Econ. Chap. 11

The largest component of planned aggregate expenditure is: A. consumption. B. investment. C. government purchases. D. exports.

A. consumption.

The two parts of the Keynesian consumption function are consumption that depends on ______ and consumption that depends on _____. A. disposable income; factors other than disposable income B. planned spending; unplanned spending C. real income; nominal income D. money; wealth

A. disposable income; factors other than disposable income

When actual investment is greater than planned investment: A. firms sold less output than expected. B. firms sold more output than expected. C. the quantity of output sold is the amount the firm expected to sell. D. the economy produces short-run equilibrium output.

A. firms sold less output than expected

If firms sell more output than expected, planned investment: A. is greater than actual investment. B. is less than actual investment. C. equals actual investment. D. equals zero.

A. is greater than actual investment.

If firms sell less than expected, actual investment increases because _____, which is counted as investment. A. the unsold goods are added to inventory B. the government buys the unsold goods C. the unsold goods are distributed to poor households D. households buy the unsold goods are bargain prices

A. the unsold goods are added to inventory

In the Keynesian model, it is assumed that, when demand for a firm's product changes, the firm: A. changes prices to meet the demand. B. changes production levels to meet the demand. C. changes prices and production levels to meet demand. D. changes prices, but hold production levels constant to meet the demand.

B. changes production levels to meet the demand.

Menu costs are the costs of: A. running a restaurant. B. changing prices. C. increasing aggregate demand. D. changing production.

B. changing prices.

The basic Keynesian model is built on the key assumption that: A. menu costs are not significant. B. firms meet the demand for their products at preset prices. C. firms price their products so as to see a preset quantity of output. D. prices are prevented from changing frequently by government regulations.

B. firms meet the demand for their products at preset prices.

When actual investment is less than planned investment: A. firms sold less output than expected. B. firms sold more output than expected. C. the quantity of output sold is the amount the firm expected to sell. D. the economy produces short-run equilibrium output.

B. firms sold more output than expected.

If firms sell less output than expected, planned investment: A. is greater than actual investment. B. is less than actual investment. C. equals actual investment. D. equals zero.

B. is less than actual investment.

In the basic Keynesian model all of the following are true EXCEPT: A. planned consumption always equals actual consumption. B. planned investment always equals actual investment. C. planned government spending always equals actual government spending. D. planned net exports always equal actual net exports.

B. planned investment always equals actual investment.

Planned aggregate expenditure is total: A. value added in the economy. B. planned spending on final goods and services. C. income of households, businesses, governments, and foreigners. D. revenue from the sale of goods and services.

B. planned spending on final goods and services.

Firms do not change prices frequently because: A. there are legal prohibitions against doing so. B. it is easier to change the quantity of capital used in production. C. it is costly to do so. D. customers will refuse to patronize firms that change prices frequently.

C. it is costly to do so

Unplanned inventory investment equals zero when A. planned investment is greater than actual investment. B. planned investment is less than actual investment. C. planned investment equals actual investment. D. expected sales are greater than actual sales.

C. planned investment equals actual investment.

Planned investment may differ from actual investment because of: A. changes in government purchases and net exports. B. the marginal propensity to consume. C. unplanned changes in inventories. D. fluctuations in preset prices.

C. unplanned changes in inventories.

The four components of planned aggregate expenditure are: A. spending on domestic goods, domestic services, foreign goods, and foreign services. B. spending on durable goods, inventory investment, government debt, and net exports. C. consumption, planned investment, government transfers, and net interest. D. consumption, planned investment, government purchases, and net exports.

D. consumption, planned investment, government purchases, and net exports

The decision whether to change prices frequently or infrequently is an application of the: A. principle of comparative advantage. B. scarcity principle. C. principle of increasing opportunity cost. D. cost-benefit principle.

D. cost-benefit principle.

All of the following would be included in planned aggregate expenditure EXCEPT: A. spending on consumer durables. B. planned changes in inventories. C. sales of domestically produced goods to foreigners. D. interest paid on the government debt.

D. interest paid on the government debt.

The consumption function is relationship between consumption and: A. planned aggregate expenditure. B. total spending. C. investment. D. its determinants, such as disposable income.

D. its determinants, such as disposable income.

All of the following would be included in planned aggregate expenditure EXCEPT: A. purchases of services provided by government employees. B. planned changes in inventories. C. sales of domestically produced goods to foreigners. D. social security payments.

D. social security payments.