Question 1

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

Accepted Answer

True

Question 2

Exhibit 10-2
 
-At the equilibrium level of GDP in Exhibit 10-2, saving equals
A)$0.4 trillion
B)$0.6 trillion
C)$0.5 trillion
D)$0.2 trillion
E)$0.3 trillion

Accepted Answer

E

Question 3

Exhibit 10-3
 
-Which of the following best describes the situation at point B in Exhibit 10-3?
A)consumption expenditures exceeds disposable income
B)producers are experiencing an unexpected loss in inventory
C)aggregate expenditure is exactly equal to real GDP
D)real GDP exceeds aggregate expenditure
E)producers are experiencing an unexpected accumulation of inventory

Accepted Answer

B

Question 4

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

Accepted Answer

This is because at equilibrium level of real GDP, aggregate demand is equal to aggregate supply and there are no unintended changes in inventories.

Question 5

In an economy without a government and without international transactions, aggregate expenditure at each level of income is equal to
A)consumption plus saving
B)planned investment plus saving
C)disposable income plus the price level
D)consumption plus planned investment
E)planned investment minus saving

Accepted Answer

In this scenario, aggregate expenditure at each level of income is equal to consumption plus planned investment since there is no government or international transactions to account for. Consumption represents the spending by households on goods and services, while planned investment represents the spending by firms on capital goods such as machinery and equipment. Together, these two components make up the total aggregate expenditure in the economy, which varies with changes in income levels. Savings are not included in the calculation of aggregate expenditure, as they represent income that is not spent on current consumption or investment goods.

Question 6

The aggregate expenditure line shows
A)real GDP on the horizontal axis and aggregate expenditure on the vertical axis
B)aggregate expenditure on the horizontal axis and real GDP on the vertical axis
C)consumption on the horizontal axis and aggregate expenditure on the vertical axis
D)aggregate expenditure on the horizontal axis and consumption on the vertical axis
E)investment on the horizontal axis and aggregate expenditure on the vertical axis

Accepted Answer

The answer of The aggregate expenditure line shows
A)real GDP on...

Question 7

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

Accepted Answer

When current aggregate expenditure equals current production, it means that there is no excess supply or demand in the economy and therefore, it is in equilibrium.

Question 8

Exhibit 10-2
 
-The marginal propensity to save (MPS) in Exhibit 10-2 equals
A)0.80 or 4/5
B)0.60 or 3/5
C)0.40 or 2/5
D)0.10 or 1/10
E)0.20 or 1/5

Accepted Answer

The answer of Exhibit 10-2
 
-The marginal propensity to save...

Question 9

The equilibrium quantity of aggregate output occurs when
A)the economy reaches the full employment of labor
B)planned aggregate expenditure equals income generated from production
C)actual aggregate expenditures equal real GDP
D)inventories of goods and services are increasing
E)inventories of goods and services are decreasing

Accepted Answer

The equilibrium quantity of aggregate output occurs when planned aggregate expenditure (PAE) equals the level of income generated from production. At this point, there are no unplanned changes in inventories, and the economy is in a state of balance. The other options listed (A, C, D, E) may occur during different stages of the economic cycle but do not necessarily represent the equilibrium level of output.

Question 10

Consumption plus saving equals disposable income at every level of real GDP demanded.

Accepted Answer

This statement is a key component of the Keynesian theory of aggregate demand, stating that all income in the economy is either consumed or saved, leading to the equality of disposable income with total output. This is expressed as the formula Y = C + S, where Y is disposable income, C is consumption, and S is saving.

Question 11

Which of the following is not a part of planned aggregate spending?
A)consumption
B)investment
C)government expenditures
D)net exports
E)saving

Accepted Answer

Planned aggregate spending includes consumption, investment, government expenditures, and net exports. Saving is not a part of planned aggregate spending, as it represents a portion of disposable income that is not spent on consumption or investment.

Question 12

Exhibit 10-2
 
-In Exhibit 10-2, the equilibrium level of GDP is
A)$5.0 trillion
B)$5.5 trillion
C)$6.0 trillion
D)$6.5 trillion
E)$7.0 trillion

Accepted Answer

The equilibrium level of GDP is where the aggregate demand (AD) and aggregate supply (AS) curves intersect. In this exhibit, the AD curve intersects the AS curve at a GDP level of $6.0 trillion. This is the point where the economy is in equilibrium with neither an inflationary nor a recessionary gap.

Question 13

Aggregate expenditure means total or combined spending.

Accepted Answer

Aggregate expenditure refers to the total amount of money spent by individuals, businesses, and the government in a particular economy.

Question 14

Exhibit 10-2
 
-The marginal propensity to consume (MPC) in Exhibit 10-2 equals
A)0.20 or 1/5
B)0.40 or 2/5
C)0.80 or 4/5
D)0.90 or 9/10
E)0.60 or 3/5

Accepted Answer

The answer of Exhibit 10-2
 
-The marginal propensity to consume...

Question 15

Which of the following best describes aggregate expenditure?
A)C + I + G + (X - M)
B)C + S + G + (X - M)
C)C + I + G + (X + M)
D)C + I + T + (X - M)
E)C + I + T + (X + M)

Accepted Answer

Aggregate expenditure is the total amount of spending in the economy, which is the sum of consumption (C), investment (I), government spending (G), and net exports (exports (X) minus imports (M)).

Question 16

Exhibit 10-3
 
-Which of the following best describes the situation at point B in Exhibit 10-3?
A)consumption expenditures exceeds disposable income
B)real GDP exceeds aggregate expenditure
C)aggregate expenditure is exactly equal to real GDP
D)aggregate expenditure exceeds real GDP
E)producers are experiencing an unexpected accumulation of inventory

Accepted Answer

At point B, aggregate expenditure exceeds real GDP. This suggests that there is an excess demand for goods and services, and businesses may need to increase production to meet this demand. Alternatively, it could also indicate that prices will rise if demand cannot be met, leading to inflation.

Question 17

Exhibit 10-2
 
-In Exhibit 10-2, the government budget
A)has a deficit of $1 trillion
B)has a surplus of $1 trillion
C)is balanced
D)has a deficit of $2 trillion
E)has a surplus of $2 trillion

Accepted Answer

The answer of Exhibit 10-2
 
-In Exhibit 10-2, the government...

Question 18

The aggregate expenditure line shows total planned spending at each
A)price level
B)income level
C)income level, holding the price level constant
D)price level, holding the level of income constant
E)interest rate, holding the price level constant

Accepted Answer

The answer of The aggregate expenditure line shows total planned...

Question 19

Suppose that at a particular level of real GDP, the unintended change in inventories is zero. Which of the following is true?
A)That level of real GDP is less than the equilibrium level of real GDP demanded.
B)That level of real GDP is greater than the equilibrium level of real GDP demanded.
C)That level of real GDP is the equilibrium level of real GDP demanded.
D)At that level of real GDP, there is no inflation.
E)At that level of real GDP, there is no saving.

Accepted Answer

When the unintended change in inventories is zero, it means that the quantity of goods produced equals the quantity of goods demanded at that particular level of real GDP. Therefore, that level of real GDP is the equilibrium level of real GDP demanded.

Question 20

The aggregate expenditure line, along with the 45-degree line, determines equilibrium. This model is based on the assumption that
A)production is constant
B)production is constant and at the full employment level of GDP
C)producers are ready to supply whatever amount of output is demanded at the existing price level
D)producers will supply more at higher prices than they will at lower prices
E)producers will supply more at lower prices than they will at higher prices

Accepted Answer

The answer of The aggregate expenditure line, along with the...

Quiz 11: Aggregate Expenditure and Aggregate Demand

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

Exhibit 10-2 -At the equilibrium level of GDP in Exhibit 10-2, saving equals

Exhibit 10-3 -Which of the following best describes the situation at point B in Exhibit 10-3?

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

In an economy without a government and without international transactions, aggregate expenditure at each level of income is equal to

The aggregate expenditure line shows

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

Exhibit 10-2 -The marginal propensity to save (MPS) in Exhibit 10-2 equals

The equilibrium quantity of aggregate output occurs when

Consumption plus saving equals disposable income at every level of real GDP demanded.

Which of the following is not a part of planned aggregate spending?

Exhibit 10-2 -In Exhibit 10-2, the equilibrium level of GDP is

Aggregate expenditure means total or combined spending.

Exhibit 10-2 -The marginal propensity to consume (MPC) in Exhibit 10-2 equals

Which of the following best describes aggregate expenditure?

Exhibit 10-3 -Which of the following best describes the situation at point B in Exhibit 10-3?

Exhibit 10-2 -In Exhibit 10-2, the government budget

The aggregate expenditure line shows total planned spending at each

Suppose that at a particular level of real GDP, the unintended change in inventories is zero. Which of the following is true?

The aggregate expenditure line, along with the 45-degree line, determines equilibrium. This model is based on the assumption that