Chapter 11 Quiz

Inventories are

increasing

According to the Keynesian​ theory, the typical firm

does not change its prices immediately when aggregate demand fluctuates.

All else being​ constant, autonomous expenditure

does not change with changes in real GDP.

A decrease in the marginal propensity to import​ _______, everything else remaining the same.

makes the multiplier larger

An increase in income taxes​ _______, everything else remaining the same.

makes the multiplier smaller

To calculate the​ multiplier, we divide​ ______ by​ ______.

the change in equilibrium​ expenditure; the change in autonomous expenditure

The marginal propensity to save is

the change in saving divided by the change in disposable income.

In the​ figure, autonomous consumption equals

$4 trillion

When real GDP exceeds aggregate planned​ expenditures,

GDP will decrease.

The left graph shows the consumption function and the right graph shows the saving function. Suppose there is a decrease in household wealth.

The consumption function shifts from A to B and the saving function shifts from C to D.

An increase in the price level results in a

downward shift in the AE curve and a movement up along the AD curve.

Inventories are

decreasing

According to this news​ clip, consumption expenditure increased as household wealth decreased.

increased

The data in the table indicate that the slope of the AE curve is

0.90.

The table gives you information about the economy of Bluebird Island. What is the marginal propensity to​ consume?

.75

Based upon the above​ table, if disposable income is​ $400 billion, saving equals

-50 billion

The marginal propensity to consume is

.6

In the above​ table, C is consumption​ expenditure, I is​ investment, G is government​ expenditure, and X minus− M is net exports. All entries are in dollars. The slope of the aggregate expenditure function is

.60

Calculate autonomous expenditure and the marginal propensity to consume. Autonomous expenditure is ​

220

In the above​ table, C is consumption​ expenditure, I is​ investment, G is government​ expenditure, and X− M is net exports. All entries are in dollars. The equilibrium level of real GDP is

2400

When real GDP is $200 ​billion, aggregate planned expenditure is $310 billion.

310

What is the size of the multiplier in the short​ run?

4

When real GDP is $$500 ​billion, aggregate planned expenditure is

445

Equilibrium expenditure is equal to​ _______.

5 trillion

If the marginal propensity to consume is 0.8 and there no income taxes or​ imports, the multiplier for a change in autonomous expenditure equals

5.0

In the​ table, C is consumption​ expenditure, I is​ investment, G is government​ expenditure, X is​ exports, and M is imports. All entries are in dollars. What is the equilibrium​ expenditure?

500

Planned saving​ + Planned consumption expenditure​ = ______.

Disposable income

Which of the following equations is incorrect​?

MPC ​ + MPS = aΔYD

You observe that unplanned inventories are increasing. You predict that there will be​ _______.

a recession

At equilibrium expenditure

aggregate planned expenditure equals real GDP.

The graph of the aggregate expenditure curve has​ ________ on the yminus−axis and​ ________ on the xminus−axis.

aggregate planned​ expenditure; real GDP

You observe that unplanned inventories are decreasing. You predict that there will be​ _______.

an expansion

An increase in real GDP leads to

an increase in aggregate planned expenditure.

An increase in U.S. exports because of increasing foreign incomes represents​ ________ in the United States.

an increase in autonomous expenditure

With a steep short−run aggregate supply​ curve,

an increase in taxes that does not change potential GDP will not decrease real GDP by much.

This change in consumption expenditure could be attributed to​ ______ in disposable income or​ ______ in expected future income.

an​ increase; an increase

Suppose the equilibrium level of expenditure is​ $13 trillion. If real GDP is​ $14 trillion, then planned expenditures

are less than real​ GDP, and real GDP will decrease.

Capital spending is ____________ expenditure

autonomous

The multiplier is the ratio of the

change in real GDP to the change in autonomous expenditures.

The intertemporal substitution effect of a change in the price level results from a

change in the price of current goods relative to future goods.

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​ ______.

change in​ investment; change in investment times the multiplier

In the above​ table, there are no taxes and no imports or exports. If current real GDP is equal to​ $7,000, then firms will

decrease production to restore inventories to their target level.

Imports

decrease the size of the multiplier because spending on imports does not increase real GDP in the domestic nation.

If the MPC equals​ 0.75, then

for every​ $100 increase in disposable​ income, saving increases by​ $25.

Consumption expenditure minus​ imports, which varies with real​ GDP, is called​ _______.

induced expenditure (graph is straight line at 3.5)

Any expenditure component that depends on the level of real GDP is called

induced expenditure.

In the​ figure, if the level of real GDP is​ $11 trillion,

inventories are below the levels planned by firms.

If aggregate planned expenditure exceeds real​ GDP, then​ _______.

inventories​ decrease, and as real GDP increases a movement up along the AE curve occurs

If aggregate planned expenditure is less than real​ GDP, then​ _______.

inventories​ increase, and as real GDP decreases a movement down along the AE curve occurs

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.

A shift in the aggregate expenditure curve as a result of an increase in the price level results in a

movement up along the aggregate demand curve.

Taking into account the upwardminus−sloping shortminus−run aggregate supply​ curve, the shortminus−run effect of an increase in government expenditures on real GDP is that

real GDP increases by more in the short run than in the long run.

The marginal propensity to import defines the relationship between changes in imports and changes in

real GDP.

Any change in the price level will result in a

shift in the AE curve and a movement along the AD curve.

In the​ figure, if income taxes​ increase,

the AE curve becomes flatter.

Suppose taxes fall by​ $90 billion and spending on transport projects increases by​ $90 billion. Everything else remaining the​ same, ______.

the spending on transport projects has a greater effect on equilibrium expenditure than the fall in taxes

The government estimates that the fiscal policy multiplier is 2.0. In this​ case, an increase in government expenditure of​ $500 billion increases real GDP by​ ________ and results in an increase in induced expenditure of​ ________.

​$1,000 billion;​ $500 billion

In the​ figure, autonomous expenditure along AE0 equals

​$3 trillion.

If there are no income taxes or​ imports, the multiplier equals

​1/(1 − marginal propensity to​ consume).

​________ consumption is consumption that will occur​ ________ the level of GDP and disposable income.

​Autonomous; independent of

The multiplier is the amount by which a change in​ ______ expenditure is magnified or multiplied to determine​ ______.

​autonomous; the change in equilibrium expenditure and real GDP

When investment is less than planned​ investment, aggregate planned expenditure is​ ________ than actual aggregate expenditure and inventories are​ ________ than planned.

​greater; less

The slope of the aggregate expenditure curve increases when the marginal propensity to consume​ ________ or the marginal propensity to import​ ________.

​increases; decreases

The purchase of cars that occurs when income increases is​ _______ expenditure. The purchase of cars that occurs when the price of a car​ falls, everything else remaining the same is​ _______ expenditure.

​induced; autonomous

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 short​ run, the price level​ ________ and real GDP​ ________ $3 million.

​rises; increases by less than