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MACROECONOMICS EXAM 1 QUESTIONS
WITH DETAILED VERIFIED ANSWERS
The aggregate expenditure model focus's on the relationship between
___ and ___ in the short run; assuming ___ is constant Ans: total
spending; real GDP; the price level
The key idea of the aggregate expenditure model is that in any particular
year, the level of GDP is determined mainly by Ans: the level of
aggregate expenditure
Household spending on goods and services is known as Ans:
Consumption spending
The aggregate expenditure model focus's on the ___ relationship
between real spending and ___ Ans: Short-run; real GDP
Inventory refers to Ans: Goods that have been produced but not yet sold
An unplanned increase in inventory leads to Ans: Actual investment that
is greater than planned investment
If inventories decline by more than analyst predict they will decline, this
implies that Ans: actual investment spending was less than planned
investment spending
when aggregate expenditure=GDP, Ans: Macroeconomic equilibrium
occurs
Consumption is $5 million, planned investment spending is $8 million,
government purchases are $1o million, and net exports are equal to $2
million. If GDP during that same period is equal to $27 million, what
unplanned changes in inventory occurred? Ans: There was an unplanned
investment in inventories equal to $2 million.
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
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information, which of the following is true? Ans: Aggregate expenditure
is equal to GDP
At macroeconomic equilibrium Ans: Total spending equal total
production.
When aggregate expenditure is more than GDP, which of the following is
true? Ans: There was an unplanned decrease in inventories.
Consumption spending is $5 million, planned investment spending is $8
million, actual investment spending is $8 million, government purchases
are $10 million, and net export spending is $2 million. Based on this
information, which of the following is true? Ans: Aggregate expenditure
is equal to real GDP.
___ describes the relationship between consumption spending and
disposable income. Ans: The consumption function
The marginal propensity to save is defined as Ans: the change in savings
divided by the change in disposable income
If disposable income increases $100 million, the consumption increases
by $90 million, then the marginal propensity to consume is Ans: 0.9
Consumption Disposable income
$1,200 $3,000
$2,100 $4,000
$3,000 $5,000
Given the consumption schedule, the marginal propensity to consume is
Ans: 0.9
MPC+MPS = Ans: 1
A decrease in the real interest rate will Ans: Most likely increase
consumer's purchases of durable goods.
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Increases in the price level will Ans: Lower consumption because real
wealth decreases.
If the MPC is 0.95, then a $10 million increase in disposable income will,
Ans: Increase consumption by $9.5 million.
Refer to the 1st diagram in my phone. 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 0.9, then what is the
change in GDP? Ans: $100 million
Refer to the 2nd diagram in my phone. Suppose that the government
spending increases, shifting up the aggregate expenditure line. GDP
increases from GDP1 to GDP2, and this amount is $400 billion. If the MPC
is 0.75, then what is the distance between N and L, or by how much did
government spending change? Ans: $100 billion
Refer to 3rd diagram. Suppose that investment spending decreases by $5
million, decreasing aggregate expenditure and decreasing real GDP from
GDP2 to GDP1. If the MPC is 0.8, then what is the change in GDP? Ans: -
$25 million
Refer to 4th diagram. Suppose that government spending increases,
shifting up the aggregate expenditure line. GDP increases from GDP1 to
GDP2, and this amount is $200 billion. If the MPC is 0.8, then what is the
distance between N and L or by how much did government spending
change? Ans: $40 billion
Refer to 5th diagram. Potential GDP equals $100 billion. The economy is
currently producing GDP1 which is equal to $90 billion. If the MPC is 0.8,
then how much must autonomous spending change for the economy to
move to potential GDP? Ans: $2 billion
The ratio of the increase in ___ to the increase in ___ is called the
multiplier. Ans: Equilibrium real GDP; autonomous expenditure
If an increase in investment spending of $50 million results in a $400
million increase in equilibrium real GDP, then Ans: The multiplier is 8.
MACROECONOMICS EXAM 1 QUESTIONS
WITH DETAILED VERIFIED ANSWERS
The aggregate expenditure model focus's on the relationship between
___ and ___ in the short run; assuming ___ is constant Ans: total
spending; real GDP; the price level
The key idea of the aggregate expenditure model is that in any particular
year, the level of GDP is determined mainly by Ans: the level of
aggregate expenditure
Household spending on goods and services is known as Ans:
Consumption spending
The aggregate expenditure model focus's on the ___ relationship
between real spending and ___ Ans: Short-run; real GDP
Inventory refers to Ans: Goods that have been produced but not yet sold
An unplanned increase in inventory leads to Ans: Actual investment that
is greater than planned investment
If inventories decline by more than analyst predict they will decline, this
implies that Ans: actual investment spending was less than planned
investment spending
when aggregate expenditure=GDP, Ans: Macroeconomic equilibrium
occurs
Consumption is $5 million, planned investment spending is $8 million,
government purchases are $1o million, and net exports are equal to $2
million. If GDP during that same period is equal to $27 million, what
unplanned changes in inventory occurred? Ans: There was an unplanned
investment in inventories equal to $2 million.
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
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information, which of the following is true? Ans: Aggregate expenditure
is equal to GDP
At macroeconomic equilibrium Ans: Total spending equal total
production.
When aggregate expenditure is more than GDP, which of the following is
true? Ans: There was an unplanned decrease in inventories.
Consumption spending is $5 million, planned investment spending is $8
million, actual investment spending is $8 million, government purchases
are $10 million, and net export spending is $2 million. Based on this
information, which of the following is true? Ans: Aggregate expenditure
is equal to real GDP.
___ describes the relationship between consumption spending and
disposable income. Ans: The consumption function
The marginal propensity to save is defined as Ans: the change in savings
divided by the change in disposable income
If disposable income increases $100 million, the consumption increases
by $90 million, then the marginal propensity to consume is Ans: 0.9
Consumption Disposable income
$1,200 $3,000
$2,100 $4,000
$3,000 $5,000
Given the consumption schedule, the marginal propensity to consume is
Ans: 0.9
MPC+MPS = Ans: 1
A decrease in the real interest rate will Ans: Most likely increase
consumer's purchases of durable goods.
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Increases in the price level will Ans: Lower consumption because real
wealth decreases.
If the MPC is 0.95, then a $10 million increase in disposable income will,
Ans: Increase consumption by $9.5 million.
Refer to the 1st diagram in my phone. 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 0.9, then what is the
change in GDP? Ans: $100 million
Refer to the 2nd diagram in my phone. Suppose that the government
spending increases, shifting up the aggregate expenditure line. GDP
increases from GDP1 to GDP2, and this amount is $400 billion. If the MPC
is 0.75, then what is the distance between N and L, or by how much did
government spending change? Ans: $100 billion
Refer to 3rd diagram. Suppose that investment spending decreases by $5
million, decreasing aggregate expenditure and decreasing real GDP from
GDP2 to GDP1. If the MPC is 0.8, then what is the change in GDP? Ans: -
$25 million
Refer to 4th diagram. Suppose that government spending increases,
shifting up the aggregate expenditure line. GDP increases from GDP1 to
GDP2, and this amount is $200 billion. If the MPC is 0.8, then what is the
distance between N and L or by how much did government spending
change? Ans: $40 billion
Refer to 5th diagram. Potential GDP equals $100 billion. The economy is
currently producing GDP1 which is equal to $90 billion. If the MPC is 0.8,
then how much must autonomous spending change for the economy to
move to potential GDP? Ans: $2 billion
The ratio of the increase in ___ to the increase in ___ is called the
multiplier. Ans: Equilibrium real GDP; autonomous expenditure
If an increase in investment spending of $50 million results in a $400
million increase in equilibrium real GDP, then Ans: The multiplier is 8.
