MACRO 12 QU's
Decreases in the price level will
raise consumption because real wealth increases.
The aggregate expenditure model focuses on the _____________ relationship between real spending and ______.
short−run; real GDP
The marginal propensity to consume is defined as
the change in consumption divided by the change in disposable income.
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.
Actual investment will equal planned investment only when
there is no unplanned change in inventories.
________ describes the relationship between consumption spending and disposable income.
The consumption function
If the marginal propensity to save is 0.25, then a $10 million decrease in disposable income will
decrease consumption by $7.5 million.
Disposable income is defined as
national income + transfers - taxes
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.?
net exports will decrease as U.S. exports decrease
If national income increases by $20 million and consumption increases by $5 million, the marginal propensity to consume is
0.25.
The formula for aggregate expenditure is
AE = C + I + G + NX.
Consumption spending is $5 million, planned investment spending is $8 million, actual investment spending is $8 million, government purchases are $10 million, and net export spending is $2 million. Based on this information, which of the following is true?
Aggregate expenditure is equal to GDP.
If firms find that consumers are purchasing less than expected, which of the following would you expect?
Aggregate expenditure will likely be less than GDP.
Investment spending increases during ________, and decreases during ________.
an expansion; a recession
In a small economy in 2020, aggregate expenditure was $800 million while GDP that year was $850 million. Which of the following can explain the difference between aggregate expenditure and GDP that year?
Firm investment in inventories was greater than anticipated in 2020.
________ is defined as the value of a household's assets minus the value of its liabilities.
Household wealth
If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium?
Inventories will decline, and GDP and employment will rise.
If firms sell what they expected to sell, which of the following will be true?
There is no unplanned change in inventories.
Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $23 million, what unplanned changes in inventories occurred?
There was an unplanned decrease in inventories equal to $2 million.
When aggregate expenditure is more than GDP, which of the following is true?
There was an unplanned decrease in inventories.
All of the following are components of aggregate expenditure except
actual investment spending.
An unplanned decrease in inventories results in
actual investment that is less than planned investment.
Firms in a small economy anticipated that inventories would grow over the past year by $750,000, and over that year, inventories grew by exactly $750,000. This implies that
aggregate expenditure and GDP were equal that year.
Firms in a small economy anticipated that inventories would grow over the past year by $500,000. Over that year, inventories did grow by exactly $500,000. This implies that
aggregate expenditure that year was equal to GDP that year.
Firms in a small economy planned that inventories would grow over the past year by $300,000. Over that year, inventories actually grew by $400,000. This implies that
aggregate expenditure that year was less than GDP that year.
If firms sell exactly what they expected to sell, all of the following will be true except
aggregate expenditure will be greater than GDP.
Which of the following will raise consumer expenditures?
an increase in expected future income
If the MPC is 0.95, then a $10 million increase in disposable income will
increase consumption by $9.5 million.
________ in taxes will decrease consumption spending, and ________ in transfer payments will increase consumption spending.
increase, increase
When aggregate expenditure = GDP,
macroeconomic equilibrium occurs.
The slope of the consumption function is equal to
the change in consumption divided by the change in disposable income.
The marginal propensity to save is defined as
the change in saving divided by the change in disposable income.
U.S. net export spending rises when
the growth rate of U.S. GDP is slower than the growth rate of GDP in other countries.
At macroeconomic equilibrium,
total spending equals total production.
The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.
total spending; real GDP; the price level
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 GDP?
$23 million
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?
$25 million
Consumption spending is $16 million, planned investment spending is $4 million, unplanned investment spending is $2 million, government purchases are $6 million, and net export spending is $1 million. What is aggregate expenditure?
$27 million
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 GDP?
$27 million
Net exports
________ usually increase(s) when the U.S. economy is in a recession and decrease(s) when the U.S. economy is expanding.
Examples of assets that are included in household wealth would be
stocks, bonds, and savings accounts.
