Macro exam 2 (ch 12)

Which of the following statements about investment spending is correct?

All of the above are correct.

Which of the following statements is correct?

An increase in the corporate income tax decreases the after-tax profitability of investment spending.

A decrease in the price level will increase autonomous expenditure, which will result in an increase in equilibrium real GDP.

True

An increase in government purchases will result in an increase in autonomous expenditure.

True

If aggregate expenditure is less than real GDP, then real GDP will decrease.

True

In the aggregate expenditure model, the price level is constant.

True

Macroeconomic equilibrium will occur when unplanned investment equals zero.

True

Planned investment and actual investment are equal when there are no unplanned changes in inventories.

True

When incomes rise faster in the United States than in other countries,

U.S. net exports will fall.

Which of the following causes saving to increase?

an increase in the interest rate

Aggregate expenditure, or the total amount of spending in the economy, equals

consumption spending plus planned investment spending plus government purchases plus net exports.

Economists and business analysts usually explain fluctuations in GDP in terms of fluctuations in these four categories:

consumption, planned investment, government purchases, and net exports.

The most important determinant of consumption is

current disposable income.

Fill in the blanks. An increase in the value of the dollar (the dollar appreciates against other currencies) will _________ exports and _________ imports, so net exports will _________.

decrease; increase; fall

Fill in the blanks. If inflation in the United States is lower than inflation in other countries, then U.S. exports ________ and U.S. imports ________, which _________ net exports.

increase; decrease; increases

When aggregate expenditure is less than GDP,

inventories will rise.

Fill in the blanks. Net exports have been __________ in most years between 1979 and 2013. Net exports have usually __________ when the U.S. economy is in recession and __________ when the U.S. economy is expanding.

negative; increased; decreased

If aggregate expenditure is equal to GDP, then

the economy is in macroeconomic equilibrium.

The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by

the level of aggregate expenditure.

Which of the following is among the most important determinants of the level of net exports?

the price level in the United States relative to the price levels in other countries

When the economy is in a recession, the shortfall in aggregate expenditure is exactly equal to

the unplanned increase in inventories that would occur if the economy were initially at potential GDP .

Macroeconomic equilibrium occurs where

total spending, or aggregate expenditure, equals total production, or GDP.

The aggregate expenditure model focuses on the relationship between total spending and

real GDP in the short run.

What happens when there is an unplanned decrease in inventories?

Actual investment is less than planned investment.

Which of the following statements is correct?

Actual investment will equal planned investment only when there is no unplanned change in inventories.

An increase in the price level will reduce equilibrium real GDP, shifting the AD curve to the right.

False

An increase in the real interest rate will increase consumption spending.

False

If aggregate expenditure is greater than real GDP, then inventories will be rising.

False

If the marginal propensity to consume (MPC) is 0.5, then the marginal propensity to save (MPS) is also 0.5.

False

The marginal propensity to consume (MPC) is the ratio of consumption to disposable income.

False

The paradox of thrift explains why an increase in saving can raise real GDP in both the short run and the long run.

False

Fluctuations in total spending in the economy may affect

both employment and production in the short run.

Fill in the blanks. When aggregate expenditure is greater than GDP, inventories will __________ and GDP and total employment will __________.

fall; increase

An increase in household wealth will

increase the consumption component of aggregate expenditure.