Question 1

On the 45-degree line diagram,for points that lie above the 45-degree line
A)planned aggregate expenditure is greater than GDP.
B)planned aggregate expenditure is less than GDP.
C)planned aggregate expenditure is equal to GDP.
D)planned aggregate expenditure is less than aggregate income.

Accepted Answer

For points that lie above the 45-degree line on such a diagram, planned aggregate expenditure is greater than GDP. This is because the 45-degree line represents points where planned aggregate expenditure equals GDP, so any point above this line indicates a higher planned expenditure than the current GDP.

Question 2

If planned aggregate expenditure is above potential GDP and planned aggregate expenditure equals GDP,then
A)actual inventory investment will be less than planned inventory investment.
B)actual inventory investment will be greater than planned inventory investment.
C)the economy is in an expansion.
D)the economy is at full employment.

Accepted Answer

The answer of If planned aggregate expenditure is above potential...

Question 3

Macroeconomic equilibrium can occur at any point on the 45-degree line.

Accepted Answer

The 45-degree line represents the level of real GDP that is equal to total expenditures (aggregate demand). When aggregate demand equals aggregate supply (potential GDP), macroeconomic equilibrium is reached. Therefore, any point on the 45-degree line represents a level of real GDP where macroeconomic equilibrium can occur.

Question 4

If planned aggregate expenditure is greater than total production
A)actual inventories will equal planned inventories.
B)firms will experience an unplanned increase in inventories.
C)GDP will increase.
D)the economy is in equilibrium.

Accepted Answer

The answer of If planned aggregate expenditure is greater than...

Question 5

Figure 23-2 
-Refer to Figure 23-2.If the U.S.economy is currently at point K,which of the following could cause it to move to point N?
A)The price level in the United States falls relative to the price level in other countries.
B)Congress abolishes investment tax incentives.
C)The interest rate rises.
D)Household wealth declines.

Accepted Answer

The answer of Figure 23-2 
-Refer to Figure 23-2.If the...

Question 6

If the economy is currently in equilibrium at a level of GDP that is above potential GDP,which of the following would move the economy back to potential GDP?
A)a decrease in wealth
B)a decrease in interest rates
C)an increase in business confidence
D)a decrease in the value of the dollar relative to other currencies

Accepted Answer

A decrease in wealth would likely lead to a reduction in consumer spending, which in turn would decrease aggregate demand. This reduction in aggregate demand could help move the economy back towards its potential GDP, especially if the economy is currently operating above its potential output level.

Question 7

For all points below the 45-degree line,planned aggregate expenditure will be less than GDP.

Accepted Answer

The 45-degree line represents when planned aggregate expenditure (PAE) is equal to GDP. Any points below this line indicate that PAE is less than GDP, since the PAE includes only planned spending while GDP includes all actual spending in the economy.

Question 8

On the 45-degree line diagram,the 45-degree line shows points where real aggregate expenditure equals
A)unplanned investment.
B)planned investment.
C)real GDP.
D)nominal GDP.

Accepted Answer

The 45-degree line shows the points where real GDP equals real aggregate expenditure. This means that for any given level of real GDP, the points on the 45-degree line represent the combination of consumption, investment, government spending, and net exports that add up to that level of GDP. So, at any point on the 45-degree line, real aggregate expenditure is equal to real GDP.

Question 9

Figure 23-2 
-Refer to Figure 23-2.If the U.S.economy is currently at point K,which of the following could cause it to move to point N?
A)The price level in the United States rises relative to the price level in other countries.
B)Congress passes investment tax incentives.
C)The interest rate rises.
D)Household wealth declines.

Accepted Answer

The answer of Figure 23-2 
-Refer to Figure 23-2.If the...

Question 10

________ is equal to consumption spending plus planned investment spending plus government purchases plus net exports.
A)Full employment GDP
B)Short-run aggregate supply
C)Planned inventory investment
D)Planned aggregate expenditure

Accepted Answer

Planned aggregate expenditure is the total amount of planned spending in the economy, which includes consumption spending, planned investment spending, government purchases, and net exports.

Question 11

If planned aggregate expenditure equals GDP,the economy is in macroeconomic equilibrium.

Accepted Answer

If planned aggregate expenditure (which includes consumption, investment, government spending, and net exports) equals GDP, it means that there are no unplanned changes in inventories, indicating that the output level is consistent with the economy's aggregate demand. Therefore, the economy is in macroeconomic equilibrium.

Question 12

Planned aggregate expenditure is equal to
A)consumption spending only.
B)consumption spending plus planned investment spending.
C)planned investment spending only.
D)consumption spending plus planned investment spending plus government purchases plus net exports.

Accepted Answer

Planned aggregate expenditure includes not only consumption spending and planned investment spending, but also government purchases and net exports.

Question 13

When net exports equal zero,the economy is in macroeconomic equilibrium.

Accepted Answer

Macro equilibrium is achieved when total aggregate demand is equal to total aggregate supply. Net exports are only one component of aggregate demand, which includes consumption, investment, and government spending. Therefore, even if net exports are zero, the economy may not be in macroeconomic equilibrium if there are imbalances in the other components of aggregate demand or supply.

Question 14

Figure 23-2 
-Refer to Figure 23-2.Suppose that the level of GDP associated with point K is potential GDP.If the U.S.economy is currently at point N,
A)firms are operating below capacity.
B)the economy is at full employment.
C)the economy is in an expansion.
D)the level of unemployment is above the natural rate.

Accepted Answer

The answer of Figure 23-2 
-Refer to Figure 23-2.Suppose that...

Question 15

Which of the following leads to a decrease in real GDP?
A)an increase in government spending
B)an increase in the inflation rate in other countries,relative to the inflation in the United States
C)an increase in interest rates
D)Households have increasingly optimistic expectations about future income.

Accepted Answer

An increase in interest rates can lead to a decrease in consumer spending and investment, which can in turn lead to a decrease in real GDP. Option A would lead to an increase in real GDP, as government spending is a component of GDP. Option B may have some effects on the economy, but it is not always clear whether it would lead to a decrease in real GDP or not. Option D may have some positive effects on the economy, but it is unlikely to directly lead to a decrease in real GDP.

Question 16

Figure 23-2 
-Refer to Figure 23-2.Suppose that the level of GDP associated with point N is potential GDP.If the U.S.economy is currently at point K,
A)firms are operating above capacity.
B)the economy is at full employment.
C)the economy is in recession.
D)the level of unemployment is equal to the natural rate.

Accepted Answer

Point K is to the left of point N, indicating that the real GDP is below potential GDP. This suggests that the economy is in a recessionary gap, where firms are producing below their capacity and unemployment is likely above the natural rate.

Question 17

Figure 23-2 
-Refer to Figure 23-2.If the U.S.economy is currently at point N,which of the following could cause it to move to point K?
A)Households expect future income to rise.
B)Household wealth falls.
C)Firm's cash flows rise as profits rise.
D)Government expenditures increase.

Accepted Answer

Moving from point N to K represents a decrease in real GDP and an increase in unemployment. The only event that could cause this is a decrease in household wealth, as it would lead to a decrease in consumer spending and aggregate demand. The other choices would either have no impact or a positive impact on the economy, moving it further to the right on the graph.

Question 18

How does an increase in government spending affect the aggregate expenditure line?
A)It shifts the aggregate expenditure line upward.
B)It shifts the aggregate expenditure line downward.
C)It increases the slope of the aggregate expenditure line.
D)It decreases the slope of the aggregate expenditure line.

Accepted Answer

An increase in government spending increases the level of overall spending in an economy, leading to an upward shift in the aggregate expenditure line. This is because government spending is a component of aggregate expenditure, along with consumption, investment, and net exports.

Question 19

Figure 23-2 
-Refer to Figure 23-2.If the U.S.economy is currently at point N,which of the following could cause it to move to point K?
A)Households expect future income to decline.
B)Household wealth rises.
C)The firm's cash flow rises as profits rise.
D)Government expenditures increase.

Accepted Answer

The answer of Figure 23-2 
-Refer to Figure 23-2.If the...

Question 20

If planned aggregate expenditure is greater than total production
A)actual inventories will equal planned inventories.
B)firms will experience an unplanned decrease in inventories.
C)GDP will decrease.
D)the economy is in equilibrium.

Accepted Answer

If planned aggregate expenditure is greater than total production, it means that firms have sold more goods than they have produced, resulting in a decrease in inventories. This is an unplanned decrease in inventories and indicates that the economy is not in equilibrium.

Quiz 23: Aggregate Expenditure and Output in the Short Run

On the 45-degree line diagram,for points that lie above the 45-degree line

If planned aggregate expenditure is above potential GDP and planned aggregate expenditure equals GDP,then

Macroeconomic equilibrium can occur at any point on the 45-degree line.

If planned aggregate expenditure is greater than total production

Figure 23-2 -Refer to Figure 23-2.If the U.S.economy is currently at point K,which of the following could cause it to move to point N?

If the economy is currently in equilibrium at a level of GDP that is above potential GDP,which of the following would move the economy back to potential GDP?

For all points below the 45-degree line,planned aggregate expenditure will be less than GDP.

On the 45-degree line diagram,the 45-degree line shows points where real aggregate expenditure equals

Figure 23-2 -Refer to Figure 23-2.If the U.S.economy is currently at point K,which of the following could cause it to move to point N?

________ is equal to consumption spending plus planned investment spending plus government purchases plus net exports.

If planned aggregate expenditure equals GDP,the economy is in macroeconomic equilibrium.

Planned aggregate expenditure is equal to

When net exports equal zero,the economy is in macroeconomic equilibrium.

Figure 23-2 -Refer to Figure 23-2.Suppose that the level of GDP associated with point K is potential GDP.If the U.S.economy is currently at point N,

Which of the following leads to a decrease in real GDP?

Figure 23-2 -Refer to Figure 23-2.Suppose that the level of GDP associated with point N is potential GDP.If the U.S.economy is currently at point K,

Figure 23-2 -Refer to Figure 23-2.If the U.S.economy is currently at point N,which of the following could cause it to move to point K?

How does an increase in government spending affect the aggregate expenditure line?

Figure 23-2 -Refer to Figure 23-2.If the U.S.economy is currently at point N,which of the following could cause it to move to point K?

If planned aggregate expenditure is greater than total production