Question 1

Exhibit 9-7 
-Which of the following best describes the situation at point B in Exhibit 9-7?

Accepted Answer

B

Question 2

Exhibit 9-7 
-Which of the following best describes the situation at point B in Exhibit 9-7?

Accepted Answer

Point B represents a situation where aggregate expenditure exceeds real GDP, which is indicative of a possible inflationary gap.

Question 3

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

Accepted Answer

If there are no unintended changes in inventories, it means that the level of real GDP demanded by the economy is equal to the level of real GDP produced. This is known as the equilibrium level of real GDP. Therefore, Option A is correct.

Question 4

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

Accepted Answer

This statement is consistent with the basic macroeconomic identity of GDP, which is defined as the sum of consumption, investment, government spending, and net exports. Disposable income is the total amount of income that households have available to either save or spend after paying taxes. Therefore, by definition, consumption plus saving must equal disposable income at every level of real GDP demanded.

Question 5

Exhibit 9-6
\[\begin{array}{l}
\text { (Trillions of Dollars) }\
\begin{array} { c c c c c c c c c } 
\begin{array} { c } 
\text { Real } \
\text { GDP } \
( \mathrm { Y } )
\end{array} & \begin{array} { c } 
\text { Net } \
\text { Taxes } \
\text { (NT) }
\end{array} & \begin{array} { c } 
\text { Dispes } \
\text {-able } \
\text { Income } \
\text { (Y-NT) }
\end{array} & \begin{array} { c } 
\text { Con- } \
\text { sumption } \
\text { (C) }
\end{array} & \begin{array} { c } 
\text { Saving } \
\text { (S) }
\end{array} & \begin{array} { c } 
\text { Planned } \
\text { Invest- } \
\text { ment } \
\text { (I) }
\end{array} & \begin{array} { c } 
\text { Govern- } \
\text { ment } \
\text { Purchases } \
\text { (G) }
\end{array} & \begin{array} { c } 
\text { Net } \
\text { Exports } \
\text { (X-M) }
\end{array} & \begin{array} { c } 
\text { Planned } \
\text { Aggregate } \
\text { Expenditures } \
( \mathrm { C } + \mathrm { I } + \mathrm { G } + ( \mathrm { X } - \mathrm { M } )
\end{array} \
\hline 5.0 & 1.0 & 4.0 & 3.9 & 0.1 & 1.0 & 1.0 & - 0.7 & 5.2 \
5.5 & 1.0 & 4.5 & 4.3 & 0.2 & 1.0 & 1.0 & - 0.7 & 5.6 \
6.0 & 1.0 & 5.0 & 4.7 & 0.3 & 1.0 & 1.0 & - 0.7 & 6.0 \
6.5 & 1.0 & 5.5 & 5.1 & 0.4 & 1.0 & 1.0 & - 0.7 & 6.4 \
7.0 & 1.0 & 6.0 & 5.5 & 0.5 & 1.0 & 1.0 & - 0.7 & 6.8
\end{array}
\end{array}\]
-In Exhibit 9-6,the government budget

Accepted Answer

The government budget is balanced because government purchases (G) are equal to net taxes (NT), both being $1 trillion.

Question 6

Aggregate expenditure means total or combined spending.

Accepted Answer

Aggregate expenditure refers to the total amount of spending in an economy, including consumption expenditure, investment expenditure, government expenditure, and net exports.

Question 7

Exhibit 9-6
\[\begin{array}{l}
\text { (Trillions of Dollars) }\
\begin{array} { c c c c c c c c c } 
\begin{array} { c } 
\text { Real } \
\text { GDP } \
( \mathrm { Y } )
\end{array} & \begin{array} { c } 
\text { Net } \
\text { Taxes } \
\text { (NT) }
\end{array} & \begin{array} { c } 
\text { Dispes } \
\text {-able } \
\text { Income } \
\text { (Y-NT) }
\end{array} & \begin{array} { c } 
\text { Con- } \
\text { sumption } \
\text { (C) }
\end{array} & \begin{array} { c } 
\text { Saving } \
\text { (S) }
\end{array} & \begin{array} { c } 
\text { Planned } \
\text { Invest- } \
\text { ment } \
\text { (I) }
\end{array} & \begin{array} { c } 
\text { Govern- } \
\text { ment } \
\text { Purchases } \
\text { (G) }
\end{array} & \begin{array} { c } 
\text { Net } \
\text { Exports } \
\text { (X-M) }
\end{array} & \begin{array} { c } 
\text { Planned } \
\text { Aggregate } \
\text { Expenditures } \
( \mathrm { C } + \mathrm { I } + \mathrm { G } + ( \mathrm { X } - \mathrm { M } )
\end{array} \
\hline 5.0 & 1.0 & 4.0 & 3.9 & 0.1 & 1.0 & 1.0 & - 0.7 & 5.2 \
5.5 & 1.0 & 4.5 & 4.3 & 0.2 & 1.0 & 1.0 & - 0.7 & 5.6 \
6.0 & 1.0 & 5.0 & 4.7 & 0.3 & 1.0 & 1.0 & - 0.7 & 6.0 \
6.5 & 1.0 & 5.5 & 5.1 & 0.4 & 1.0 & 1.0 & - 0.7 & 6.4 \
7.0 & 1.0 & 6.0 & 5.5 & 0.5 & 1.0 & 1.0 & - 0.7 & 6.8
\end{array}
\end{array}\]
-The marginal propensity to consume (MPC)in Exhibit 9-6 equals

Accepted Answer

The MPC is calculated as the change in consumption divided by the change in disposable income. From the table, when disposable income increases from 4.0 to 4.5, consumption increases from 3.9 to 4.3. Thus, MPC = (4.3 - 3.9) / (4.5 - 4.0) = 0.4 / 0.5 = 0.8.

Question 8

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

Accepted Answer

The aggregate expenditure model assumes that producers are willing to supply whatever amount of output is demanded at the existing price level, which is why the equilibrium is determined by the intersection of the aggregate expenditure line and the 45-degree line.

Question 9

If an economy is in equilibrium when net taxes = $50 trillion,saving = $40 trillion,government purchases = $50 trillion,exports = $30 trillion,and imports = $10 trillion,then planned investment spending must equal

Accepted Answer

In equilibrium, aggregate expenditure equals aggregate income. The equation is: C + I + G + (X - M) = C + S + T. Rearranging gives I = S + (T - G) + (M - X). Substituting the given values: I = $40 + ($50 - $50) + ($10 - $30) = $40 - $20 = $20 trillion.

Question 10

The aggregate expenditure line shows total planned spending at each

Accepted Answer

The aggregate expenditure line represents total planned spending at each income level while keeping the price level constant.

Question 11

The aggregate expenditure line shows

Accepted Answer

The aggregate expenditure line is a graphical representation where real GDP is plotted on the horizontal axis and aggregate expenditure is plotted on the vertical axis.

Question 12

The equilibrium quantity of aggregate output occurs when

Accepted Answer

The equilibrium quantity of aggregate output occurs when there is a balance between planned aggregate expenditure (the total amount that firms and households desire to spend on goods and services) and the income generated from production. When these two are equal, there is no incentive for firms to increase or decrease production, meaning that the economy is at a stable equilibrium. At this point, there is no excess supply or demand in the market, which leads to stable prices, output, and employment.

Question 13

Exhibit 9-6
\[\begin{array}{l}
\text { (Trillions of Dollars) }\
\begin{array} { c c c c c c c c c } 
\begin{array} { c } 
\text { Real } \
\text { GDP } \
( \mathrm { Y } )
\end{array} & \begin{array} { c } 
\text { Net } \
\text { Taxes } \
\text { (NT) }
\end{array} & \begin{array} { c } 
\text { Dispes } \
\text {-able } \
\text { Income } \
\text { (Y-NT) }
\end{array} & \begin{array} { c } 
\text { Con- } \
\text { sumption } \
\text { (C) }
\end{array} & \begin{array} { c } 
\text { Saving } \
\text { (S) }
\end{array} & \begin{array} { c } 
\text { Planned } \
\text { Invest- } \
\text { ment } \
\text { (I) }
\end{array} & \begin{array} { c } 
\text { Govern- } \
\text { ment } \
\text { Purchases } \
\text { (G) }
\end{array} & \begin{array} { c } 
\text { Net } \
\text { Exports } \
\text { (X-M) }
\end{array} & \begin{array} { c } 
\text { Planned } \
\text { Aggregate } \
\text { Expenditures } \
( \mathrm { C } + \mathrm { I } + \mathrm { G } + ( \mathrm { X } - \mathrm { M } )
\end{array} \
\hline 5.0 & 1.0 & 4.0 & 3.9 & 0.1 & 1.0 & 1.0 & - 0.7 & 5.2 \
5.5 & 1.0 & 4.5 & 4.3 & 0.2 & 1.0 & 1.0 & - 0.7 & 5.6 \
6.0 & 1.0 & 5.0 & 4.7 & 0.3 & 1.0 & 1.0 & - 0.7 & 6.0 \
6.5 & 1.0 & 5.5 & 5.1 & 0.4 & 1.0 & 1.0 & - 0.7 & 6.4 \
7.0 & 1.0 & 6.0 & 5.5 & 0.5 & 1.0 & 1.0 & - 0.7 & 6.8
\end{array}
\end{array}\]
-The marginal propensity to save (MPS)in Exhibit 9-6 equals

Accepted Answer

The marginal propensity to save (MPS) is calculated as the change in saving divided by the change in disposable income. From the table, as disposable income increases from 4.0 to 4.5, saving increases from 0.1 to 0.2. Thus, MPS = (0.2 - 0.1) / (4.5 - 4.0) = 0.1 / 0.5 = 0.20 or 1/5.

Question 14

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

Accepted Answer

Saving is not a part of planned aggregate spending because it represents the portion of income that is not spent on consumption or investment, and therefore, does not contribute to current aggregate demand.

Question 15

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

Accepted Answer

In an economy without government and international transactions, aggregate expenditure at each level of income is equal to consumption plus planned investment as there are no factors such as government expenditure or net exports to be taken into account. Thus, the best choice is option D.

Question 16

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

Accepted Answer

Movement along the aggregate expenditure curve occurs when there is a change in the level of income, as this affects the total spending in the economy.

Question 17

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

Accepted Answer

When unintended change in inventories is zero, it means that aggregate demand equals aggregate supply i.e. there is no surplus or shortage of goods in the market. This implies that the level of real GDP is at the equilibrium level where the quantity demanded equals the quantity supplied. Therefore, the correct answer is (C) - That level of real GDP is the equilibrium level of real GDP demanded.

Question 18

Which of the following is not true at the equilibrium quantity of GDP demanded?

Accepted Answer

At equilibrium, planned injections (investment) equal planned leakages (savings), not less.

Question 19

Exhibit 9-6
\[\begin{array}{l}
\text { (Trillions of Dollars) }\
\begin{array} { c c c c c c c c c } 
\begin{array} { c } 
\text { Real } \
\text { GDP } \
( \mathrm { Y } )
\end{array} & \begin{array} { c } 
\text { Net } \
\text { Taxes } \
\text { (NT) }
\end{array} & \begin{array} { c } 
\text { Dispes } \
\text {-able } \
\text { Income } \
\text { (Y-NT) }
\end{array} & \begin{array} { c } 
\text { Con- } \
\text { sumption } \
\text { (C) }
\end{array} & \begin{array} { c } 
\text { Saving } \
\text { (S) }
\end{array} & \begin{array} { c } 
\text { Planned } \
\text { Invest- } \
\text { ment } \
\text { (I) }
\end{array} & \begin{array} { c } 
\text { Govern- } \
\text { ment } \
\text { Purchases } \
\text { (G) }
\end{array} & \begin{array} { c } 
\text { Net } \
\text { Exports } \
\text { (X-M) }
\end{array} & \begin{array} { c } 
\text { Planned } \
\text { Aggregate } \
\text { Expenditures } \
( \mathrm { C } + \mathrm { I } + \mathrm { G } + ( \mathrm { X } - \mathrm { M } )
\end{array} \
\hline 5.0 & 1.0 & 4.0 & 3.9 & 0.1 & 1.0 & 1.0 & - 0.7 & 5.2 \
5.5 & 1.0 & 4.5 & 4.3 & 0.2 & 1.0 & 1.0 & - 0.7 & 5.6 \
6.0 & 1.0 & 5.0 & 4.7 & 0.3 & 1.0 & 1.0 & - 0.7 & 6.0 \
6.5 & 1.0 & 5.5 & 5.1 & 0.4 & 1.0 & 1.0 & - 0.7 & 6.4 \
7.0 & 1.0 & 6.0 & 5.5 & 0.5 & 1.0 & 1.0 & - 0.7 & 6.8
\end{array}
\end{array}\]
-In Exhibit 9-6,which group of the following is considered autonomous with respect to income?

Accepted Answer

Investment (I), Government Purchases (G), and Net Exports (X-M) are typically considered autonomous because they do not directly depend on the level of income.

Question 20

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

Accepted Answer

This statement is true. When aggregate expenditure equals current production, all goods and services that are produced are being purchased, indicating that supply and demand are balanced. This is a state of equilibrium in the economy.

Quiz 10: Baggregate Expenditure and Aggregate Demand

Exhibit 9-7 -Which of the following best describes the situation at point B in Exhibit 9-7?