Question 1

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 2

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.
E)consumer spending grew faster than expected.

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 3

During the Great Depression,economists first began studying the relationship between
A)changes in GDP and changes in interest rates.
B)changes in aggregate expenditures and changes in GDP.
C)changes in nominal GDP and changes in real GDP.
D)changes in stock prices and changes in price controls.
E)changes in unemployment and changes in inflation.

Accepted Answer

During the Great Depression, economists began studying the relationship between changes in aggregate expenditures (total spending on goods and services) and changes in GDP (the total value of goods and services produced in an economy). This led to the development of Keynesian economics, which emphasizes the role of government intervention to stimulate demand and promote economic growth.

Question 4

As a result of the oil price,revenues at many ________Tim Hortons locations ________,and it ________ the size of its workforce.
A)Ontario; fell; increased
B)Alberta; fell; decreased
C)Quebec; rose; increased
D)British Columbia; rose; decreased
E)PEI; fell; decreased.

Accepted Answer

Alberta is an oil-rich province, so the drop in oil prices would have a greater impact on the economy and businesses in the region, including Tim Hortons locations. The decline in revenues would result in a decrease in the size of the workforce.

Question 5

A decrease in ________ can put your job at risk if aggregate expenditures fall.
A)consumer confidence
B)the natural rate of unemployment
C)the inflation rate
D)the length of a business cycle
E)income taxation

Accepted Answer

If consumer confidence decreases, consumers may be less likely to spend money on goods and services, causing a decrease in aggregate expenditures. This can lead to a decrease in demand for labor, which may put jobs at risk.

Question 6

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.
E)Unemployment will fall.

Accepted Answer

Aggregate expenditure is a component of GDP, therefore a decrease in aggregate expenditure would lead to a decrease in GDP as well. Option A, C, D, and E are unlikely outcomes of a decrease in aggregate expenditure.

Question 7

The ________ model focuses on the relationship between total spending and real GDP in the short run,assuming the price level is constant.
A)supply and demand
B)national income
C)aggregate expenditure
D)business cycle
E)aggregate demand model

Accepted Answer

The aggregate expenditure model focuses on the relationship between total spending and real GDP in the short run, assuming the price level is constant. It is also known as the Keynesian model, as it was developed by John Maynard Keynes. The model assumes that changes in aggregate expenditure (consumption, investment, government spending, and net exports) drive changes in real GDP.

Question 8

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.
E)Inventories will rise,GDP will rise,and unemployment will fall.

Accepted Answer

When aggregate expenditure is less than GDP, it means that the goods produced are not being sold, leading to an increase in inventories. Businesses will respond by reducing production, which will lead to a decline in GDP and employment until equilibrium is reached.

Question 9

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

Accepted Answer

When aggregate expenditure is more than GDP, it means that demand for goods and services is higher than what the economy is currently producing. In order to meet the demand, production needs to increase which leads to an increase in GDP. This increase in production causes inventories to fall as companies need to sell off goods to meet the demand, and this leads to an overall increase in GDP.

Question 10

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 11

Why do economists care about aggregate expenditures?

Accepted Answer

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

Question 12

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.
E)Firms will see inventories rising.

Accepted Answer

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

Question 13

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 14

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 total spending in the economy (consumption, investment, government spending, and net exports) is higher than the value of all goods and services produced in the economy. In this situation, firms may have sold more goods than they had anticipated, causing a decrease in inventories that was not planned. Option B may or may not be true depending on the specific situation, and option C is not necessarily true as households may have purchased more new homes than they planned. Therefore, only option A is true in this scenario.

Question 15

The key idea of the aggregate expenditure model is that in any particular year,the level of ________ is determined mainly by the level of aggregate expenditure.
A)frictional unemployment
B)export spending
C)government spending
D)GDP
E)structural unemployment

Accepted Answer

The aggregate expenditure model posits that in a given year, the level of GDP is mainly determined by the level of aggregate expenditure. This is because GDP is a measure of the value of all goods and services produced in the economy, and aggregate expenditure includes spending by households, businesses, governments, and foreigners on goods and services. As these groups spend more, firms produce and sell more, leading to an increase in GDP. Conversely, if aggregate expenditure falls, GDP will also decrease. Therefore, D (GDP) is the best choice.

Question 16

In a small economy in 2017,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 2017.
C)Firm investment in inventories was greater than anticipated in 2017.
D)Aggregate expenditure is always less than GDP in developing countries.
E)Consumer spending was greater than expected.

Accepted Answer

The difference between aggregate expenditure and GDP can be explained by firm investment in inventories being greater than anticipated. When firms produce more goods than are sold (i.e., aggregate expenditure is less than the GDP), the unsold goods are added to inventories, which is counted as an investment, thus explaining the discrepancy.

Question 17

Consumption spending refers to ________ spending on goods and services.
A)household
B)business
C)government
D)foreign
E)unplanned

Accepted Answer

Consumption spending typically refers to the spending by households on goods and services, as opposed to spending by businesses, government, or foreign entities.

Question 18

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.
E)government spending grew unpredictably.

Accepted Answer

If firms planned that inventories would grow by $500,000 and inventories did grow by exactly $500,000, then the aggregate expenditure must have been equal to GDP that year. This is because every unit of inventories produced must have been sold or consumed in some way, and so the value of those inventories must have been included in the calculation of GDP. Therefore, there was no unplanned increase or decrease in inventories, but rather an exactly planned increase. There is no information given about government spending, so option E cannot be chosen.

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.
E)unplanned investment will be zero.

Accepted Answer

If firms sell exactly what they expected to sell, aggregate expenditure will be equal to planned investment and aggregate demand, thus aggregate expenditure will be equal to GDP. Therefore, aggregate expenditure being greater than GDP cannot be true.

Question 20

Table 8.1
 
-Refer to Table 8.1.Using the table above,compute aggregate expenditure and identify the macroeconomic equilibrium.

Accepted Answer

The answer of Table 8.1
 
-Refer to Table 8.1.Using the...

Quiz 8: Aggregate Expenditure and Output in the Short Run

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

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

During the Great Depression,economists first began studying the relationship between

As a result of the oil price,revenues at many Tim Hortons locations ,and it the size of its workforce.

A decrease in ________ can put your job at risk if aggregate expenditures fall.

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

The ________ model focuses on the relationship between total spending and real GDP in the short run,assuming the price level is constant.

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

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

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.

Why do economists care about aggregate expenditures?

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

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

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

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

In a small economy in 2017,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?

Consumption spending refers to ________ spending on goods and services.

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

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

Table 8.1 -Refer to Table 8.1.Using the table above,compute aggregate expenditure and identify the macroeconomic equilibrium.