Question 1

Exports minus imports equal net exports.​

Accepted Answer

This statement is true. Net exports represent the difference between a country's total export earnings and import expenditures. Hence, exports minus imports give the value of net exports.

Question 2

When economists say investment is autonomous,they mean that investment is independent of the level of saving.​

Accepted Answer

When economists say investment is autonomous, they mean that investment does not vary with changes in income or output, but it is not necessarily independent of the level of saving. In fact, investment and saving are often positively correlated, as increased saving can lead to increased funds available for investment.

Question 3

Movement along the aggregate expenditure line is caused by a change in the level of income.

Accepted Answer

Movement along the aggregate expenditure line occurs when there is a change in the level of income, which affects consumption and therefore total aggregate expenditure.

Question 4

As disposable income decreases,saving decreases.​

Accepted Answer

Disposable income is the amount of money left after taxes and necessary expenses have been taken out. As disposable income decreases, people have less money to save and may have to prioritize spending on essential items over saving. Therefore, saving decreases when disposable income decreases.

Question 5

An increase in the interest rate will increase consumption spending.​

Accepted Answer

An increase in the interest rate will increase the cost of borrowing, which will decrease consumption spending as people will have less money to spend.

Question 6

The main determinants of investment are the interest rates and expected profit.​

Accepted Answer

Interest rates and expected profit are widely recognized as the two most important determinants of investment. If interest rates are low, borrowing money to invest becomes cheaper and more attractive, which tends to stimulate investment. Additionally, businesses are more likely to invest when they anticipate a high return on investment, or when they believe that market conditions will be favorable in the future.

Question 7

Movement along the aggregate demand curve may be caused by a change in autonomous investment spending.​

Accepted Answer

Movement along the aggregate demand curve is caused by changes in the price level, not by changes in autonomous investment spending. Changes in autonomous investment spending shift the entire aggregate demand curve.

Question 8

The slope of the consumption function equals the marginal propensity to consume.​

Accepted Answer

This is a basic principle of the consumption function, where the slope represents the change in consumption for a given change in income, and the marginal propensity to consume represents the fraction of additional income that is spent on consumption. Therefore, the slope is equal to the marginal propensity to consume.

Question 9

The slope of the consumption function is equal to the marginal propensity to save (MPS).​

Accepted Answer

The slope of the consumption function is equal to the marginal propensity to consume (MPC), not the marginal propensity to save (MPS). MPS is equal to 1 minus MPC, so the two are related, but they are not interchangeable.

Question 10

Aggregate expenditure means total or combined spending.​

Accepted Answer

Aggregate expenditure refers to the total spending of households, businesses, government, and foreigners on goods and services in an economy.

Question 11

A change in consumers' expectations about the future will shift both the aggregate expenditure curve and the aggregate demand curve.​

Accepted Answer

Consumer expectations play a major role in determining aggregate expenditure, which in turn affects aggregate demand. If consumers have a positive outlook on the future, they are more likely to spend money now (increase in aggregate expenditure) and thus increase aggregate demand. On the other hand, if consumers have a negative outlook on the future, they are more likely to save money now (decrease in aggregate expenditure) and thus decrease aggregate demand. Therefore, a change in consumers' expectations about the future will shift both the aggregate expenditure curve and the aggregate demand curve.

Question 12

If there are no unintended changes in inventories,the economy is at its equilibrium level of real gross domestic product (GDP)demanded.​

Accepted Answer

This statement is true. If there are no unintended changes in inventories, it means that the amount of goods produced equals the amount of goods demanded. This indicates that the economy is producing at its equilibrium level of real GDP demanded.

Question 13

If consumption is greater than income,saving must be negative.​

Accepted Answer

Saving is defined as the amount of money left over after consumption and taxes have been subtracted from income. If consumption exceeds income, there is no money left over to save, and in fact, individuals may need to use their existing savings or take on debt to make up the difference. Therefore, saving would be negative in this scenario.

Question 14

An increase in the interest rate,other things constant,decreases the amount of investment spending.​

Accepted Answer

When interest rates increase, the cost of borrowing money also increases, making it more expensive for businesses to invest in new projects or expansions. This causes a decrease in investment spending.

Question 15

The higher the opportunity cost of borrowing,the higher the amount of investment,other things constant.​

Accepted Answer

The higher the opportunity cost of borrowing, the lower the amount of investment because borrowing becomes more expensive and less attractive, leading to lower borrowing and investment activities.

Question 16

If current aggregate expenditure equals current production,an economy is in equilibrium.​

Accepted Answer

This is because the equilibrium level of output is where aggregate expenditure (which includes consumption, investment, government spending, and net exports) equals the total production in the economy, also known as Gross Domestic Product (GDP). If these two quantities are equal, then there is no excess demand or supply in the economy, and prices and quantities will remain stable.

Question 17

An increase in the marginal propensity to consume (MPC)will cause the consumption function to become steeper.​

Accepted Answer

An increase in the MPC means that a greater portion of each additional dollar of income will be spent on consumption. This will result in a steeper slope of the consumption function, as consumption will increase more rapidly for each increase in income.

Question 18

The current level of investment depends on the current level of income.​

Accepted Answer

The answer of The current level of investment depends on...

Question 19

An economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate,other things held constant.​

Accepted Answer

This statement accurately describes the relationship depicted by the investment demand curve. As the market interest rate increases, the quantity of investment demanded decreases (assuming no other factors affecting investment demand have changed). This is due to the fact that higher interest rates increase the cost of borrowing, making it less attractive for firms to invest in new projects.

Question 20

Purchases of existing commodities,such as gold and precious gems,are considered investment spending by economists.​

Accepted Answer

The answer of Purchases of existing commodities,such as gold and...

Quiz 9: Aggregate Demand

Exports minus imports equal net exports.​

When economists say investment is autonomous,they mean that investment is independent of the level of saving.​

Movement along the aggregate expenditure line is caused by a change in the level of income.

As disposable income decreases,saving decreases.​

An increase in the interest rate will increase consumption spending.​

The main determinants of investment are the interest rates and expected profit.​

Movement along the aggregate demand curve may be caused by a change in autonomous investment spending.​

The slope of the consumption function equals the marginal propensity to consume.​

The slope of the consumption function is equal to the marginal propensity to save (MPS).​

Aggregate expenditure means total or combined spending.​

A change in consumers' expectations about the future will shift both the aggregate expenditure curve and the aggregate demand curve.​

If there are no unintended changes in inventories,the economy is at its equilibrium level of real gross domestic product (GDP)demanded.​

If consumption is greater than income,saving must be negative.​

An increase in the interest rate,other things constant,decreases the amount of investment spending.​

The higher the opportunity cost of borrowing,the higher the amount of investment,other things constant.​

If current aggregate expenditure equals current production,an economy is in equilibrium.​

An increase in the marginal propensity to consume (MPC)will cause the consumption function to become steeper.​

The current level of investment depends on the current level of income.​

An economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate,other things held constant.​

Purchases of existing commodities,such as gold and precious gems,are considered investment spending by economists.​

Exports minus imports equal net exports.

When economists say investment is autonomous,they mean that investment is independent of the level of saving.

As disposable income decreases,saving decreases.

An increase in the interest rate will increase consumption spending.

The main determinants of investment are the interest rates and expected profit.

Movement along the aggregate demand curve may be caused by a change in autonomous investment spending.

The slope of the consumption function equals the marginal propensity to consume.

The slope of the consumption function is equal to the marginal propensity to save (MPS).

Aggregate expenditure means total or combined spending.

A change in consumers' expectations about the future will shift both the aggregate expenditure curve and the aggregate demand curve.

If there are no unintended changes in inventories,the economy is at its equilibrium level of real gross domestic product (GDP)demanded.

If consumption is greater than income,saving must be negative.

An increase in the interest rate,other things constant,decreases the amount of investment spending.

The higher the opportunity cost of borrowing,the higher the amount of investment,other things constant.

If current aggregate expenditure equals current production,an economy is in equilibrium.

An increase in the marginal propensity to consume (MPC)will cause the consumption function to become steeper.

The current level of investment depends on the current level of income.

An economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate,other things held constant.

Purchases of existing commodities,such as gold and precious gems,are considered investment spending by economists.