ec202 ch.11

If planned investment spending increases, the planned aggregate spending line:

shifts up.

If the interest rate rises:

the opportunity cost of investment is greater.

In an income-expenditure equilibrium:

there is no unplanned inventory investment.

If disposable income increases:

there will be a rightward movement along the consumption function.

When planned investment is less than actual investment, there must be:

unplanned inventory investment.

According to the _____, there is a positive relationship between planned investment spending and the expected growth rate of real GDP.

accelerator principle

The most important factor affecting a household's consumer spending is:

its current disposable income.

If the marginal propensity to save is small, it will:

make the multiplier larger.

Planned investment spending is _____ related to the interest rate and _____.

negatively; existing productive capacity positively to expected GDP

When Sue's disposable income is $10,000, she spends $8,000. When her disposable income is $20,000, she spends $14,000. Sue's autonomous consumer spending is equal to _____, and her marginal propensity to save (MPS) is equal to _____.

$2,000; 0.4

Suppose that the aggregate consumption function is given by the equation C = 200 + 0.8YD, where C represents consumption and YD represents disposable income.

$200.

Suppose that the marginal propensity to consume is 0.8 and investment spending increases by $100 billion. The increase in real GDP is:

$500 billion, composed of $100 billion in investment spending and $400 billion in consumption.

In an economy with no taxes or imports, if disposable income increases by $1,000 and consumption increases by $600, the marginal propensity to consume is:

0.60.

Suppose that the consumption function is C = $500 + 0.8 × YD, where YD is disposable income. (Scenario: Consumption Spending) Look at the scenario Consumption Spending. The marginal propensity to consume is:

0.8.

If planned investment spending is $2 trillion and inventories decrease by $0.5 trillion, actual investment spending is:

1.5

If the MPS = 0.1, then the multiplier equals

10

If real GDP is $1,000 billion and the aggregate expenditure is $850 billion, then the change in inventories will be:

150

If the slope of the aggregate expenditures curve is 0.75, the multiplier is:

4

You and a coworker have been trying to develop a linear equation that describes the local household consumption function. Your coworker has sent you a very short email that simply says he has finished the project and the consumption function is C = 100 + 0.75(YD). Your job is to explain this result to your supervisor. According to this consumption function, how much consumption spending would occur if a household had disposable income of $1,000?

850

Suppose aggregate wealth decreases in the economy because of the bursting of a housing price bubble. Holding everything else constant, this will MOST likely:

cause the aggregate expenditure function to shift down.

The marginal propensity to consume (MPC) equals the change in _____ divided by the change in _____.

consumer spending; disposable income

Suppose that a financial crisis decreases investment spending by $100 billion and the marginal propensity to consume is 0.8. Assuming no taxes and no trade, real GDP will _____ by _____.

decrease; $500 billion

If current disposable income increases in this economy, then the:

economy will move upward along the aggregate expenditures curve.

The consumption function will shift up if:

households expect an increase in the minimum wage.

An upward shift in the aggregate consumption function can be caused by:

expectations of higher incomes.

An important factor determining planned investment spending is:

expected real GDP.

A $50 million increase in investment spending will eventually cause equilibrium real GDP to:

increase by more than $50 million.

If the marginal propensity to consume increases, the multiplier will:

increase.

An increase in the marginal propensity to consume:

increases the multiplier.

Rising inventories typically indicate _____ unplanned inventory investment and a _____ economy.

positive; slowing

Income-expenditure equilibrium occurs when:

real GDP equals planned aggregate spending.

If real GDP is greater than planned aggregate spending:

real GDP will fall.