Question 1

Autonomous expenditure is spending that is:

Accepted Answer

A)   based on the rate of borrowing.
B)   that is determined by the government.
C)   not sensitive to the level of income in the economy.
D)   spent when income changes in the economy.E) A) and C)
F) C) and D)

Question 2

Suppose that John allocates $10,000 of his disposable income for necessities. Any additional income beyond that is both spent and saved. Assume he has a disposable annual income of $50,000 and an MPC=0.8. Based on this information the additional amount spent on non-necessities should be:

Accepted Answer

A)   $10,000.
B)   $40,000.
C)   $32,000.
D)   $35,000.E) B) and D)
F) None of the above

Question 3

If the domestic income of a nation's citizens increase, then we might expect net export spending to:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain constant.
D)   there is not enough information to determine what would happen.E) All of the above
F) B) and C)

Question 4

If the foreign income decrease, then we might expect net export spending to:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain constant.
D)   there is not enough information to determine what would happen.E) B) and C)
F) None of the above

Question 5

If the MPC is 0.6, and the government spends an additional $50b, the overall effect on GDP will be:

Accepted Answer

A)   an increase of $250b.
B)   a decrease of $25b.
C)   a decrease of $75b.
D)   an increase of $125b.E) A) and D)
F) B) and C)

Question 6

The acronym MPC stands for:

Accepted Answer

A)   marginal production cost.
B)   marginal propensity to consume.
C)   marginally perfect consumption.
D)   macro production cost.E) None of the above
F) All of the above

Question 7

Which of the following is a determinant of Investment spending?

Accepted Answer

A)   Real income
B)   Expected future income
C)   Taxes
D)   WealthE) All of the above
F) B) and C)

Question 8

In general we can note that households with lower wealth tend to have a ____ MPC relative to wealthier households.

Accepted Answer

A)   lower
B)   higher
C)   similar
D)   exactly equivalentE) B) and C)
F) A) and D)

Question 9

Using Figure 2 above, suppose that the economy started at PAE2. A potential change that could cause the economy to go from PAE2 to PAE3 might be:

Accepted Answer

A)   wealth level increases.
B)   interest rates increase.
C)   taxes increase.
D)   domestic income increases.E) B) and D)
F) C) and D)

Question 10

Transfer payments are payments that are:

Accepted Answer

A)   made to firms in order to transfer goods and services to the government.
B)   payments made to households that can then be spent by the households.
C)   made in market transactions in order to get the seller to transfer the goods or services to the buyer.
D)   made in order to obtain public goods or services.E) None of the above
F) C) and D)

Question 11

Using Figure 2 above, suppose that the economy started at PAE2. A potential change that could cause the economy to go from PAE2 to PAE3 might be:

Accepted Answer

A)   wealth level decreases.
B)   interest rates decrease.
C)   expected profitability of investments decrease.
D)   domestic income increases.E) None of the above
F) A) and C)

Question 12

When PAE < Y the economic response should be:

Accepted Answer

A)   eventually production will decrease.
B)   eventually production will increase.
C)   there will be no change in aggregate production.
D)   the government will intervene by cutting down on taxes.E) A) and B)
F) A) and C)

Question 13

Which of the following conveys the correct relationship between production and inventories?

Accepted Answer

A)   If planned inventories > actual inventories then increase production.
B)   If planned inventories 
C)   There is not clear relationship between inventories and production.
D)   If planned inventories > actual inventories then reduce production.E) A) and D)
F) A) and B)

Question 14

In Figure 1 above if the economy were at Y2 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) A) and D)
F) A) and C)

Question 15

We define autonomous expenditure to be expenditure that:

Accepted Answer

A)   depends on how much income changes in the economy.
B)   that changes under the guidance of the government.
C)   is unaffected by the current level of income in the economy.
D)   people make that pertains to the auto industry.E) C) and D)
F) A) and B)

Question 16

If spending decreased by $400, and the GDP decreased $1,000 as a result, the MPC must be:

Accepted Answer

A)   0.60
B)   0.75
C)   4
D)   2.5E) B) and C)
F) A) and D)

Question 17

Using Figure 2 above, suppose that the economy started at PAE2. A potential change that could cause the economy to go from PAE2 to PAE1 might be:

Accepted Answer

A)   wealth level increases.
B)   interest rates increase.
C)   taxes decrease.
D)   domestic income decreases.E) A) and D)
F) All of the above

Question 18

The equation for aggregate expenditure can be written as:

Accepted Answer

A)   C+I+GDP
B)   C+Inventory+G+NX
C)   C+I+G+NX
D)   C+I+G+ExportsE) C) and D)
F) B) and D)

Question 19

If tastes for foreign goods and services go up, then we would expect imports to:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain constant.
D)   increase and then sharply decrease more.E) None of the above
F) A) and C)

Question 20

If the MPC is 0.5, then the spending multiplier must be:

Accepted Answer

A)   1.2.
B)   2.
C)   2.25.
D)   2.5.E) A) and B)
F) A) and D)

Exam 11: Aggregate Expenditure

In Figure 1 above if the economy were at Y2 then we would expect there to be:

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Autonomous expenditure is spending that is:

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Which of the following conveys the correct relationship between production and inventories?

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The equation for aggregate expenditure can be written as:

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If the MPC is 0.6, and the government spends an additional $50b, the overall effect on GDP will be:

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Using Figure 2 above, suppose that the economy started at PAE2. A potential change that could cause the economy to go from PAE2 to PAE1 might be:

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In general we can note that households with lower wealth tend to have a ____ MPC relative to wealthier households.

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Suppose that John allocates $10,000 of his disposable income for necessities. Any additional income beyond that is both spent and saved. Assume he has a disposable annual income of $50,000 and an MPC=0.8. Based on this information the additional amount spent on non-necessities should be:

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We define autonomous expenditure to be expenditure that:

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If the foreign income decrease, then we might expect net export spending to:

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Transfer payments are payments that are:

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Which of the following is a determinant of Investment spending?

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If spending decreased by $400, and the GDP decreased $1,000 as a result, the MPC must be:

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If the MPC is 0.5, then the spending multiplier must be:

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Using Figure 2 above, suppose that the economy started at PAE2. A potential change that could cause the economy to go from PAE2 to PAE3 might be:

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If tastes for foreign goods and services go up, then we would expect imports to:

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If the domestic income of a nation's citizens increase, then we might expect net export spending to:

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The acronym MPC stands for:

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When PAE < Y the economic response should be:

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Using Figure 2 above, suppose that the economy started at PAE2. A potential change that could cause the economy to go from PAE2 to PAE3 might be:

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