Question 1

Figure 13-5 P = Planned Investment. Consider a simple economy where AE = C + IP, IP is autonomous And the consumption function is given by C = $1,000 billion + 0.75Y. What is the value of planned investment when real GDP is $6,000 billion? A)  $3,000 billion B)  $1,500 billion C)  $1,000 billion D)  zero" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 13-5. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment. Consider a simple economy where AE = C + IP, IP is autonomous
And the consumption function is given by C = $1,000 billion + 0.75Y. What is the value of planned investment when real GDP is $6,000 billion?

Accepted Answer

A)   $3,000 billion
B)   $1,500 billion
C)   $1,000 billion
D)   zeroE) None of the above
F) A) and C)

Question 2

The current income theory assumes that current consumption is based on the average
income people expect to receive for the remainder of their lives.

Accepted Answer

A) True 
 B)False

Question 3

In a graph with real GDP on the horizontal axis and aggregate expenditures on the vertical axis, induced aggregate expenditures are represented by

Accepted Answer

A)   a ray from the origin.
B)   an upward sloping line.
C)   a 45-degree line.
D)   a horizontal line.E) All of the above
F) B) and C)

Question 4

Personal saving equals

Accepted Answer

A)   gross domestic income − consumption.
B)   personal disposable income − consumption.
C)   gross domestic product − consumption.
D)   personal disposable income − taxes − consumption.E) A) and B)
F) A) and C) B

Question 5

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $1,000 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?

Accepted Answer

A)   The multiplier is 2.5.
B)   The MPC = 0.5.
C)   The MPC = 0.75.
D)   The MPC = 0.8.E) All of the above
F) A) and D)

Question 6

Figure 13-6 P = Planned Investment, G = Government Purchases. Further, IP and G are autonomous. If real GDP produced is $4,000, how will equilibrium be restored in the economy? A)  Policymakers must conduct contractionary policies to move the economy toward its equilibrium real GDP. B)  Firms will reduce their output in subsequent periods, moving the economy toward its equilibrium real GDP. C)  The price level must rise to reduce aggregate expenditures and restore equilibrium. D)  The price level must fall to increase aggregate expenditures and restore equilibrium." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 13-6. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment, G = Government Purchases. Further, IP and G are autonomous.
If real GDP produced is $4,000, how will equilibrium be restored in the economy?

Accepted Answer

A)   Policymakers must conduct contractionary policies to move the economy toward its equilibrium real GDP.
B)   Firms will reduce their output in subsequent periods, moving the economy toward its equilibrium real GDP.
C)   The price level must rise to reduce aggregate expenditures and restore equilibrium.
D)   The price level must fall to increase aggregate expenditures and restore equilibrium.E) B) and D)
F) All of the above

Question 7

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to consume is 0.75?

Accepted Answer

A)   1
B)   4
C)   5
D)   infinityE) None of the above
F) C) and D)

Question 8

In the aggregate expenditures model, if aggregate expenditures are greater than real GDP,

Accepted Answer

A)   there will be unplanned decreases in inventories.
B)   employment decreases.
C)   aggregate output decreases.
D)   actual real output is greater than equilibrium real output.E) All of the above
F) C) and D)

Question 9

In general, an increase in the income tax rate will make the aggregate expenditures curve

Accepted Answer

A)   steeper and the multiplier larger.
B)   steeper and the multiplier smaller.
C)   flatter and the multiplier larger.
D)   flatter and the multiplier smaller.E) All of the above
F) A) and B)

Question 10

What is the marginal propensity to consume? Explain why the sum of marginal propensity
to consume and marginal propensity to save must equal 1.

Accepted Answer

The marginal propensity to consume (MPC)...

Question 11

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $12,000. What is the marginal propensity to save?

Accepted Answer

A)   0.2
B)   0.4
C)   0.6
D)   0.8E) A) and B)
F) All of the above

Question 12

If consumption increases by $75 billion when disposable personal income increases by
$100, the marginal propensity to consume is 0.75.

Accepted Answer

A) True 
 B)False

Question 13

Figure 13-5 
-Which of the following statements is true about equilibrium in the aggregate expenditures model?
I. Equilibrium is found at the level of real GDP at which the aggregate expenditures curve
Crosses the 45-degree line.
II. In equilibrium, real GDP produced equals aggregate expenditures.
III. In equilibrium, inventories equal zero.
IV. In equilibrium, real GDP produced equals potential real GDP.

Accepted Answer

A)   I only
B)   I and II only
C)   I, II, and III only
D)   I, II, III, and IVE) A) and D)
F) B) and C)

Question 14

In the aggregate expenditures model, in equilibrium,

Accepted Answer

A)   aggregate expenditures equal real GDP produced.
B)   inventory changes equal saving.
C)   inventory changes equal investment.
D)   aggregate expenditures equal consumption.E) None of the above
F) B) and C) A

Question 15

Figure 13-6 
-Refer to Figure 13-6. Suppose government purchases rise by $100. In the aggregate demand/aggregate supply model,

Accepted Answer

A)   the aggregate demand curve shifts to the right by $100 at any given price level.
B)   the aggregate demand curve shifts to the right by ($100  ×	imes×  the multiplier)  at any given price level.
C)   there is a downward movement along the aggregate demand curve such that real GDP demanded increases by $100.
D)   there is a downward movement along the aggregate demand curve such that real GDP demanded increases by ($100  ×	imes×  the multiplier) . E) All of the above
F) A) and D)

Question 16

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. The marginal propensity to consume is ⅔. Holding all else constant, if net exports increase by $50 billion, what happens to
Aggregate demand?

Accepted Answer

A)   It shifts left by $150 billion.
B)   There is a movement down along a given aggregate demand so that aggregate quantity demanded increases by $150 billion.
C)   It shifts right by $150 billion
D)   There is a movement down along a given aggregate demand so that aggregate quantity demanded increases by $50 billion.E) A) and B)
F) B) and D) C

Question 17

Personal saving is disposable personal income not spent on consumption.

Accepted Answer

A) True 
 B)False

Question 18

Let AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment,
G = Government Purchases. Consider a simple aggregate expenditures model, where
AE = C + IP + G and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is _____.

Accepted Answer

A)   1 ÷ (1 - MPS)  where MPS = marginal propensity to save
B)   1 ÷ MPC where MPC = marginal propensity to consume
C)   1 ÷ MPS where MPS = marginal propensity to save
D)   MPC ÷ MPS ÷ ∆YE) C) and D)
F) A) and C)

Question 19

Figure 13-1 
-Refer to Figure 13-1. If disposable personal income is $400 billion, what is the amount of personal saving?

Accepted Answer

A)   −$200 billion
B)   $0
C)   $200 billion
D)   $400 billionE) A) and D)
F) None of the above

Question 20

Difficulty: Medium Figure 13-4 P = Planned Investment. Suppose AE = C + IP. IP is autonomous and the consumption function is C = $1,000 billion + 0.5Y. If IP = $2,000 billion, what is the equilibrium level of real GDP? A)  $4,500 billion B)  $6,000 billion C)  $7,500 billion D)  $9,000 billion" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 13-4. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment. Suppose AE = C + IP. IP is autonomous and the consumption function is C = $1,000 billion + 0.5Y. If IP = $2,000 billion, what is the equilibrium level of real GDP?

Accepted Answer

A)   $4,500 billion
B)   $6,000 billion
C)   $7,500 billion
D)   $9,000 billionE) All of the above
F) None of the above

Exam 13: Consumption and the Aggregate Expenditures Model

Correct Answer
verified

The current income theory assumes that current consumption is based on the average income people expect to receive for the remainder of their lives.

Correct Answer
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In a graph with real GDP on the horizontal axis and aggregate expenditures on the vertical axis, induced aggregate expenditures are represented by

Correct Answer
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Personal saving equals

Correct Answer
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B

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $1,000 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?

Correct Answer
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Figure 13-6 -Refer to Figure 13-6. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases. Further, I_P and G are autonomous. If real GDP produced is $4,000, how will equilibrium be restored in the economy?

Correct Answer
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In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to consume is 0.75?

Correct Answer
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In the aggregate expenditures model, if aggregate expenditures are greater than real GDP,

Correct Answer
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In general, an increase in the income tax rate will make the aggregate expenditures curve

Correct Answer
verified

What is the marginal propensity to consume? Explain why the sum of marginal propensity to consume and marginal propensity to save must equal 1.

Correct Answer
Answered by ExamLex AI
The marginal propensity to consume (MPC)...
View Answer

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $12,000. What is the marginal propensity to save?

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If consumption increases by $75 billion when disposable personal income increases by $100, the marginal propensity to consume is 0.75.

Correct Answer
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In the aggregate expenditures model, in equilibrium,

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A

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Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. The marginal propensity to consume is ⅔. Holding all else constant, if net exports increase by $50 billion, what happens to Aggregate demand?

Correct Answer
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C

Personal saving is disposable personal income not spent on consumption.

Correct Answer
verified

Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases. Consider a simple aggregate expenditures model, where AE = C + I_P + G and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is _____.

Correct Answer
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Figure 13-1 -Refer to Figure 13-1. If disposable personal income is $400 billion, what is the amount of personal saving?

Correct Answer
verified

Correct Answer
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Exam 13: Consumption and the Aggregate Expenditures Model

Correct AnswerverifiedShow Answer

The current income theory assumes that current consumption is based on the average income people expect to receive for the remainder of their lives.

Correct AnswerverifiedShow Answer

In a graph with real GDP on the horizontal axis and aggregate expenditures on the vertical axis, induced aggregate expenditures are represented by

Correct AnswerverifiedShow Answer

Personal saving equals

Correct AnswerverifiedB

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $1,000 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?

Correct AnswerverifiedShow Answer

Figure 13-6 -Refer to Figure 13-6. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases. Further, IP and G are autonomous. If real GDP produced is $4,000, how will equilibrium be restored in the economy?

Correct AnswerverifiedShow Answer

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to consume is 0.75?

Correct AnswerverifiedShow Answer

In the aggregate expenditures model, if aggregate expenditures are greater than real GDP,

Correct AnswerverifiedShow Answer

In general, an increase in the income tax rate will make the aggregate expenditures curve

Correct AnswerverifiedShow Answer

What is the marginal propensity to consume? Explain why the sum of marginal propensity to consume and marginal propensity to save must equal 1.

Correct AnswerAnswered by ExamLex AIThe marginal propensity to consume (MPC)...View AnswerShow Answer

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $12,000. What is the marginal propensity to save?

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If consumption increases by $75 billion when disposable personal income increases by $100, the marginal propensity to consume is 0.75.

Correct AnswerverifiedShow Answer

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In the aggregate expenditures model, in equilibrium,

Correct AnswerverifiedA

Figure 13-6 -Refer to Figure 13-6. Suppose government purchases rise by $100. In the aggregate demand/aggregate supply model,

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Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. The marginal propensity to consume is ⅔. Holding all else constant, if net exports increase by $50 billion, what happens to Aggregate demand?

Correct AnswerverifiedC

Personal saving is disposable personal income not spent on consumption.

Correct AnswerverifiedShow Answer

Let AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases. Consider a simple aggregate expenditures model, where AE = C + IP + G and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is _____.

Correct AnswerverifiedShow Answer

Figure 13-1 -Refer to Figure 13-1. If disposable personal income is $400 billion, what is the amount of personal saving?

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Correct AnswerverifiedShow Answer

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B

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Figure 13-6 -Refer to Figure 13-6. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases. Further, I_P and G are autonomous. If real GDP produced is $4,000, how will equilibrium be restored in the economy?

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Correct Answer
Answered by ExamLex AI
The marginal propensity to consume (MPC)...
View Answer

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A

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C

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Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases. Consider a simple aggregate expenditures model, where AE = C + I_P + G and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is _____.

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