Chapter 11 Quiz
Inventories are
increasing
According to the Keynesian theory, the typical firm
does not change its prices immediately when aggregate demand fluctuates.
All else being constant, autonomous expenditure
does not change with changes in real GDP.
A decrease in the marginal propensity to import _______, everything else remaining the same.
makes the multiplier larger
An increase in income taxes _______, everything else remaining the same.
makes the multiplier smaller
To calculate the multiplier, we divide ______ by ______.
the change in equilibrium expenditure; the change in autonomous expenditure
The marginal propensity to save is
the change in saving divided by the change in disposable income.
In the figure, autonomous consumption equals
$4 trillion
When real GDP exceeds aggregate planned expenditures,
GDP will decrease.
The left graph shows the consumption function and the right graph shows the saving function. Suppose there is a decrease in household wealth.
The consumption function shifts from A to B and the saving function shifts from C to D.
An increase in the price level results in a
downward shift in the AE curve and a movement up along the AD curve.
Inventories are
decreasing
According to this news clip, consumption expenditure increased as household wealth decreased.
increased
The data in the table indicate that the slope of the AE curve is
0.90.
The table gives you information about the economy of Bluebird Island. What is the marginal propensity to consume?
.75
Based upon the above table, if disposable income is $400 billion, saving equals
-50 billion
The marginal propensity to consume is
.6
In the above table, C is consumption expenditure, I is investment, G is government expenditure, and X minus− M is net exports. All entries are in dollars. The slope of the aggregate expenditure function is
.60
Calculate autonomous expenditure and the marginal propensity to consume. Autonomous expenditure is
220
In the above table, C is consumption expenditure, I is investment, G is government expenditure, and X− M is net exports. All entries are in dollars. The equilibrium level of real GDP is
2400
When real GDP is $200 billion, aggregate planned expenditure is $310 billion.
310
What is the size of the multiplier in the short run?
4
When real GDP is $$500 billion, aggregate planned expenditure is
445
Equilibrium expenditure is equal to _______.
5 trillion
If the marginal propensity to consume is 0.8 and there no income taxes or imports, the multiplier for a change in autonomous expenditure equals
5.0
In the 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 equilibrium expenditure?
500
Planned saving + Planned consumption expenditure = ______.
Disposable income
Which of the following equations is incorrect?
MPC + MPS = aΔYD
You observe that unplanned inventories are increasing. You predict that there will be _______.
a recession
At equilibrium expenditure
aggregate planned expenditure equals real GDP.
The graph of the aggregate expenditure curve has ________ on the yminus−axis and ________ on the xminus−axis.
aggregate planned expenditure; real GDP
You observe that unplanned inventories are decreasing. You predict that there will be _______.
an expansion
An increase in real GDP leads to
an increase in aggregate planned expenditure.
An increase in U.S. exports because of increasing foreign incomes represents ________ in the United States.
an increase in autonomous expenditure
With a steep short−run aggregate supply curve,
an increase in taxes that does not change potential GDP will not decrease real GDP by much.
This change in consumption expenditure could be attributed to ______ in disposable income or ______ in expected future income.
an increase; an increase
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.
Capital spending is ____________ expenditure
autonomous
The multiplier is the ratio of the
change in real GDP to the change in autonomous expenditures.
The intertemporal substitution effect of a change in the price level results from a
change in the price of current goods relative to future goods.
An increase in investment shifts the AE curve upward by an amount equal to the ______, and shifts the AD curve rightward by an amount equal to the ______.
change in investment; change in investment times the multiplier
In the above table, there are no taxes and no imports or exports. If current real GDP is equal to $7,000, then firms will
decrease production to restore inventories to their target level.
Imports
decrease the size of the multiplier because spending on imports does not increase real GDP in the domestic nation.
If the MPC equals 0.75, then
for every $100 increase in disposable income, saving increases by $25.
Consumption expenditure minus imports, which varies with real GDP, is called _______.
induced expenditure (graph is straight line at 3.5)
Any expenditure component that depends on the level of real GDP is called
induced expenditure.
In the figure, if the level of real GDP is $11 trillion,
inventories are below the levels planned by firms.
If aggregate planned expenditure exceeds real GDP, then _______.
inventories decrease, and as real GDP increases a movement up along the AE curve occurs
If aggregate planned expenditure is less than real GDP, then _______.
inventories increase, and as real GDP decreases a movement down along the AE curve occurs
If prices are fixed, an increase in aggregate expenditures results in an increase in equilibrium GDP that
is greater than the change in aggregate expenditure.
A shift in the aggregate expenditure curve as a result of an increase in the price level results in a
movement up along the aggregate demand curve.
Taking into account the upwardminus−sloping shortminus−run aggregate supply curve, the shortminus−run effect of an increase in government expenditures on real GDP is that
real GDP increases by more in the short run than in the long run.
The marginal propensity to import defines the relationship between changes in imports and changes in
real GDP.
Any change in the price level will result in a
shift in the AE curve and a movement along the AD curve.
In the figure, if income taxes increase,
the AE curve becomes flatter.
Suppose taxes fall by $90 billion and spending on transport projects increases by $90 billion. Everything else remaining the same, ______.
the spending on transport projects has a greater effect on equilibrium expenditure than the fall in taxes
The government estimates that the fiscal policy multiplier is 2.0. In this case, an increase in government expenditure of $500 billion increases real GDP by ________ and results in an increase in induced expenditure of ________.
$1,000 billion; $500 billion
In the figure, autonomous expenditure along AE0 equals
$3 trillion.
If there are no income taxes or imports, the multiplier equals
1/(1 − marginal propensity to consume).
________ consumption is consumption that will occur ________ the level of GDP and disposable income.
Autonomous; independent of
The multiplier is the amount by which a change in ______ expenditure is magnified or multiplied to determine ______.
autonomous; the change in equilibrium expenditure and real GDP
When investment is less than planned investment, aggregate planned expenditure is ________ than actual aggregate expenditure and inventories are ________ than planned.
greater; less
The slope of the aggregate expenditure curve increases when the marginal propensity to consume ________ or the marginal propensity to import ________.
increases; decreases
The purchase of cars that occurs when income increases is _______ expenditure. The purchase of cars that occurs when the price of a car falls, everything else remaining the same is _______ expenditure.
induced; autonomous
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.
In an economy, the multiplier is 3. If government expenditure increases by $1 million, then in the short run, the price level ________ and real GDP ________ $3 million.
rises; increases by less than
