Question 1

If the MPC in an economy is 0.9, a $1 billion increase in government spending will ultimately increase consumption by

Accepted Answer

A)  $1 billion.
B)  $0.9 billion.
C)  $10 billion.
D)  $9 billion.E) A) and C)
F) B) and C)

Question 2

Actual investment consists of planned investment plus unplanned changes in inventories (plus or minus).

Accepted Answer

A) True 
 B)False

Question 3

Other things being equal, the effect of a downward shift of the economy's net export schedule on equilibrium GDP will be similar to a(n)

Accepted Answer

A)  rightward shift in the investment-demand schedule.
B)  downward shift in the consumption schedule.
C)  upward shift in the consumption schedule.
D)  upward shift in the investment schedule.E) None of the above
F) All of the above

Question 4

If planned investment is larger than saving, then real GDP will increase as the economy adjusts toward equilibrium.

Accepted Answer

A) True 
 B)False

Question 5

In the aggregate expenditures model, technological progress will shift the investment schedule

Accepted Answer

A)  downward and increase aggregate expenditures.
B)  downward and decrease aggregate expenditures.
C)  upward and increase aggregate expenditures.
D)  upward and decrease aggregate expenditures.E) B) and C)
F) None of the above

Question 6

In the aggregate expenditures model, the consumption schedule is shown to be

Accepted Answer

A)  directly related to real interest rates.
B)  inversely related to real interest rates.
C)  directly related to real income GDP.
D)  inversely related to real income GDP.E) None of the above
F) All of the above

Question 7

(Advanced analysis)  Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y, where C is consumption and Y is gross domestic product.The multiplier for this economy is

Accepted Answer

A)  3.
B)  4.
C)  5.
D)  10.E) B) and D)
F) B) and C)

Question 8

If a $20 billion increase in government expenditures increases equilibrium GDP by $50 billion, then

Accepted Answer

A)  the multiplier is 2.
B)  the MPC for this economy is 0.6.
C)  inflation is occurring.
D)  the MPS for this economy is 0.6.E) A) and B)
F) A) and C)

Question 9

In a private closed economy, investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where investment is equal to saving.

Accepted Answer

A)  planned; actual
B)  actual; planned
C)  gross; net
D)  net; grossE) B) and D)
F) A) and C)

Question 10

Other things equal, an increase in an economy's exports will

Accepted Answer

A)  lower the marginal propensity to import.
B)  have no effect on domestic GDP because imports will change by an offsetting amount.
C)  decrease its domestic aggregate expenditures and therefore decrease its equilibrium GDP.
D)  increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.E) A) and D)
F) None of the above

Question 11

C = 26 + 0.75Y Ig = 60 X = 24
M = 10
(Advanced analysis)  The equations give information for a private open economy.The letters Y, C, I g, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively.Figures are in billions of dollars.The equilibrium GDP for the open economy is

Accepted Answer

A)  $390.
B)  $375.
C)  $320.
D)  $400.E) A) and D)
F) B) and D)

Question 12

What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?

Accepted Answer

A)  a decline in the rate of interest
B)  an unintended accumulation of inventories by businesses
C)  a rise in the real GDP
D)  The federal budget will automatically move toward a deficit.E) A) and B)
F) C) and D)

Question 13

In an inflationary expenditure gap, the equilibrium level of real GDP is

Accepted Answer

A)  greater than planned investment.
B)  equal to full-employment GDP.
C)  greater than full-employment GDP.
D)  less than full-employment GDP.E) C) and D)
F) None of the above

Question 14

Which of the following is not true when there is an unplanned decrease in inventories?

Accepted Answer

A)  GDP is less than aggregate expenditures.
B)  Saving is less than planned investment.
C)  Actual investment is greater than planned investment.
D)  Real GDP will be rising.E) B) and C)
F) B) and D)

Question 15

In the aggregate expenditures model of the economy, equilibrium is attained when planned aggregate spending equals total output.

Accepted Answer

A) True 
 B)False

Question 16

Assume that in a private closed economy, consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output.Thus,

Accepted Answer

A)  saving is $10 billion.
B)  unplanned decreases in inventories of $10 billion will occur.
C)  the MPC is 0.80.
D)  unplanned increases in inventories of $10 billion will occur.E) B) and D)
F) B) and C)

Question 17

When saving is less than planned investment in the aggregate expenditures model of a private closed economy, then

Accepted Answer

A)  real GDP will decrease
B)  the rate of interest will decline.
C)  there will be a decline in the price level.
D)  there will be a rise in real GDP.E) B) and C)
F) A) and D)

Question 18

In the Great Recession of 2007-2009, the Federal government enacted a "stimulus package" that was intended to bring inflation down.

Accepted Answer

A) True 
 B)False

Question 19

A recessionary expenditure gap exists if

Accepted Answer

A)  planned investment exceeds saving at the full-employment GDP.
B)  the aggregate expenditures schedule lies below the 45-degree line at the full-employment GDP.
C)  the aggregate expenditures schedule intersects the 45-degree line at any level of GDP.
D)  the aggregate expenditures schedule lies above the 45-degree line at the full-employment GDP.E) C) and D)
F) A) and B)

Question 20

A downward-sloping investment demand curve and a horizontal investment schedule indicate that investments are inversely related to interest rates but are not affected by the level of income.

Accepted Answer

A) True 
 B)False

Exam 31: The Aggregate Expenditures Model

Actual investment consists of planned investment plus unplanned changes in inventories (plus or minus).

Correct Answer
verified

What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?

Correct Answer
verified

In the aggregate expenditures model of the economy, equilibrium is attained when planned aggregate spending equals total output.

Correct Answer
verified

If planned investment is larger than saving, then real GDP will increase as the economy adjusts toward equilibrium.

Correct Answer
verified

When saving is less than planned investment in the aggregate expenditures model of a private closed economy, then

Correct Answer
verified

In an inflationary expenditure gap, the equilibrium level of real GDP is

Correct Answer
verified

In the aggregate expenditures model, technological progress will shift the investment schedule

Correct Answer
verified

Correct Answer
verified

Other things being equal, the effect of a downward shift of the economy's net export schedule on equilibrium GDP will be similar to a(n)

Correct Answer
verified

A downward-sloping investment demand curve and a horizontal investment schedule indicate that investments are inversely related to interest rates but are not affected by the level of income.

Correct Answer
verified

Assume that in a private closed economy, consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output.Thus,

Correct Answer
verified

Which of the following is not true when there is an unplanned decrease in inventories?

Correct Answer
verified

A recessionary expenditure gap exists if

Correct Answer
verified

Other things equal, an increase in an economy's exports will

Correct Answer
verified

In the aggregate expenditures model, the consumption schedule is shown to be

Correct Answer
verified

(Advanced analysis) Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y, where C is consumption and Y is gross domestic product.The multiplier for this economy is

Correct Answer
verified

If a $20 billion increase in government expenditures increases equilibrium GDP by $50 billion, then

Correct Answer
verified

In a private closed economy, investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where investment is equal to saving.

Correct Answer
verified

In the Great Recession of 2007-2009, the Federal government enacted a "stimulus package" that was intended to bring inflation down.

Correct Answer
verified

If the MPC in an economy is 0.9, a $1 billion increase in government spending will ultimately increase consumption by

Correct Answer
verified

Exam 31: The Aggregate Expenditures Model

Actual investment consists of planned investment plus unplanned changes in inventories (plus or minus).

Correct AnswerverifiedShow Answer

What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?

Correct AnswerverifiedShow Answer

In the aggregate expenditures model of the economy, equilibrium is attained when planned aggregate spending equals total output.

Correct AnswerverifiedShow Answer

If planned investment is larger than saving, then real GDP will increase as the economy adjusts toward equilibrium.

Correct AnswerverifiedShow Answer

When saving is less than planned investment in the aggregate expenditures model of a private closed economy, then

Correct AnswerverifiedShow Answer

In an inflationary expenditure gap, the equilibrium level of real GDP is

Correct AnswerverifiedShow Answer

In the aggregate expenditures model, technological progress will shift the investment schedule

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Other things being equal, the effect of a downward shift of the economy's net export schedule on equilibrium GDP will be similar to a(n)

Correct AnswerverifiedShow Answer

A downward-sloping investment demand curve and a horizontal investment schedule indicate that investments are inversely related to interest rates but are not affected by the level of income.

Correct AnswerverifiedShow Answer

Assume that in a private closed economy, consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output.Thus,

Correct AnswerverifiedShow Answer

Which of the following is not true when there is an unplanned decrease in inventories?

Correct AnswerverifiedShow Answer

A recessionary expenditure gap exists if

Correct AnswerverifiedShow Answer

Other things equal, an increase in an economy's exports will

Correct AnswerverifiedShow Answer

In the aggregate expenditures model, the consumption schedule is shown to be

Correct AnswerverifiedShow Answer

(Advanced analysis) Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y, where C is consumption and Y is gross domestic product.The multiplier for this economy is

Correct AnswerverifiedShow Answer

If a $20 billion increase in government expenditures increases equilibrium GDP by $50 billion, then

Correct AnswerverifiedShow Answer

In a private closed economy, investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where investment is equal to saving.

Correct AnswerverifiedShow Answer

In the Great Recession of 2007-2009, the Federal government enacted a "stimulus package" that was intended to bring inflation down.

Correct AnswerverifiedShow Answer

If the MPC in an economy is 0.9, a $1 billion increase in government spending will ultimately increase consumption by

Correct AnswerverifiedShow Answer

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