Question 1

The paradox of thrift states that a downward shift in the saving function will lower the equilibrium level of national income.

Accepted Answer

A) True 
 B)False

Question 2

-When the closed economy's GDP is $400:

Accepted Answer

A)   the aggregate expenditures exceed GDP.
B)   consumption is $350 and planned investment is zero so that aggregate expenditures are $350.
C)   consumption is $300 and planned investment is $50 so that aggregate expenditures are $350.
D)   consumption is $300 and actual investment is $100 so that aggregate expenditures are $400.E) B) and D)
F) A) and B)

Question 3

The multiplier effect suggests that:

Accepted Answer

A)   given a change in autonomous spending, equilibrium income will rise by an amount equal to the change in autonomous spending.
B)   a given change in total spending will change saving by an amount equal to the MPS times the change in total spending.
C)   given a change in induced spending, investment spending will change by some multiple of the change in induced spending.
D)   given a change in autonomous spending, equilibrium income will change by a multiple of the initial . change in autonomous spending.E) C) and D)
F) A) and D)

Question 4

If the autonomous consumption is 250 and if Y= C = 1000, then the marginal propensity to save is:

Accepted Answer

A)   0.80.
B)   0.75.
C)   0.50.
D)   0.25.E) A) and B)
F) A) and C)

Question 5

Suppose that all firms in the economy experience a sudden and unexpected increase of $125 billion in their inventories. We can say that:

Accepted Answer

A)   firms will be reluctant to reduce their level of output, because they believe that consumption spending will eventually increase.
B)   household spending was more than what the firms had initially estimated.
C)   the level of planned inventories has remained constant.
D)   firms over estimated aggregate expenditure by $125 billion.E) None of the above
F) C) and D)

Question 6

Other things constant, the slope of the savings function shows us that:

Accepted Answer

A)   increases in the level of national income results in increases in the level of planned saving.
B)   the level of planned saving will increase if there are increases in the real interest rate.
C)   any increase in the level of planned saving will be accompanied by a reduction in the level of planned investment.
D)   as the level of income rises, consumers will spend less and save more out of each extra dollar of income.E) A) and B)
F) A) and C)

Question 7

In a 45-degree line diagram a fall in investment demand causes:

Accepted Answer

A)   a shift along the 45 degree line.
B)   a movement along AE.
C)   a movement along a new AE curve.
D)   a downward shift in the AE curve.E) B) and C)
F) B) and D)

Question 8

In the short run model, equilibrium real GDP occurs when:

Accepted Answer

A)   households spend all their income on consumption.
B)   businesses cannot produce any more goods and services.
C)   real GDP (Y)  equals planned aggregate expenditure (A
E)  .
D)   business investment expenditure is zero.E) C) and D)
F) A) and C)

Question 9

In an open macro model with no government, we will see all of the following equilibrium conditions except one, which is:

Accepted Answer

A)   Y=C+I+X-Z.
B)   S+Z=I+X.
C)   I-S=Z-X.
D)   I+S=Z+X.E) None of the above
F) C) and D) D

Question 10

When the price level is constant:

Accepted Answer

A)   the aggregate supply curve slopes upward from left to right.
B)   the aggregate supply curve is horizontal.
C)   there is no aggregate supply curve.
D)   the aggregate supply curve is vertical.E) A) and C)
F) B) and C) B

Question 11

Which of the following statements is true?

Accepted Answer

A)   Higher the income, higher is the marginal propensity to consume.
B)   Higher the autonomous consumption expenditure, higher is the marginal propensity to consume.
C)   Higher the autonomous consumption expenditure, lower is the marginal propensity to save.
D)  Marginal propensity to consume and marginal propensity to save are constant, irrespective of whether . income or autonomous expenditures increase or decrease.E) A) and B)
F) None of the above

Question 12

For each of the following, state the level of autonomous expenditures and induced expenditures.
  
(a) Given the following table and income equal to $200.
(b) Given the following expenditures function AE = $4000 + 0.6Y and income equals $1000.

Accepted Answer

(a) At an income level of $200...

Question 13

Other things equal, an increase in an economy's exports will:

Accepted Answer

A)   lower the marginal propensity to import.
B)   have no effect on equilibrium GDP because imports will change by an offsetting amount.
C)   decrease its aggregate expenditures and therefore decrease its equilibrium GDP.
D)   increase its aggregate expenditures and therefore increase its equilibrium GDP.E) B) and C)
F) All of the above

Question 14

Consider a no government open economy with multiplier as 2.5 and marginal propensity to import as 0.2. Therefore, MPC is:

Accepted Answer

A)   0.2.
B)   0.6.
C)   0.75.
D)   0.8.E) A) and C)
F) All of the above D

Question 15

-At every level of GDP the MPC and MPS:

Accepted Answer

A)   are 1/2 and 1/2 respectively.
B)   are equal to the 3/4 and 1/4 respectively.
C)   are 4/5 and 1/5 respectively.
D)   cannot be determined from the information given.E) A) and C)
F) B) and C)

Question 16

The marginal propensity to save (MPS) is equal to (1 - MPC). Higher the MPS, higher is the multiplier.

Accepted Answer

A) True 
 B)False

Question 17

Table 6.3
-Refer to Table 6.3. The equilibrium level of real GDP in the above economy is:

Accepted Answer

A)   225.
B)   400.
C)   300.
D)   500.E) All of the above
F) B) and D)

Question 18

If the marginal propensity to save increases, then the multiplier also increases.

Accepted Answer

A) True 
 B)False

Question 19

-At the $300 level of GDP:

Accepted Answer

A)   aggregate expenditures and GDP are equal.
B)   consumption is $250 and planned investment is $50.
C)   saving equals investment.
D)   all of the above are true.E) A) and B)
F) A) and C)

Question 20

_____ export expenditure decreases equilibrium output and a ______ MPZ increases equilibrium output.

Accepted Answer

A)   higher, lower
B)   higher, higher
C)   lower, lower
D)   lower, higherE) A) and B)
F) All of the above

Exam 6: Aggregate Expenditure Aggregate Demand

The paradox of thrift states that a downward shift in the saving function will lower the equilibrium level of national income.

Correct AnswerverifiedShow Answer

-When the closed economy's GDP is $400:

Correct AnswerverifiedShow Answer

The multiplier effect suggests that:

Correct AnswerverifiedShow Answer

If the autonomous consumption is 250 and if Y= C = 1000, then the marginal propensity to save is:

Correct AnswerverifiedShow Answer

Suppose that all firms in the economy experience a sudden and unexpected increase of $125 billion in their inventories. We can say that:

Correct AnswerverifiedShow Answer

Other things constant, the slope of the savings function shows us that:

Correct AnswerverifiedShow Answer

In a 45-degree line diagram a fall in investment demand causes:

Correct AnswerverifiedShow Answer

In the short run model, equilibrium real GDP occurs when:

Correct AnswerverifiedShow Answer

In an open macro model with no government, we will see all of the following equilibrium conditions except one, which is:

Correct AnswerverifiedD

When the price level is constant:

Correct AnswerverifiedB

Which of the following statements is true?

Correct AnswerverifiedShow Answer

For each of the following, state the level of autonomous expenditures and induced expenditures. (a) Given the following table and income equal to $200. (b) Given the following expenditures function AE = $4000 + 0.6Y and income equals $1000.

Correct Answerverified(a) At an income level of $200...View AnswerShow Answer

Other things equal, an increase in an economy's exports will:

Correct AnswerverifiedShow Answer

Consider a no government open economy with multiplier as 2.5 and marginal propensity to import as 0.2. Therefore, MPC is:

Correct AnswerverifiedD

-At every level of GDP the MPC and MPS:

Correct AnswerverifiedShow Answer

The marginal propensity to save (MPS) is equal to (1 - MPC). Higher the MPS, higher is the multiplier.

Correct AnswerverifiedShow Answer

Table 6.3 -Refer to Table 6.3. The equilibrium level of real GDP in the above economy is:

Correct AnswerverifiedShow Answer

If the marginal propensity to save increases, then the multiplier also increases.

Correct AnswerverifiedShow Answer

-At the $300 level of GDP:

Correct AnswerverifiedShow Answer

_____ export expenditure decreases equilibrium output and a ______ MPZ increases equilibrium output.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified
(a) At an income level of $200...
View Answer

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

_ export expenditure decreases equilibrium output and a __ MPZ increases equilibrium output.

Correct Answer
verified