ec202 ch.11
If planned investment spending increases, the planned aggregate spending line:
shifts up.
If the interest rate rises:
the opportunity cost of investment is greater.
In an income-expenditure equilibrium:
there is no unplanned inventory investment.
If disposable income increases:
there will be a rightward movement along the consumption function.
When planned investment is less than actual investment, there must be:
unplanned inventory investment.
According to the _____, there is a positive relationship between planned investment spending and the expected growth rate of real GDP.
accelerator principle
The most important factor affecting a household's consumer spending is:
its current disposable income.
If the marginal propensity to save is small, it will:
make the multiplier larger.
Planned investment spending is _____ related to the interest rate and _____.
negatively; existing productive capacity positively to expected GDP
When Sue's disposable income is $10,000, she spends $8,000. When her disposable income is $20,000, she spends $14,000. Sue's autonomous consumer spending is equal to _____, and her marginal propensity to save (MPS) is equal to _____.
$2,000; 0.4
Suppose that the aggregate consumption function is given by the equation C = 200 + 0.8YD, where C represents consumption and YD represents disposable income.
$200.
Suppose that the marginal propensity to consume is 0.8 and investment spending increases by $100 billion. The increase in real GDP is:
$500 billion, composed of $100 billion in investment spending and $400 billion in consumption.
In an economy with no taxes or imports, if disposable income increases by $1,000 and consumption increases by $600, the marginal propensity to consume is:
0.60.
Suppose that the consumption function is C = $500 + 0.8 × YD, where YD is disposable income. (Scenario: Consumption Spending) Look at the scenario Consumption Spending. The marginal propensity to consume is:
0.8.
If planned investment spending is $2 trillion and inventories decrease by $0.5 trillion, actual investment spending is:
1.5
If the MPS = 0.1, then the multiplier equals
10
If real GDP is $1,000 billion and the aggregate expenditure is $850 billion, then the change in inventories will be:
150
If the slope of the aggregate expenditures curve is 0.75, the multiplier is:
4
You and a coworker have been trying to develop a linear equation that describes the local household consumption function. Your coworker has sent you a very short email that simply says he has finished the project and the consumption function is C = 100 + 0.75(YD). Your job is to explain this result to your supervisor. According to this consumption function, how much consumption spending would occur if a household had disposable income of $1,000?
850
Suppose aggregate wealth decreases in the economy because of the bursting of a housing price bubble. Holding everything else constant, this will MOST likely:
cause the aggregate expenditure function to shift down.
The marginal propensity to consume (MPC) equals the change in _____ divided by the change in _____.
consumer spending; disposable income
Suppose that a financial crisis decreases investment spending by $100 billion and the marginal propensity to consume is 0.8. Assuming no taxes and no trade, real GDP will _____ by _____.
decrease; $500 billion
If current disposable income increases in this economy, then the:
economy will move upward along the aggregate expenditures curve.
The consumption function will shift up if:
households expect an increase in the minimum wage.
An upward shift in the aggregate consumption function can be caused by:
expectations of higher incomes.
An important factor determining planned investment spending is:
expected real GDP.
A $50 million increase in investment spending will eventually cause equilibrium real GDP to:
increase by more than $50 million.
If the marginal propensity to consume increases, the multiplier will:
increase.
An increase in the marginal propensity to consume:
increases the multiplier.
Rising inventories typically indicate _____ unplanned inventory investment and a _____ economy.
positive; slowing
Income-expenditure equilibrium occurs when:
real GDP equals planned aggregate spending.
If real GDP is greater than planned aggregate spending:
real GDP will fall.