CH. 11 Practice
The multiplier effect exists because a change in autonomous expenditure
leads to changes in income, which generate further spending.
When there is unplanned inventory investment, aggregate planned expenditure is ___________ real GDPand actual investment is _____________ planned investment.
less than; greater than
In an economy with no income taxes or imports, the multiplier equals
1/MPS
If the MPC is .9 (and there are no income taxes or imports), the multiplier for a change in autonomous expenditure equals
10.0
Which of the following shifts the aggregate expenditure curve AND shifts the aggregate demand curve? I. a decrease in investment II. a change in the price level III. an increase in exports
I and III
Read the two statements below and indicate if they are true or false. I. Autonomous expenditures change when GDP changes. II. Aggregate planned expenditure is the sum of planned consumption expenditure, investment, and government expenditure
II is true, I is false
An increase in the price level results in a
downward shift in the AE curve and a movement up along the AD curve.
Autonomous consumption is that portion of consumption expenditure that is not influenced by
income.
In the short run with fixed prices, an increase in investment of $100 billion
increases real GDP by more than $100 billion.
As real disposable income increases, consumption expenditure__________ and saving______________ .
increases; increases
uppose disposable income increases from $7 trillion to $8 trillion. At the same time, consumptionexpenditure increases from $6.8 trillion to _____________ . Thus the MPC must equal_______________ .
7.6 trillion; 0.80
If the slope of the expenditures curve increases, the multiplier
Increases
The multiplier is the amount by which ___________ is multiplied to determine ___________.
a change in autonomous expenditure; the change in equilibrium expenditure
The multiplier measures the
horizontal shift in the aggregate demand curve from an increase in autonomous spending
Autonomous expenditure refers to
aggregate expenditure that does not change when real GDP changes.
The slope of the consumption function is
ess than the slope of the 45-degree line but not equal to zero.
The figure shows Tropical Isle's aggregate planned expenditure curve. When aggregate planned ex-penditure is __________ $2 trillion, aggregate planned expenditure is than real GDP, firms' inventories, ___________ and firms ____________ their production.
greater; decrease; increase
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.
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 shortrun, the price level ___________ and real GDP ___________ $3 million.
rises; increases by less than