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