ECON 112 Annala F16 Chapter 12

If planned investment is greater than actual​ investment, then aggregate expenditure is less than GDP. True False

False

If national income increases by​ $20 million and consumption increases by​ $5 million, the marginal propensity to consume is A. 4. B. 0.25. C. 0.75. D. 0.5.

B. 0.25.

Given the consumption schedule in the table to the​ right, the marginal propensity to consume is A. 0.5. B. 0.6. C. 0.75. D. 0.8.

B. 0.6.

If disposable income falls by​ $40 billion and consumption falls by​ $30 billion, then the slope of the consumption function is A. 1.33. B. 0.75. C. 0.4. D. 0.3.

B. 0.75.

​________ is defined as the value of a​ household's assets minus the value of its liabilities. A. Planned household investment B. Household wealth C. Household income D. Personal household consumption

B. Household wealth

If the U.S. economy is currently at point N​, which of the following could cause it to move to point K​? A. Households expect future income to rise. B. Household wealth falls. C. ​Firm's cash flow rises as profits rise. D. Government expenditures increase.

B. Household wealth falls.

If the economy is currently in equilibrium at a level of GDP that is below potential​ GDP, which of the following would move the economy back to potential​ GDP? A. an increase in interest rates B. an increase in wealth C. an increase in the value of the dollar relative to other currencies D. a decrease in business confidence

B. an increase in wealth

A decrease in​ ________ can put your job at risk if aggregate expenditures fall. A. the length of a business cycle B. consumer confidence C. the natural rate of unemployment D. the inflation rate

B. consumer confidence

If consumption is defined as C​ = 1,350​ + 0.6Y​, then the marginal propensity to consume is 0.6. True False

True

If planned aggregate expenditure is less than real​ GDP, some firms will experience unplanned increases in inventories. True False

True

The larger the MPS​, the smaller the value of the multiplier. True False

True

When​ Jack's income increases by​ $1,000, he spends an additional​ $850 dollars. This implies that his marginal propensity to consume is 0.85. True False

True

If inventories decline by more than analysts predict they will​ decline, this implies that A. actual investment spending was less than planned investment spending. B. actual investment spending was equal to than planned investment spending. C. actual investment spending was greater than planned investment spending. D. there is no relationship between actual investment spending and planned investment spending.

A. actual investment spending was less than planned investment spending.

Equilibrium GDP is equal to A. autonomous expenditure times the multiplier. B. autonomous expenditure times the marginal propensity to save. C. autonomous expenditure. D. autonomous expenditure times the marginal propensity to consume.

A. autonomous expenditure times the multiplier.

If planned aggregate expenditure is greater than total​ production, A. firms will experience an unplanned decrease in inventories. B. the economy is in equilibrium. C. actual inventories will equal planned inventories. D. GDP will decrease.

A. firms will experience an unplanned decrease in inventories.

If aggregate planned expenditures are less than total​ production, A. firms will experience unplanned increase in inventories. B. actual inventories will equal planned inventories. C. GDP will increase. D. the economy is in equilibrium.

A. firms will experience unplanned increase in inventories.

U.S. net export spending rises when A. the growth rate of U.S. GDP is slower than the growth rate of GDP in other countries. B. the inflation rate is higher in the U.S. relative to other countries. C. the price level in the U.S. rises relative to the price level in other countries. D. the value of the U.S. dollar increases relative to other currencies.

A. the growth rate of U.S. GDP is slower than the growth rate of GDP in other countries.

The key idea of the aggregate expenditure model is that in any particular​ year, the level of GDP is determined mainly by A. the level of aggregate expenditure. B. investment spending. C. government spending. D. export spending.

A. the level of aggregate expenditure.

If the consumption function is defined as C​ = 7,250​ + 0.8Y​, what is the marginal propensity to​ save? A.0.2 B. 0.8 C. 5.8 D. 9.1

A.0.2

A decrease in the real interest rate will A. most likely increase the reward to savings. B. most likely increase​ consumer's purchases of durable goods. C. most likely increase the cost of borrowing. D. cause consumers to spend less and save more.

B. most likely increase​ consumer's purchases of durable goods.

If inflation in the U.S. is higher than inflation in other​ countries, what will be the effect on net exports for the​ U.S.? A. net exports will rise as U.S. imports decrease B. net exports will decrease as U.S. exports decrease C. net exports will decrease as U.S. imports decrease D. net exports will rise as U.S. exports increase

B. net exports will decrease as U.S. exports decrease

The difference between GDP and disposable income is A .actual investment spending. B. net taxes. C. national income. D. unplanned investment spending.

B. net taxes.

If an increase in autonomous consumption spending of​ $25 million results in a​ $100 million increase in equilibrium real​ GDP, then A. the MPC is 0.25. B. the MPC is 0.75. C. the MPC is 0.8. D. the MPC is 2.5.

B. the MPC is 0.75.

A general formula for the multiplier is A. 1/(1 − MPS). B. 1/(MPC). C. 1/(1 − MPC). D.1/(MPS −1).

C. 1/(1 − MPC).

The National Restaurant Association states that the restaurant industry has an economic effect of more than​ $1.7 trillion annually in the United​ States, with every dollar spent in restaurants generating an estimated total of​ $2.05 in spending in the economy. This indicates that the spending multiplier for the restaurant industry is equal to A. 1.21. B. 1.70. C. 2.05. D. 4.25.

C. 2.05.

At point J in the figure​ above, which of the following is​ true? A. GDP will be decreasing. B. The economy has achieved macroeconomic equilibrium. C. Actual inventories are less than planned inventories. D. Aggregate expenditure is less than GDP.

C. Actual inventories are less than planned inventories.

What impact does an increase in the price level in the United States have on net exports and​ why? A. An increase in the price level decreases net exports because higher prices decrease the value of the dollar. B. An increase in the price level increases net exports because higher prices lower the value of the dollar. C. An increase in the price level decreases net exports by increasing the relative cost of American goods. D. An increase in the price level increases net exports because higher prices decrease American spending on imports.

C. An increase in the price level decreases net exports by increasing the relative cost of American goods.

________ describes the relationship between consumption spending and disposable income. A. Household wealth B. The liquidity trap C. The consumption function D. The paradox of thrift

C. The consumption function

During the Great​ Depression, economists first began studying the relationship between A. changes in stock prices and changes in price controls. B. changes in GDP and changes in interest rates. C. changes in aggregate expenditures and changes in GDP. D. changes in nominal GDP and changes in real GDP.

C. changes in aggregate expenditures and changes in GDP.

Disposable income is defined as A. national income minus−transfers minus− taxes. B. national income minus− transfers​ + taxes. C. national income​ + transfers minus− taxes. D. national income​ + transfers​ + taxes.

C. national income​ + transfers minus− taxes.

Refer to the diagram to the right. Potential GDP equals​ $100 billion. The economy is currently producing GDP1 which is equal to​ $90 billion. If the MPC is​ 0.8, then how much must autonomous spending change for the economy to move to potential​ GDP? A. −​$2 billion B. −​$18 billion C. ​$2 billion D. $18 billion

C. ​$2 billion

Consumption spending is​ $5 million, planned investment spending is​ $8 million, unplanned investment spending is​ $2 million, government purchases are​ $10 million, and net export spending is​ $2 million. What is aggregate​ expenditure? A. ​$15 million B. $23 million C. ​$25 million D. ​$27 million

C. ​$25 million

If the consumption function is defined as C​ = 7,250​ + 0.8Y​, what is the​ multiplier? A. 0.2 B. 0.8 C. 1.25 D. 5

D. 5

If firms sell what they expected to​ sell, which of the following will be​ true? A. Aggregate expenditure will be less than GDP. B. Inventories will​ rise, and GDP and employment will fall. C. Aggregate expenditure will be greater than GDP. D. There is no unplanned change in inventories.

D. There is no unplanned change in inventories.

If the economy is currently in equilibrium at a level of GDP that is above potential​ GDP, which of the following would move the economy back to potential​ GDP? A. a decrease in interest rates B. a decrease in the value of the dollar relative to other currencies C. an increase in business confidence D. a decrease in wealth

D. a decrease in wealth

An unplanned increase in inventories results in A. a decrease in planned investment. B. an increase in planned investment. C. actual investment that is less than planned investment. D. actual investment that is greater than planned investment.

D. actual investment that is greater than planned investment.

An unplanned decrease in inventories results in A. an increase in planned investment. B. a decrease in planned investment. C. actual investment that is greater than planned investment. D. actual investment that is less than planned investment.

D. actual investment that is less than planned investment.

The​ ________ illustrates the relationship between the price level and the quantity of planned aggregate​ expenditure, holding constant all other factors that affect aggregate expenditure. A. savings line B. consumption function C. 45−degree line D. aggregate demand curve

D. aggregate demand curve

Increases in the price level will A. raise consumption because real wealth increases. B. raise consumption because some goods and services are more affordable. C. lower consumption because goods and services are less affordable. D. lower consumption because real wealth decreases.

D. lower consumption because real wealth decreases.

John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce​ spending, A. the economy will benefit in the short run and benefit by an even greater amount in the long run. B. this will have a major negative impact on the economy in both the short run and in the long run. C. this may benefit the economy in the short​ run, but not in the long run. D. this may benefit the economy in the long​ run, but could be counterproductive in the short run.

D. this may benefit the economy in the long​ run, but could be counterproductive in the short run.

At macroeconomic​ equilibrium, A. total taxes equal total transfers. B. total investment equals total inventories. C. total consumption equals total production. D. total spending equals total production.

D. total spending equals total production.

An increase in the price level in the U.S. will shift the aggregate expenditure line upward. True False

False