Study

Question 0

On the 45-degree line diagram, for points that lie below the 45-degree line,

A) planned aggregate expenditure is greater than GDP.
B) planned aggregate expenditure is less than aggregate income.
C) planned aggregate expenditure is equal to GDP.
D) planned aggregate expenditure is less than GDP.

Answer 0

D) planned aggregate expenditure is less than GDP.

Question 1

Household spending on goods and services is known as

A) consumption spending.
B) net exports.
C) planned investment spending.
D) government purchases.

Answer 1

A) consumption spending.

Question 2

Actual investment spending does not include

A) spending on new capital equipment.
B) spending on new houses.
C) spending on consumer durable goods.
D) changes in inventories.

Answer 2

C) spending on consumer durable goods.

Question 3

Consumption spending is $22 million, planned investment spending is $7 million, actual investment spending is $7 million, government purchases are $9 million, and net export spending is $3 million. Based on this information, which of the following is true?

A) Aggregate expenditure is equal to GDP.
B) There was an unplanned change in inventories.
C) Aggregate expenditure is less than GDP.
D) Aggregate expenditure is greater than GDP.

Answer 3

A) Aggregate expenditure is equal to GDP.

Question 4

Disposable income is defined as

A) national income - transfers - taxes. 
B) national income + transfers - taxes.
C) national income + transfers + taxes.
D) national income - transfers + taxes

Answer 4

B) national income + transfers - taxes.

Question 5

An increase in the real interest rate will

A) most likely lower consumers’ purchases of durable goods.
B) most likely lower the reward to savings.
C) most likely lower the cost of borrowing.
D) cause consumers to spend more and save less.

Answer 5

A) most likely lower consumers’ purchases of durable goods.

Question 6

Increases in housing prices

A) have no independent effect on consumption.
B) decrease consumption in direct proportion to the housing price increases.
C) decrease consumption only when the overall price level decreases in the economy.
D) directly increase consumption, as this increases household wealth.

Answer 6

A) have no independent effect on consumption.

Question 7

An unplanned increase in inventories results from
A) a decrease in planned investment.
B) actual investment that is less than planned investment.
C) actual investment that is greater than planned investment.
D) an increase in planned investment

Answer 7

C) actual investment that is greater than planned investment.

Question 8

If disposable income falls by $50 billion and consumption falls by $40 billion, then the slope of the consumption function is

A) 1.20.
B) 0.80.
C) 0.70.
D) 0.10.

Answer 8

B) 0.80

Question 9

From 1983-2011, net exports for the United States

A) increased as exports rose above imports.
B) were positive.
C) were negative.
D) grew and then declined

Answer 9

C) were negative.

Question 10

On the 45-degree line diagram, the 45-degree line shows points where

A) real aggregate output equals the quantity produced.
B) real aggregate expenditure equals C + I.
C) real income equals real GDP.
D) real aggregate expenditure equals real GDP.

Answer 10

D) real aggregate expenditure equals real GDP.

Question 11

During a(n) ___ many firms experience increased profits, which increases ___ and investment spending

A) recession; cash flow
B) recession; business confidence
C) expansion; government spending
D) expansion; cash flow

Answer 11

D) expansion; cash flow

Question 12

Inventories refer to
A) goods that have been produced and sold in the same year
B) goods which have been presold before they are produced
C) goods that have been planned but not yet produced
D) goods that have been produced but not yet sold.

Answer 12

D) goods that have been produced but not yet sold.