econ 102 chapter 27

88)If there is a decrease in autonomous expenditure, the new AE curve is A) parallel and below the original AE curve. B) steeper than the original AE curve. C) flatter than the original AE curve. D) parallel and above the original AE curve. E) none of the above.

A

92)The aggregate expenditure curve will become steeper if A) income tax rates are lowered. B) firms expect an increase in future profit. C) people show an increased preference for foreign-made products. D) people become thriftier. E) income tax rates are raised.

A

70)A change in consumption, in response to a change in income, is A) autonomous consumption. B) unplanned consumption. C) induced consumption. D) equilibrium consumption. E) planned consumption. 14

C

122)Suppose that investment decreases by $15 billion. If the multiplier is 2.5, the aggregate demand curve A) shifts leftward by a horizontal distance greater than $37.5 billion. B) shifts leftward by a horizontal distance less than $37.5 billion. C) shifts upward by a vertical distance of $37.5 billion. D) is not affected. E) shifts leftward by a horizontal distance of $37.5 billion.

E

126)Suppose that investment decreases by $15 billion. If the multiplier is 2, and the short-run aggregate supply curve is positively sloped. In the short run, equilibrium real GDP A) decreases by more than $30 billion. B) does not change. C) decreases by $30 billion. D) increases by less than $30 billion. E) decreases by less than $30 billion.

E

10)If the marginal propensity to save is 0.2, then A) the marginal propensity to consume is 0.8. B) the marginal propensity to consume is also 0.2. C) the slope of the consumption function is 0.2. D) the slope of the saving function is 0.8. E) the marginal propensity to consume is larger than 0.8.

A

108)In a recent study, the University of Underfunded argued that it created four times as many jobs as people that it hired directly. This argument illustrates the idea A) of the multiplier. B) of government spending. C) that universities are wasting taxpayers' dollars. D) of the tax multiplier. E) of the marginal propensity to consume.

A

120)A shift in the aggregate expenditure curve as a result of a rise in the price level, A) creates a movement up along the aggregate demand curve. B) shifts the aggregate demand curve leftward. C) shifts the aggregate demand curve rightward. D) creates a movement down along the aggregate demand curve. E) has no effect on the aggregate demand curve.

A

121)Suppose that investment increases by $10 billion. If the multiplier is 2, the AD curve A) shifts rightward by the horizontal distance $20 billion. B) shifts rightward by a horizontal distance greater than $20 billion. C) shifts rightward by a horizontal distance less than $20 billion. D) shifts upward by a vertical distance equal to $20 billion. E) is not affected. 24

A

128)Everything else remaining the same, if aggregate demand changes, the amount by which the AD curve shifts depends on A) the change in autonomous expenditure and the multiplier. B) changes in induced expenditure. C) the change in aggregate supply. D) the change in the price level. E) none of the above.

A

13)If the marginal propensity to consume is 0.85, what change in consumption expenditure would you expect if disposable income increases by $200 million? A) $170 million B) $18 million C) $1,800 million D) $20 million E) $180 million

A

20)When the consumption function lies below the 45° line, households A) are saving some portion of their disposable income. B) save all of any increase in disposable income. C) consume more than their disposable income. D) spend all of any increase in disposable income. E) are dissaving.

A

115)A decrease in the marginal propensity to import ________, everything else remaining the same. A) increases the marginal propensity to consume B) makes the multiplier larger C) makes the multiplier smaller D) has no effect on the multiplier E) sometimes increases the multiplier and sometimes decreases the multiplier 23

B

131)The difference in the influence of a multiplier between the short run and the long run, is that A) the multiplier effect depends on potential GDP in the long run. B) the multiplier effect is zero in the long run. C) the multiplier effect is larger in the long run. D) there is no multiplier effect in the short run. E) the multiplier effect is zero in the short run.

B

5)The marginal propensity to consume is calculated as A) consumption expenditure divided by the change in disposable income. B) the change in consumption expenditure divided by the change in disposable income. C) consumption expenditure divided by total disposable income. D) the change in consumption expenditure divided by disposable income. E) the change in consumption expenditure divided by saving. 1

B

69)If AE = 100 + 0.7Y and Y = 300, then unplanned inventories A) increase by 10. B) decrease by 10. C) decrease by 200. D) increase by 200. E) do not change and equilibrium exists.

B

100)The multiplier can take on any value A) only between 1 and 2. B) only greater than 1. C) only between -1 and 1. D) greater than zero. E) only between zero and 1.

D

52)If there is an unplanned increase in inventories, aggregate planned expenditure is A) greater than real GDP and firms increase production. B) greater than real GDP and firms decrease production. C) less than real GDP and firms decrease production. D) less than real GDP and firms decrease investment. E) less than real GDP and firms increase production.

C

90)Everything else remaining the same, which one of the following would increase equilibrium real GDP? A) a decrease in investment B) an increase in taxes C) an increase in exports D) a decrease in exports E) an increase in saving 18

C

79)Which one of the following will lead to an increase in the slope of the AE function? A) an increase in the marginal propensity to save B) a decrease in the marginal propensity to save C) an increase in the marginal tax rate D) a decrease in the marginal propensity to consume E) an increase in the marginal propensity to import

B

9)The sum of the marginal propensity to save and the marginal propensity to consume A) is greater than zero but less than 1. B) always equals 1. C) always equals 0. D) sometimes equals 1. E) never equals 1.

B

124)Suppose the multiplier is 2 and the short-run aggregate supply curve is positively sloped. Investment increases by $10 billion. In the short run, equilibrium real GDP A) does not change. B) increases by less than $20 billion. C) increases by more than $20 billion. D) decreases by less than $20 billion. E) increases by $20 billion.

B

46)If an economy's real GDP increases from $100 billion to $150 billion, and at the same time its imports increase from $40 billion to $50 billion, then the marginal propensity to import A) decreases from 0.4 to 0.2. B) is 0.2. C) is greater than 0.2 and less than 0.4. D) is 0.36. E) is 0.4.

B

50)The schedule that lists aggregate planned expenditure generated at each level of real GDP is the A) equilibrium GDP schedule. B) aggregate expenditure schedule. C) aggregate demand schedule. D) consumption schedule. E) dissaving schedule.

B

53)If aggregate planned expenditure exceeds real GDP, then inventories A) increase and real GDP falls. B) decrease and real GDP increases. C) decrease and real GDP decreases. D) remain constant and real GDP remains constant. E) increase and real GDP increases.

B

110)Which of the following quotations illustrates the idea of the multiplier? A) "The projected cuts in government jobs will hurt the local retail industry." B) "Taking the grain elevator out of our small town will destroy 300 jobs." C) "Higher expected profits are leading to higher investment spending by business, and will lead to higher consumer spending." D) "The new stadium will generate $200 million in spinoff spending." E) all of the above

E

34)The fraction of a change in disposable income spent on consumption is the A) marginal propensity to consume. B) marginal tax rate. C) marginal propensity to dispose. D) marginal propensity to save. E) consumption function.

A

67)If there is an unplanned decrease in inventories, aggregate planned expenditure is A) greater than real GDP, and firms increase production. B) less than real GDP, and firms decrease production. C) greater than real GDP, and firms decrease production. D) greater than real GDP, and firms increase investment. E) less than real GDP, and firms increase production.

A

98)As the aggregate expenditure curve becomes steeper, the value of the multiplier becomes A) larger. B) greater than 1. C) smaller. D) equal to the marginal propensity to save. E) negative.

A

3)Complete the following sentence. A household A) consumes or saves out of disposable income. B) consumes or pays taxes out of disposable income. C) only consumes out of disposable income. D) consumes, saves, or pays taxes out of disposable income. E) None of the above.

A

33)The fraction of a change in disposable income that is saved is the A) marginal propensity to save. B) marginal propensity to dispose. C) saving function. D) marginal tax rate. E) marginal propensity to consume.

A

7)The marginal propensity to consume A) is between zero and 1. B) is greater than 1 if dissaving is present. C) is between 1/2 and 1. D) is negative if dissaving is present. E) is greater than 1 but less than 2.

B

73)Suppose real GDP increases by $1 billion and, as a result, consumption increases by $500 million. This change in consumption is A) autonomous. B) induced. C) unplanned. D) planned. E) too little.

B

75)Which one of the following variables has an induced component? A) government expenditure on goods and services B) consumption C) investment D) exports E) all of the above

B

77)As real GDP decreases A) induced consumption increases. B) induced consumption decreases. C) exports increase. D) planned investment increases. E) imports increase.

B

8)The marginal propensity to save A) is greater than 1 but less than 2. B) equals 1 - MPC. C) is greater than 1. D) is between zero and 1/2. E) is negative.

B

12)If consumption expenditure for a household increases from $300 to $500 when disposable income increases from $200 to $500, the marginal propensity to consume is A) equal to 1.33. B) negative. C) equal to 0.67. D) equal to 0.75. E) equal to 1.

C

125)Suppose the multiplier is 2.5 and investment increases by $20 billion. Starting at potential GDP, in the long run, equilibrium real GDP A) increases by less than $50 billion. B) increases by more than $50 billion. C) does not change. D) decreases by less than $50 billion. E) increases by $50 billion.

C

129)Suppose there is an increase in exports. Assuming the price level is held constant, which one of the following best describes the sequence of changes in the economy? A) Induced expenditure increases, real GDP increases, autonomous expenditure increases, real GDP increases more, autonomous expenditure increases again, etc. B) Autonomous expenditure increases, induced expenditure increases, real GDP increases, and the price level rises. C) Autonomous expenditure increases, real GDP increases, induced expenditure increases, real GDP increases more, induced expenditure increases again, and the process continues until equilibrium expenditure is reached. D) Induced expenditure increases, autonomous expenditure increases, real GDP increases, and consumption increases. E) Induced expenditure increases, real GDP increases, autonomous expenditure increases, and the price level increases, lowering autonomous expenditure and real GDP increases by a smaller amount.

C

133)An increase in investment shifts the AE curve upward by an amount equal to the ________, and shifts the AD curve rightward by an amount equal to the ________. A) change in investment; change in investment B) change in investment times the multiplier; change in investment times the multiplier C) change in investment; change in investment times the multiplier D) change in investment times the multiplier; change in investment E) change in investment divided by the multiplier; change in investment

C

42)Which of the following events would shift the consumption function upward? A) a decrease in expected future disposable income B) an increase in disposable income C) an increase in wealth D) a decrease in disposable income E) a decrease in wealth 9

C

45)The marginal propensity to import is calculated as A) the change in imports divided by real GDP. B) imports divided by real GDP. C) the change in imports divided by the change in real GDP. D) imports divided by the change in real GDP. E) none of the above.

C

49)The marginal propensity to import is equal to ________. A) the change in net imports divided by the change in disposable income, other things remaining the same B) 1 - MPC C) the change in imports divided by the change in real GDP that brought it about, other things remaining the same D) disposable income minus consumption expenditure minus saving divided by real GDP E) imports minus exports

C

106)An increase in autonomous expenditure shifts the AE curve A) upward and the curve becomes steeper. B) downward but leaves its slope unchanged. C) downward and the curve becomes steeper. D) upward but leaves its slope unchanged. E) upward and the curve becomes less steep.

D

109)If investment increases by $200, and as a result income increases by $800, then the A) multiplier is 1/4. B) slope of the AE curve is 1/4. C) multiplier is 3. D) slope of the AE curve is 0.75. E) none of the above. 22

D

116)An increase in the price level A) shifts the AE curve downward and increases equilibrium expenditure. B) shifts the AE curve upward and decreases equilibrium expenditure. C) has no impact on the AE curve. D) shifts the AE curve downward and decreases equilibrium expenditure. E) shifts the AE curve upward and increases equilibrium expenditure.

D

117)A decrease in the price level A) increases aggregate expenditure, but has no effect on the aggregate demand curve. B) increases aggregate expenditure and produces a rightward shift of the aggregate demand curve. C) has no effect on aggregate expenditure. D) increases aggregate expenditure and produces a movement along the aggregate demand curve. E) increases aggregate expenditure and produces a leftward shift of the aggregate demand curve.

D

118)A rise in the price level A) decreases aggregate expenditure and produces a rightward shift of the aggregate demand curve. B) decreases aggregate expenditure and produces a leftward shift of the aggregate demand curve. C) has no effect on aggregate expenditure. D) decreases aggregate expenditure and produces a movement along the aggregate demand curve. E) increases aggregate expenditure, but has no effect on the aggregate demand curve.

D

123)Suppose the multiplier is 2 and the short-run aggregate supply curve is positively sloped. Investment increases by $10 billion. In the short run, equilibrium real GDP A) does not change. B) decreases by less than $20 billion. C) increases by more than $20 billion. D) increases by less than $20 billion. E) increases by $20 billion.

D

130)In the long run, the multiplier A) has a larger effect on real GDP than it has in the short run, because there are more induced expenditures in the long run. B) has a larger effect on real GDP than it has in the short run because of changes in the price level. C) has a larger effect on real GDP than it has in the short run, because the multiplier effect has a longer time period to exert its impact on the economy. D) has a smaller effect on real GDP than it has in the short run because of changes in the price level. E) can have a smaller or larger effect on real GDP than it has in the short run.

D

132)A rise in the price level ________. A) shifts the AE curve downward and shifts the AD curve rightward B) shifts the AE curve upward and brings a movement down along the AD curve C) shifts the AD curve rightward and brings a movement up along the AE curve D) shifts the AE curve downward and brings a movement up along the AD curve E) shifts the AD curve leftward and brings a movement down along the AE curve 26

D

32)The consumption function shows the relationship between consumption expenditure and A) the price level. B) nominal income. C) the interest rate. D) disposable income. E) saving.

D

35)The saving function shows the relationship between saving and A) the price level. B) nominal income. C) consumption. D) disposable income. E) the interest rate.

D

51)The aggregate expenditure curve shows the relationship between aggregate planned expenditure and A) disposable income. B) the price level. C) consumption expenditure. D) real GDP. E) the interest rate.

D

54)If aggregate planned expenditure is less than real GDP, then inventories A) increase and real GDP increases. B) remain constant and real GDP remains constant. C) decrease and real GDP decreases. D) increase and real GDP falls. E) decrease and real GDP increases.

D

68)If AE = 50 + 0.6Y and Y = 200, then unplanned inventories A) decrease by 75. B) decrease by 30. C) increase by 75. D) increase by 30. E) do not change and equilibrium exists.

D

71)Consumption expenditure minus imports, which varies with real GDP, is A) unplanned consumption. B) autonomous expenditure. C) planned consumption. D) induced expenditure. E) aggregate expenditure.

D

72)Equilibrium expenditure occurs when A) consumption equals real GDP. B) induced consumption equals aggregate planned expenditure. C) aggregate planned expenditure equals consumption. D) aggregate planned expenditure equals real GDP. E) none of the above.

D

74)Everything else remaining the same, autonomous consumption A) is usually assumed to be zero. B) increases as disposable income decreases. C) increases as disposable income increases. D) does not change as disposable income changes. E) decreases as disposable income decreases.

D

76)As real GDP increases A) autonomous consumption increases. B) planned investment increases. C) imports decrease. D) imports increase. E) exports increase. 15

D

78)The fact that imports increase as real GDP increases implies that imports are part of A) consumption expenditure. B) marginal expenditure. C) equilibrium expenditure. D) induced expenditure. E) autonomous expenditure.

D

87)If aggregate planned expenditure exceeds real GDP then ________. A) inventories decrease, and the AE curve shifts downward B) inventories increase, and the short-run aggregate supply curve shifts rightward C) inventories increase, and the AE curve shifts upward D) inventories decrease, and as real GDP increases a movement up along the AE curve occurs E) inventories increase, and as real GDP increases a movement up along the AE curve occurs

D

99)The formula for the multiplier in an open economy is A) 1/(1 + slope of the AE curve). B) 1/(1 - marginal propensity to import). C) 1/(1 - MPC). D) 1/(1 - slope of the AE curve). E) 1/(1 + marginal propensity to import).

D

1)Disposable income is A) aggregate income minus transfer payments. B) used for consumption only. C) aggregate income plus transfer payments. D) aggregate income minus taxes. E) aggregate income minus taxes plus transfer payments.

E

11)If a household's disposable income increases from $12,000 to $22,000 and at the same time its consumption expenditure increases from $4,000 to $9,000, then A) the household is dissaving. B) the marginal propensity to save over this range is negative. C) the slope of the consumption function is 0.6. D) the marginal propensity to consume over this range is negative. E) the slope of the consumption function is 0.5. 2

E

111)Which of the following quotations illustrates the idea of the multiplier? A) "The projected cuts in government jobs will hurt the local retail industry." B) "Taking the grain elevator out of our small town will destroy 300 jobs." C) "Higher expected profits are leading to higher investment spending by business, and will lead to higher consumer spending." D) "The new stadium will generate $200 million in spinoff spending." E) all of the above

E

112)Which of the following quotations illustrates an increase in aggregate expenditure? A) "The new stadium will generate $200 million in spin off spending." B) "Higher expected profits are leading to higher investment spending by business, and will lead to higher consumer spending." C) "The projected cuts in government jobs will hurt the local retail industry." D) "Taking the grain elevator out of our small town will destroy 300 jobs." E) Both A and B.

E

113)Which of the following quotations illustrates a decrease in aggregate expenditure? A) "Higher expected profits are leading to higher investment spending by business, and will lead to higher consumer spending." B) "The new stadium will generate $200 million in spin off spending." C) "The projected cuts in government jobs will hurt the local retail industry." D) "Taking the grain elevator out of our small town will destroy 300 jobs." E) Both C and D.

E

114)You observe that unplanned inventories are increasing. You predict that there will be ________. A) a business cycle B) a collapse of the stock market C) an expansion D) a trough E) a recession

E

119)The aggregate expenditure curve and the aggregate demand curve are A) not related at all. B) linked because if the price level rises, the aggregate expenditure curve shifts downward, and the aggregate demand curve shifts leftward. C) the same curve, just with different names. D) linked because if the price level rises, the aggregate expenditure curve shifts downward, and there is a movement down along the aggregate demand curve. E) linked because if the price level rises, the aggregate expenditure curve shifts downward, and there is a movement up along the aggregate demand curve.

E

127)Suppose that investment increases by $10 billion. Which one of the following would reduce the effect of this increase in autonomous expenditure on equilibrium real GDP in the short run? A) A flatter short-run aggregate supply curve. B) An increase in the marginal propensity to consume. C) A decrease in the marginal propensity to import. D) A decrease in the marginal tax rate. E) A steeper short-run aggregate supply curve. 25

E

14)If consumption is $8,000 when disposable income is $10,000, the marginal propensity to consume A) is 1.25. B) is 0.80. C) is 0.75. D) is 0.50. E) cannot be determined from the information given.

E

2)Dissaving occurs when a household A) saves more than it spends. B) spends more than it saves. C) borrows. D) spends less than it receives in disposable income. E) consumes more than it receives in disposable income.

E

21)The vertical distance between the consumption function and the 45° line measures A) the marginal propensity to consume. B) disposable income. C) the marginal propensity to save. D) consumption. E) saving or dissaving.

E

4)The marginal propensity to consume is the A) fraction of the last dollar of disposable income received that is saved. B) fraction of the first dollar of disposable income received that is saved. C) total amount of consumption divided by the total amount of disposable income. D) fraction of the first dollar of disposable income received that is consumed. E) fraction of a change in disposable income that is spent on consumption.

E

41)The slope of the consumption function is A) greater than the slope of the 45° line. B) zero. C) one. D) equal to the slope of the 45° line. E) less than the slope of the 45° line.

E

43)Everything else remaining the same, a decrease in expected future income ________ current consumption expenditure and ________ saving. A) increases; decreases B) decreases; decreases C) increases; increases D) does not change; does not change E) decreases; increases

E

44)Everything else remaining the same, if Canadians expect future disposable income to rise, then A) Canada's consumption function shifts downward. B) Canada's saving function shifts upward. C) a movement occurs up along Canada's consumption function. D) a movement occurs down along Canada's consumption function. E) Canada's consumption function shifts upward.

E

47)An increase in autonomous consumption A) changes the slope of the consumption function. B) creates a movement downward along the consumption function. C) shifts the consumption function downward. D) creates a movement upward along the consumption function. E) shifts the consumption function upward.

E

48)The components of aggregate expenditure that are influenced by real GDP are ________. A) consumption expenditure, government expenditure, investment, and imports B) investment, exports, and imports C) consumption expenditure, investment, and imports D) wages, transfer payments, and government expenditure E) consumption expenditure and imports 10

E

55)If real GDP is $3 billion and aggregate planned expenditure is $3.5 billion, then inventories A) remain the same and production decreases. B) increase and production decreases. C) decrease and production decreases. D) increase and productions increases. E) decrease and production increases.

E

6)The marginal propensity to save is calculated as A) saving divided by the change in disposable income. B) the change in saving divided by the change in consumption expenditure. C) saving divided by disposable income. D) the change in saving divided by disposable income. E) the change in saving divided by the change in disposable income.

E

89)All else constant, a decrease in the income tax rate will result in A) an upward shift of the AE curve with no change in its slope. B) a decrease in the consumption expenditure. C) a downward shift of the AE curve with no change in its slope. D) a movement down along the aggregate expenditure curve. E) an AE curve with a steeper slope.

E

91)The slope of the AE curve equals A) the change in consumption plus government expenditure divided by the change in aggregate income. B) aggregate expenditure divided by real GDP. C) the change in consumption divided by the change in real GDP. D) the change in income divided by the change in autonomous expenditure. E) the change in aggregate expenditure divided by the change in real GDP.

E