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.