion causes equilibrium output demanded to rise by $280 billion,the value of the marginal propensity to consume is
A) 4
B) 4/3
C) 1/3
D) 1/4
E) 3/4

Accepted Answer

The answer of If an increase in planned investment of...

Question 3

In a model with neither income taxes nor international trade,if the marginal propensity to consume in your classmate's nation is 3/5 and the marginal propensity to save in your country is 1/10,which of the following must be true?
A) Increases in government purchases increase real GDP demanded more per dollar in your country than they do in your classmate's country.
B) Decreases in government purchases increase real GDP demanded more per dollar in your country than they do in your classmate's country.
C) Increases in autonomous saving increase real GDP demanded more per dollar in your country than they do in your classmate's country.
D) Real GDP demanded is higher in your country than in your classmate's country.
E) Total saving is higher in your classmate's country than in your country.

Accepted Answer

The answer of In a model with neither income taxes...

Question 4

The aggregate expenditure model is
A) most useful in explaining situations where changes in aggregate expenditures cause the price level to change
B) not useful in situations where changes in aggregate expenditures cause the price level to change
C) helpful in explaining situations where the economy is plagued by inflationary pressures
D) the reciprocal of the aggregate demand model
E) most useful when we are dealing with an economy dominated by a foreign sector

Accepted Answer

The answer of The aggregate expenditure model is
A) most useful...

Question 5

Suppose that planned autonomous investment increases by $200 billion and that the marginal propensity to consume equals 0.80.The equilibrium level of real GDP will increase by
A) $40 billion
B) $160 billion
C) $200 billion
D) $250 billion
E) $1,000 billion

Accepted Answer

The answer of Suppose that planned autonomous investment increases by...

Question 6

We can use an aggregate expenditure line to trace out a single aggregate demand curve by
A) shifting the 45-degree line
B) letting changes in autonomous spending shift the aggregate expenditure line
C) letting changes in the price level shift the aggregate expenditure line
D) letting changes in the level of income shift the aggregate expenditure line
E) letting changes in real GDP shift the aggregate expenditure line

Accepted Answer

The answer of We can use an aggregate expenditure line...

Question 7

If the marginal propensity to consume in your classmate's nation is 3/5 and the marginal propensity to save in your country is 1/10,which of the following must be true?
A) The spending multiplier is larger in your classmate's nation than in your country.
B) The spending multiplier is smaller in your classmate's nation than in your country.
C) Autonomous consumption is higher in your classmate's nation than in your country.
D) Autonomous consumption is lower in your classmate's nation than in your country.
E) Total consumption is lower in your classmate's nation than in your country.

Accepted Answer

The spending multiplier is calculated as 1/(1-MPC). Therefore, the spending multiplier in your classmate's nation would be 2.5 (1/(1-3/5)) while the spending multiplier in your country would be 1.11 (1/(1-1/10)). Since the spending multiplier is larger in your classmate's nation, option A is incorrect. There is no information provided about autonomous consumption, so options C and D cannot be inferred. Finally, we cannot determine anything about total consumption, so option E is incorrect.

Question 8

If autonomous investment decreases by $60 billion,equilibrium real GDP demanded will
A) increase by $60 billion
B) decrease by $60 billion
C) decrease by ($60 billion)* MPC
D) decrease by $60 billion * (1 - MPC)
E) decrease by $60 billion/MPS

Accepted Answer

The answer of If autonomous investment decreases by $60 billion,equilibrium...

Question 9

Which of the following would result from a decrease in autonomous saving?
A) an upward shift of the aggregate expenditure line
B) an upward shift of the 45-degree line
C) a decrease in the equilibrium level of real GDP demanded
D) an increase in the level of autonomous consumption
E) an increase in the level of autonomous investment

Accepted Answer

Autonomous saving is a component of the aggregate saving function, which determines the level of saving at each level of real GDP, holding other factors constant. A decrease in autonomous saving implies that at each level of real GDP, households and businesses are saving less than before. This reduces the level of aggregate expenditure at each level of real GDP, leading to a downward shift of the aggregate expenditure line. Therefore, the correct answer is A, an upward shift of the aggregate expenditure line, as it is the opposite of what would happen.

Question 10

If autonomous consumption rises by $0.8 trillion and the marginal propensity to consume (MPC)equals 3/4,the equilibrium level of output demanded will rise by
A) $0.2 trillion
B) $0.6 trillion
C) $1.07 trillion
D) $2.4 trillion
E) $3.2 trillion

Accepted Answer

The answer of If autonomous consumption rises by $0.8 trillion...

Question 11

Which of the following is not true about a change in the price level?
A) It will shift the aggregate demand curve.
B) It will shift the aggregate expenditure curve.
C) It will result in a new value of equilibrium real GDP demanded.
D) It will change the real value of dollar-denominated assets.
E) It will shift the consumption function.

Accepted Answer

The answer of Which of the following is not true...

Question 12

If the multiplier is 3,a $20 billion increase in autonomous consumption will cause a
A) $20 billion increase in equilibrium consumption
B) $60 billion increase in equilibrium consumption
C) $20 billion increase in equilibrium real GDP demanded
D) $60 billion increase in equilibrium real GDP demanded
E) $60 billion decrease in autonomous saving

Accepted Answer

The answer of If the multiplier is 3,a $20 billion...

Question 13

Suppose that planned investment increases by $200 billion and that the marginal propensity to consume equals 0.80.The aggregate expenditure line will shift upward by __________ at every level of real GDP.
A) $40 billion
B) $160 billion
C) $200 billion
D) $250 billion
E) $1,000 billion

Accepted Answer

The equation for aggregate expenditure is AE = C + I + G + NX, where AE is aggregate expenditure, C is consumption, I is planned investment, G is government spending, and NX is net exports. If planned investment increases by $200 billion, then I in the aggregate expenditure equation would increase by $200 billion.

The marginal propensity to consume (MPC) is the fraction of each additional dollar of income that is spent on consumption. If the MPC equals 0.80, then for every additional dollar of income, 80 cents will be spent on consumption.

Since I increased by $200 billion, the increase in consumption (C) due to the MPC would be 0.80 x $200 billion = $160 billion. Therefore, the aggregate expenditure line would shift upward by $200 billion, and at every level of real GDP, AE would increase by $200 billion.

Question 14

Which is true regarding the marginal propensity to consume and the multiplier?
A) The lower the MPC,the higher the multiplier.
B) The higher the MPC,the lower the multiplier.
C) The MPC equals the multiplier.
D) The sum of the MPC and the multiplier equals 1.
E) The lower the MPC,the lower the multiplier.

Accepted Answer

The answer of Which is true regarding the marginal propensity...

Question 15

Other things being equal,a decrease in an economy's exports will
A) increase domestic aggregate expenditures and the equilibrium level of output
B) decrease domestic aggregate expenditures and the equilibrium level of output
C) have no impact on domestic aggregate expenditures or output
D) decrease the marginal propensity to import
E) change autonomous consumption

Accepted Answer

A decrease in exports means that there is less demand for the economy's goods and services from other countries. This leads to a decrease in aggregate expenditures, which is the total amount of spending in the economy. This decrease in aggregate expenditures will lead to a decrease in the equilibrium level of output, which is the level of production and income where aggregate demand equals aggregate supply.

Question 16

Which of the following is true concerning the relationship between the marginal propensity to consume and the consumption function?
A) the larger the MPC,the higher the level of autonomous consumption
B) the larger the MPC,the steeper the consumption function
C) the larger the MPC,the larger the MPS
D) The smaller the MPC,the steeper the consumption function
E) The larger the MPC,the larger the level of autonomous consumption

Accepted Answer

The answer of Which of the following is true concerning...

Question 17

In the simple aggregate expenditures model,planned investment is
A) a function of disposable income
B) a function of profit expectations
C) a function of the interest rate
D) autonomous
E) all of the above

Accepted Answer

Planned investment is considered autonomous in the simple aggregate expenditures model. This means it is not directly influenced by disposable income, profit expectations, or the interest rate.

Question 18

What does the marginal propensity to consume tell us?
A) how much of our total income we spend on current consumption
B) how much additional income is spent on consumption
C) how much of aggregate expenditures will be allocated to consumption spending
D) how much induced consumption there is in the economy
E) the relationship between autonomous and induced consumption

Accepted Answer

The marginal propensity to consume (MPC) tells us how much additional income is spent on consumption. It is the fraction of a change in income that is spent on consumption. For example, an MPC of 0.8 means that for every additional dollar of income received, 80 cents will be spent on consumption.

Question 19

In the simple aggregate expenditure model,the slope of the aggregate expenditure line depends on
A) interest rates
B) government budget policy
C) the price level
D) the marginal propensity to consume
E) all of the above

Accepted Answer

The slope of the aggregate expenditure line represents the marginal propensity to consume, which is determined by the factors influencing consumer spending such as income, wealth, taxes, and expectations. Therefore, the correct choice is D, as it directly relates to the slope of the aggregate expenditure line. A, B, and C are not directly related to the slope of the aggregate expenditure line but can affect it indirectly through their impact on consumer spending and investment.

Question 20

Suppose that the multiplier is 4,autonomous investment rises by $50 billion,and autonomous consumption falls by $50 billion at the same time.Which of the following is true?
A) Equilibrium GDP demanded will be the same,but the type of goods produced will be different.
B) Equilibrium GDP demanded will increase by $200 billion.
C) Equilibrium GDP demanded will decrease by $200 billion.
D) Equilibrium GDP demanded will increase by $400 billion.
E) Equilibrium GDP demanded will decrease by $400 billion.

Accepted Answer

The answer of Suppose that the multiplier is 4,autonomous investment...

Quiz 10: Aggregate Expenditure and Aggregate Demand

If the multiplier is 4,a $10 billion increase in autonomous investment will cause a

If an increase in planned investment of $70 billion causes equilibrium output demanded to rise by $280 billion,the value of the marginal propensity to consume is

In a model with neither income taxes nor international trade,if the marginal propensity to consume in your classmate's nation is 3/5 and the marginal propensity to save in your country is 1/10,which of the following must be true?

The aggregate expenditure model is

Suppose that planned autonomous investment increases by $200 billion and that the marginal propensity to consume equals 0.80.The equilibrium level of real GDP will increase by

We can use an aggregate expenditure line to trace out a single aggregate demand curve by

If the marginal propensity to consume in your classmate's nation is 3/5 and the marginal propensity to save in your country is 1/10,which of the following must be true?

If autonomous investment decreases by $60 billion,equilibrium real GDP demanded will

Which of the following would result from a decrease in autonomous saving?

If autonomous consumption rises by $0.8 trillion and the marginal propensity to consume (MPC) equals 3/4,the equilibrium level of output demanded will rise by

Which of the following is not true about a change in the price level?

If the multiplier is 3,a $20 billion increase in autonomous consumption will cause a

Suppose that planned investment increases by $200 billion and that the marginal propensity to consume equals 0.80.The aggregate expenditure line will shift upward by __________ at every level of real GDP.

Which is true regarding the marginal propensity to consume and the multiplier?

Other things being equal,a decrease in an economy's exports will

Which of the following is true concerning the relationship between the marginal propensity to consume and the consumption function?

In the simple aggregate expenditures model,planned investment is

What does the marginal propensity to consume tell us?

In the simple aggregate expenditure model,the slope of the aggregate expenditure line depends on

Suppose that the multiplier is 4,autonomous investment rises by $50 billion,and autonomous consumption falls by $50 billion at the same time.Which of the following is true?