Question 1 Which of the following describes the relationship between the change

Question

Question 1

Which of the following describes the relationship between the change in inventories and aggregate expenditure?

Aggregate expenditure equals the change in inventories minus GDP.

The change in inventories equals GDP divided by aggregate expenditures.

Aggregate expenditures equals GDP divided by the change in inventories.

Aggregate expenditures equals GDP minus the change in inventories.

The change in inventories equals GDP multiplied by aggregate expenditure.

1 points   

Question 2

Suppose the marginal propensity to consume is 0.80 and taxes decrease by $10 billion. Which of the following is true?

Disposable income and consumption fall by $10 billion

Disposable income and consumption rise by $10 billion

Disposable income rises by $10 billion and consumption rises by $8 billion

Disposable income falls by $10 billion and consumption falls by $8 billion

Disposable income rises by $10 billion and consumption falls by $8 billion

1 points   

Question 3

If aggregate expenditure at a particular level of income is less than output,

output will increase

output will decrease

output will remain the same

output will rise slightly and then level off

we cannot determine what will happen to output

1 points   

Question 4

The consumption function

illustrates the relationship between real disposable income and real consumption spending

illustrates the relationship between the price level and real consumption spending

is the relationship between productivity and real consumption spending

shows how real consumption increases when real disposable income decreases

illustrates the relationship between real consumption spending and employment

1 points   

Question 5

The focus of the short-run macro model is on the role of

spending in explaining economic fluctuations

labor in explaining economic fluctuations

financial markets in explaining economic fluctuations

output in explaining economic fluctuations

resources in explaining economic fluctuations.

1 points   

Question 6

If the output level is such that the aggregate expenditure line lies below the 45-degree line, which of the following is true?

Aggregate expenditure is greater than output, so inventories will increase and output will be raised.

Aggregate expenditure is greater than output, so inventories will decrease and output will be increased.

Aggregate expenditure is less than output, so inventories will decrease and output will be raised.

Aggregate expenditure is less than output, so inventories will increase and output will be lowered.

Aggregate expenditure is greater than output, so inventories will increase and output will be lowered.

1 points   

Question 7

If the marginal propensity to consume is 0.7, the expenditure multiplier is

7.0

0.7

3.0

3.3

not determinable without additional information.

1 points   

Question 8

Aggregate expenditure is the sum of

all types of spending by households and firms

spending and savings by households

spending by households and governments on final goods and services

spending by households, government, firms, and foreigners on final goods and services

all spending and saving by households, firms, and governments

1 points   

Question 9

If the marginal propensity to consume is 0.5 and disposable income increases by $10,000, by how much will consumption spending increase?

$10,000

$500

$50

$5,000

$9,524

1 points   

Question 10

When real consumption expenditure is plotted against real disposable income the resulting relationship is

very weak.

virtually flat .

positive and very close to linear.

negative and very close to linear.

A.

Aggregate expenditure equals the change in inventories minus GDP.

B.

The change in inventories equals GDP divided by aggregate expenditures.

C.

Aggregate expenditures equals GDP divided by the change in inventories.

D.

Aggregate expenditures equals GDP minus the change in inventories.

E.

The change in inventories equals GDP multiplied by aggregate expenditure.

Explanation / Answer

Q2. Increase in taxes brings proportional decrease in disposable income while decrease in taxes brings proportional increase in disposable income.

Thus, decrease in taxes by $10 billion will increase the disposable income by $10 billion as well.

MPC = 0.8

Increase in consumption = Increase in disposable income * MPC = $10 billion * 0.8 = $8 billion

Consumption will increase by $8 billion.

Hence, the correct answer is option (C).

Q3. If aggregate expenditure at a particular level of income is less than output then unplanned inventories with the firm increases. When unplanned inventories increases, firms generally stop production so as to first get rid of unplanned inventories before taking up fresh production.

Thus, output produced in economy decreases.

Hence, the correct answer is option (B).

Q7. Calculate expenditure multiplier -

MPC = 0.7

Expenditure multiplier = 1/1-MPC = 1/1-0.7 = 1/0.3 = 3.3

The expenditure multiplier is 3.3.

Hence, the correct answer is option (D).

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.