Ch 12 Quiz Flashcards
(See figure) if the U.S. Economy is currently at point N, which of the following could cause it to move to point K
A. Household wealth falls.
B. Households expect future income to rise.
C. The firm’s cash flow rises as profits rise.
D. Government expenditures increase
A. Household wealth falls.
If aggregate planned expenditures are less than total production, _______
A. GDP will increase
B. Actual inventories will equal planned inventories
C. Firms will experience unplanned increase in inventories
D. The economy is in equilibrium
C. Firms will experience unplanned increase in inventories
(See figure) If the economy is at point J, what will happen?
A. Inventories have fallen below their desired level, and firms increase production
B. Inventories have risen above their desired level, and firms decrease production
C. Inventories have risen above their desired level, and firms increase production
D. Inventories have fallen below their desired level, and firms decrease production
A. Inventories have fallen below their desired level, and firms increase production
A decrease in the price level in the U.S. Will have what effect on the aggregate expenditure line?
A. Aggregate expenditure will become steeper
B. Aggregate expenditure will shift upward
C. Aggregate expenditure will shift downward
D. Aggregate expenditure will not be affected by an increase in the price level in the U.S.
B. Aggregate expenditure will shift upward
An increase in the real interest rate will
A. Most likely lower the cost of borrowing
B. Most likely lower consumer’s purchases of durable goods
C. Cause consumers to spend more and save less
D. Most likely lower the reward to savings
B. Most likely lower consumer’s purchases of durable goods
The formula for aggregate expenditure is
A. AE=C+I+G
B. AE=C+I+depreciation-NX
C. AE=C+I+G-NX
D. AE=C+I+G+NX
D. AE=C+I+G+NX
The aggregate expenditure model focuses on the relationship between ___ and ___ in the short run, assuming ___ is constant
A. Total income; real GDP; the price level
B. Total production; total income; real GDP
C. Total spending; real GDP; total income
D. Total spending; real GDP; the price level
D. Total spending; real GDP; the price level
Planned aggregate expenditure is equal to
A. Consumption spending only.
B. Consumption spending plus planned investment spending plus government purchases plus net exports
C. Planned investment spending only
D. Consumption spending plus planned investment spending
B. Consumption spending plus planned investment spending plus government purchases plus net exports
Refer to the diagram to the right. Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is .09, then what is the change in GDP
A. $90 million
B. $100 million
C. $10 million
D. $9 million
$100 million
If disposal income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is
A. 0.75
B. 0.6
C. 0.9
D. 0.8
C. 0.9
90/100 = .9
Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure
A. Price level increases raise real wealth, which causes consumption spending and aggregate expenditure to decline
B. As the price level rises, government spending falls, which lowers aggregate expenditure
C. Price level increases cause firms and consumers to hold more money, which raises the interest rate. Higher interest rates lower consumption and planned investment expenditures, which lowers aggregate expenditure
C. Price level increases cause firms and consumers to hold more money, which raises the interest rate. Higher interest rates lower consumption and planned investment expenditures, which lowers aggregate expenditure
All of the following are components of aggregate expenditure except
A. Consumption spending
B. Net export spending
C. Government spending
D. Actual investment spending
D. Actual investment spending
If the MPC is 0.5 then a $10 million increase in disposable income will increase consumption by
$5 million
$10 million x 0.5 = $5 million
Which of the following leads to an increase real GDP
A. A decrease in government spending
B. A decrease in the inflation rate in other countries, relative to the inflation in the U.S.
C. A decrease in interest rates
D. Households have increasingly pessimistic expectations about future income
C. A decrease in interest rates
Which of the following correctly describes how an increase in the price level affects consumption spending
A. An increase in the price level lowers real wealth which causes consumption to decrease
B. An increase in the price level increases the amount of money a household needs to buy goods, raises the interest rate, which causes consumption to increase
C. An increase in the price level raises real wealth which causes consumption to increase
A. An increase in the price level lowers real wealth which causes consumption to decrease
In the aggregate expenditure model, ___ has both an autonomous component and an induced component
A. Government spending
B. Consumption spending
C. Net export spending
B. Consumption spending
If an increase in autonomous consumption spending of $10 million results in a $50 million increase in equilibrium real GDP, then the MPC is
A. 0.5
B. 0.8
C. 0.9
D. 0.75
B. 0.8
A general formula for the multiplier is
A. 1/MPS
B. 1/(1-MPS)
C. 1/(MPC-1)
D. 1/MPC
A. 1/MPS
