Final- review chapter 11

in the above figure, equilibrium expenditure along AE1 is:

$12 trillion

in the above figure, equilibrium real GDP is equal to:

$16 trillion

In the above figure, if real GDP is greater than $15 trillion, inventories will be:

above target levels so firms will decrease production

If planned expenditures equal $16 trillion when real GDP is $16.5 trillion, then:

actual investment will exceed planned investment.

An increase in the price level decreases planned expenditures because:

current prices rise relative to future prices, decreasing expenditure

the MPS equals the ratio of:

none of the above answers are correct

There is a movement along the consumption function if there is ________.

an increase in disposable income

With consumption expenditure on the vertical axis and disposable income on the horizontal axis, the consumption function intersects the 45-degree line at $8 trillion. This result indicates that:

consumption spending is $8 trillion when disposable income is $8 trillion.

Between 2013 and 2014 the government estimates that disposable income in the United States decreased. Consequently, as a result of this change, consumption expenditure:

decreased

When the economy is at full employment and investment increases, in the long run the price level will ________ and, if potential GDP does not change, in the long run real GDP will ________.

increase; not change

The slope of the aggregate expenditure curve increases when the marginal propensity to consume ________ or the marginal propensity to import ________.

increases; decreases

If prices are fixed, when aggregate planned expenditure exceeds real GDP, then:

inventories decrease, signaling firms to increase production and increase real GDP

When aggregate planned expenditure is less than real GDP, unplanned:

investment occurs

in the long run, the multiple:

is zero

When there is unplanned inventory investment, aggregate planned expenditure is ________ real GDP and actual investment is ________ planned investment.

less than; greater than

The multiplier is greater than 1 because the change in autonomous expenditure leads to ________.

more induced expenditure

As disposable income increases, there is a ________ the saving function.

movement along

At equilibrium expenditure, unplanned changes in inventory:

must be zero

An increase in disposable income shifts:

neither the consumption function or the savings function because it leads to a movement along both the consumption and savings function

the marginal propensity to consume is:

never greater than 1

the marginal property to consume measures:

the fraction of a change in disposable income that is spent on consumption expenditure

A movement along the consumption function to higher levels of consumption expenditure arises because:

the level of disposable income increases

An increase in ________ shifts the AE curve ________ and an increase in ________ shifts the aggregate demand curve ________.

the price level; downward; autonomous expenditure; rightward

The Keynesian model of aggregate expenditure describes the economy in:

the short run

In general, an increase in autonomous expenditure that is NOT created by a change in the price level results in a:

rightward shift of the AD curve

In the figure above, if income taxes increase:

the AE curve becomes flatter.

in the figure above, the multiple equals:

1.67

if the slope of the AE curve is 0.60, the value of the multiplier is:

2.5

If there are no taxes or imports and MPC = 0.67, the multiplier is

3

if the marginal propensity to save is .25 in an economy with no imports or taxes, the money multiplier equals

4

business cycle turning points are:

brought about by changes in autonomous expenditures that are then subject to the multiplier effect

If aggregate planned expenditure is less than real GDP then:

firms' inventories will increase and real GDP will decrease as production falls

The presence of income taxes and imports make the slope of the aggregate expenditure curve:

flatter than it would be without income taxes and exports

If the MPC equals 0.75, then:

for every $100 increase in disposable income, saving increases by $25

the money multiplier measures the:

horizontal shift in the aggregate demand curve from an increase in autonomous spending

the multiplier effect is smallest

in the long run

In the above figure, if the marginal propensity to consume increases, the slope of the AE curve would:

increase

Suppose that the slope of the AE curve is 0.67. Then a $100 increase in autonomous spending means equilibrium expenditure will:

increase by 300

A fall in the price level shifts the AE curve ________ and ________ equilibrium expenditure

upward;increases

The aggregate demand curve slopes downward because of:

wealth and substitution effects

In the above figure, at a disposable income level of $2 trillion, saving equals:

zero

in the above table, there are no taxes and no imports or exports. the change in unplanned inventories when real GDP is $7,000 is:

$500

In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. What is the level of aggregate planned expenditure when real GDP is equal to $900 billion?

$796

An economy has no imports and no taxes. The marginal propensity to save is 0.2. The multiplier is ________ so a ________ increase in autonomous expenditure increases equilibrium expenditure by:

5; $12 billion

Suppose the equilibrium level of expenditure is $13 trillion. If real GDP is $14 trillion, then planned expenditures:

are less than real GDP, and real GDP will decrease

Expenditure that does NOT depend on real GDP is called:

autonomous expenditure

The short-run multiplier is equal to 3, real GDP equals potential GDP of $8,000, and the price level is equal to 100. Suppose that government expenditure decreases by $200. The long-run effect of the decrease in government expenditure changes real GDP by:

nothing; that is, in the long run real GDP equals $8,000

dissaving:

occurs when consumption is greater than disposable income

a fall in the price level

shifts the aggregate expenditure curve upward and increases the quantity of real GDP demanded.