Question 1

If the MPC were to increase from 0.75 to 0.8, then the spending multiplier would:

Accepted Answer

A)   increase from 4 to 5.
B)   decrease from 5 to 4.
C)   increase from 0.2 to 0.25.
D)   decrease from 1.25 to 1.2.E) None of the above
F) A) and B)

Question 2

Consumption spending is said to make up about ______ to _______ of most countries spending.

Accepted Answer

A)   3/4, 7/8
B)   1/2, 2/3
C)   2/3, 3/4
D)   1/3, 1/2E) B) and C)
F) All of the above

Question 3

In Figure 1 above if the economy were at Y3 then we would expect there to be:

Accepted Answer

A)   a reduction in inventories.
B)   an increase in inventories.
C)   no change in inventories.
D)   an increase in consumption spending.E) C) and D)
F) B) and C)

Question 4

In general economic environments that correspond to higher levels of planned aggregate expenditure for a given level of Y have PAE curves that are:

Accepted Answer

A)   higher on the expenditure diagram.
B)   lower on the expenditure diagram.
C)   at multiple points on the diagram.
D)   equivalent at point in the diagram.E) B) and D)
F) B) and C)

Question 5

Which of the following is not an example of a transfer payment?

Accepted Answer

A)   social security.
B)   sales tax.
C)   unemployment benefits.
D)   workman's compensation.E) C) and D)
F) B) and D)

Question 6

If the MPC is 0.75, and the government cuts spending by $100b, the overall effect on GDP will be:

Accepted Answer

A)   a decrease of $400b.
B)   an increase of $250b.
C)   a decrease of $250b.
D)   an increase of $400b.E) All of the above
F) C) and D)

Question 7

Using Figure 3 above the distance between what 2 lines illustrate an inflationary output gap?

Accepted Answer

A)   PAE2 to PAE3
B)   PAE1 to PAE2
C)   Y1 to Y2
D)   Y2 to Y3E) B) and C)
F) All of the above D

Question 8

The four components of aggregate expenditure (AE)  are:

Accepted Answer

A)   consumption, investment, exports, and imports.
B)   consumption, investment, government, and capital spending.
C)   consumption, investment, government, and net export spending.
D)   consumption, internet, government, and capital spending.E) All of the above
F) B) and D)

Question 9

Wealth can be thought of as:

Accepted Answer

A)   The sum total of all assets less any debts.
B)   The sum of all assets you have at any one point in time.
C)   The income that you have earned that year.
D)   The sum of all assets and any expected future assets.E) None of the above
F) All of the above

Question 10

The spending multiplier tells us the:

Accepted Answer

A)   amount by which GDP increases when spending increases by $1.
B)   amount by which GDP decreases when spending on capital goods increases by $1.
C)   fraction of each dollar that will decreases GDP of each dollar spent.
D)   amount by which spending increases when GDP increases by $1.E) A) and D)
F) A) and C)

Question 11

Economist John Maynard Keynes noted one of the main contributors to the Great Depression in the 1930s was:

Accepted Answer

A)   insufficient spending causing below natural rate output.
B)   poor infrastructure for manufacturing.
C)   a labor market that could not meet the demands of the market at the time.
D)   an insufficient agriculture sector, unable to produce enough food for the large US population.E) B) and C)
F) C) and D)

Question 12

If the MPC = 0.75 for a particular person this means that:

Accepted Answer

A)   they will spend 75 cents of each new dollar they get.
B)   if they receive $1 they want to spend roughly 75%, but probably won't do so.
C)   they will spend 25 cents of the $1 and save 75 cents.
D)   if they receive $1 then they want to spend 25% of it.E) A) and B)
F) All of the above

Question 13

Using Figure 3 above, suppose that the economy was at Y3. This level of GDP would be considered:

Accepted Answer

A)   inflationary.
B)   recessionary.
C)   a long run level of output.
D)   a natural rate of output.E) B) and C)
F) A) and D)

Question 14

Foreign income is defined to be income earned:

Accepted Answer

A)   by a nation's firms when they operate abroad.
B)   when a domestic citizen works abroad.
C)   on investments made abroad.
D)   by those living outside a country.E) All of the above
F) C) and D) D

Question 15

If we consider the equation PAE = A + bY the part that corresponds to the MPC when we make simplifying assumptions is:

Accepted Answer

A)   b
B)   Y
C)   A
D)   PAEE) B) and C)
F) B) and D)

Question 16

If the MPC is 0.5, and the government cuts spending by $400b, the overall effect on GDP will be:

Accepted Answer

A)   a decrease of $400b.
B)   an increase of $400b.
C)   a decrease of $800b.
D)   an increase of $800b.E) None of the above
F) C) and D)

Question 17

The multiplier measures the:

Accepted Answer

A)   effect of government spending or tax cuts on national income.
B)   number of times each dollar is spent in the economy.
C)   supply of money in the economy.
D)   effect of household spending on national income.E) None of the above
F) A) and C)

Question 18

If we consider the equation PAE = A + bY the part of the equation that relates to autonomous sources of spending is:

Accepted Answer

A)   b
B)   Y
C)   A
D)   PAEE) None of the above
F) A) and B)

Question 19

If the marginal propensity to consumer is 0.8, the spending multiplier must be:

Accepted Answer

A)   5
B)   2
C)   1.2
D)   1.8E) B) and C)
F) A) and C)

Question 20

During the Great Depression in the 1930s unemployment was so bad that nearly _____ of the labor force was unemployed.

Accepted Answer

A)   1/2
B)   1/5
C)   1/4
D)   1/3E) None of the above
F) All of the above C

Exam 11: Aggregate Expenditure

If the MPC were to increase from 0.75 to 0.8, then the spending multiplier would:

Correct AnswerverifiedShow Answer

Consumption spending is said to make up about ______ to _______ of most countries spending.

Correct AnswerverifiedShow Answer

In Figure 1 above if the economy were at Y3 then we would expect there to be:

Correct AnswerverifiedShow Answer

In general economic environments that correspond to higher levels of planned aggregate expenditure for a given level of Y have PAE curves that are:

Correct AnswerverifiedShow Answer

Which of the following is not an example of a transfer payment?

Correct AnswerverifiedShow Answer

If the MPC is 0.75, and the government cuts spending by $100b, the overall effect on GDP will be:

Correct AnswerverifiedShow Answer

Using Figure 3 above the distance between what 2 lines illustrate an inflationary output gap?

Correct AnswerverifiedD

The four components of aggregate expenditure (AE) are:

Correct AnswerverifiedShow Answer

Wealth can be thought of as:

Correct AnswerverifiedShow Answer

The spending multiplier tells us the:

Correct AnswerverifiedShow Answer

Economist John Maynard Keynes noted one of the main contributors to the Great Depression in the 1930s was:

Correct AnswerverifiedShow Answer

If the MPC = 0.75 for a particular person this means that:

Correct AnswerverifiedShow Answer

Using Figure 3 above, suppose that the economy was at Y3. This level of GDP would be considered:

Correct AnswerverifiedShow Answer

Foreign income is defined to be income earned:

Correct AnswerverifiedD

If we consider the equation PAE = A + bY the part that corresponds to the MPC when we make simplifying assumptions is:

Correct AnswerverifiedShow Answer

If the MPC is 0.5, and the government cuts spending by $400b, the overall effect on GDP will be:

Correct AnswerverifiedShow Answer

The multiplier measures the:

Correct AnswerverifiedShow Answer

If we consider the equation PAE = A + bY the part of the equation that relates to autonomous sources of spending is:

Correct AnswerverifiedShow Answer

If the marginal propensity to consumer is 0.8, the spending multiplier must be:

Correct AnswerverifiedShow Answer

During the Great Depression in the 1930s unemployment was so bad that nearly _____ of the labor force was unemployed.

Correct AnswerverifiedC

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Consumption spending is said to make up about to _ of most countries spending.

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D

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D

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C