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CHOICE. Exam Name___________________________________ MULTIPLE Choose the one alternative that best completes the statement or answers the question. 1) At equilibrium expenditure A) consumers' expenditures on goods and services equal firms' purchases of investment goods. B) firms hold no inventories of raw materials or final goods. C) aggregate planned expenditure equals real GDP minus net exports. D) aggregate planned expenditure equals real GDP. 1) 2) In the above figure, the multiplier is equal to A) two. B) zero. 2) C) one. D) three. 3) The intertemporal substitution effect of a change in the price level results from a A) change in the price of current goods relative to future goods. B) change in the price of foreign goods relative to domestic goods. C) change in the purchasing power of wealth. D) Both answers B and C are correct. 3) 4) If the marginal propensity to import increases, then the A) effect on the multiplier will depend on what happens to exports. B) multiplier will not change in value. C) multiplier will decrease in value. D) multiplier will increase in value. 4) 1 5) An increase in ________ shifts the AE curve ________ and an increase in ________ shifts the aggregate demand curve ________. A) autonomous expenditure; upward; the price level; rightward B) the price level; upward; autonomous expenditure; leftward C) autonomous expenditure; upward; the price level; leftward D) the price level; downward; autonomous expenditure; rightward 5) 6) Because of the multiplier, a one- time change in expenditure will A) expand real GDP by an infinite amount. B) decrease saving and investment activity and thereby decrease future real GDP. C) generate more additional real GDP than the initial change in expenditure. D) have little secondary effect on real GDP. 6) 7) The MPS equals the ratio of A) the change in saving to the change in consumption expenditure. B) saving to consumption expenditure. C) saving to real GDP. D) None of the above answers is correct. 7) Real GDP 2500 2400 2300 2200 2100 C 1430 1360 1290 1220 1150 I 540 540 540 540 540 G 400 400 400 400 400 X-M 90 100 110 120 130 8) In the above table, C is consumption expenditure, I is investment, G is government expenditure, and X - M is net exports. All entries are in dollars. The slope of the aggregate expenditure function is A) 0.70. B) - 0.10. C) 0.60. D) 0.10. 2 8) 9) In the above figure, a change in autonomous consumption to $4 trillion with no change to the MPC would cause the consumption function to A) become steeper. B) become flatter. C) shift upward. D) shift downward. Real GDP (dollars) 3,000 4,000 5,000 6,000 7,000 8,000 Consumption expenditure (dollars) 2,500 3,250 4,000 4,750 5,500 6,250 Investment (dollars) 500 500 500 500 500 500 9) Government expenditure (dollars) 500 500 500 500 500 500 10) In the above table, there are no taxes and no imports or exports. If current real GDP is equal to $7,000, then firms will A) increase production to rebuild inventories to their target level. B) decrease production to restore inventories to their target level. C) not change production because $7,000 is the equilibrium level of real GDP. D) None of the above answers is correct. 10) 11) An increase in the price level decreases planned expenditure because A) domestic prices rise relative to foreign prices, increasing net exports. B) the real interest rate rises, increasing consumption expenditure. C) real wealth decreases, thus decreasing expenditure. D) current prices rise relative to future prices, increasing expenditure. 11) 3 1 2) The software and related services sector has a multiplier effect on the Indian economy with every one- rupee input spent by the" information technology sector" producing an increase in real GDP by two rupees. www.ft.com, 2/28/2008 12) According to the story, if ________ in the software and related services sector increases by $15 billion, real GDP will increase by ________. A) investment; $2 billion. B) consumption; $2 billion. C) consumption; $30 billion. D) investment; $30 billion. 13) In the figure above, the induced consumption when real GDP is $12 trillion is A) $12 trillion. B) $2 trillion. C) $8 trillion. D) zero. 13) 14) ________ consumption expenditure greater is than disposable income. A) Dissaving occurs whenever B) It is always the case that C) Saving is positive whenever D) None of the above answers is correct because it is impossible for consumption expenditure to be greater than disposable income. 14) 15) The marginal propensity to consume refers to A) the additional consumption expenditure that occurs out of an additional dollar of disposable income. B) the additional saving that occurs out of an additional dollar of disposable income. C) total consumption expenditure divided by total disposable income. D) the additional consumption expenditure that occurs out of an additional dollar of investment. 15) 16) For a household, the marginal propensity to save plus the marginal propensity to consume A) equals 0. B) equals 1. C) equals a number that is smaller the larger the household's disposable income. D) equals a number that is larger the larger the household's disposable income. 16) 4 1 7) Disposable income is divided into A) consumption and saving. C) consumption, saving, and taxes. B) consumption and taxes. D) saving and taxes. 18) If there are no taxes or imports and MPC = 0.5, the multiplier equals A) 2.0. B) 5.0. C) 6.0. D) 0.5. 17) 18) 19) A change in imports caused by rising U.S. incomes is A) an increase in induced exports. B) an increase in autonomous expenditure. C) a decrease in autonomous expenditure. D) a change in induced expenditure. 19) 20) If the MPC increases from 0.75 to 0.80 and there are no income taxes or imports, A) the multiplier becomes larger. B) the slope of the savings function becomes larger. C) the multiplier becomes smaller. D) the slope of the consumption function becomes smaller. 20) 21) If investment decreases, the AE curve shifts A) downward and the AD curve shifts leftward. B) upward and there is a movement along the AD curve. C) upward and the AD curve shifts rightward. D) downward and there is a movement along the AD curve. 21) 22) Saving rather than dissaving occurs at any level of disposable income at which A) the consumption function is above the 45- degree line. B) autonomous consumption is positive. C) the consumption function is below the 45- degree line. D) the consumption function intersects the saving/income curve. 22) 23) If real disposable income increases by $1500, consumption expenditures will A) increase by less than $1500. B) decrease by less than $1500. C) increase by more than $1500. D) stay constant. 23) 24) The consumption function shows how much A) all households plan to consume at each possible real interest rate. B) all households plan to consume at each level of real disposable income. C) all households plan to consume at each level of savings. D) real disposable income people will earn at each income tax bracket. 24) 25) "Dissaving" occurs when A) the consumption function is below the 45- degree line drawn from the origin. B) saving is positive. C) income exceeds consumption expenditure. D) saving is negative. 25) 5 2 6) If AE0 is the aggregate planned expenditure curve, then equilibrium real GDP in the figure above is A) $12 trillion. C) $6 trillion. 26) B) $3 trillion. D) None of the above answers is correct. 27) The sum of the components of aggregate expenditure that are not influenced by real GDP is called A) induced expenditures. B) autonomous expenditures. C) the MPC . D) autonomous consumption. 27) 28) Equilibrium real GDP is $400 billion, the MPC = 0.9, and there are no income taxes or imports. Investment increases $40 billion. If the price level is constant, after the increase in investment, equilibrium real GDP will be A) $440 billion. B) $800 billion. C) $360 billion. D) $600 billion. 28) 29) If the MPC equals 0.75, then A) for every $100 increase in consumption expenditure, disposable income increases by $75. B) for every $100 increase in disposable income, saving increases by $75. C) for every $100 increase in disposable income, saving increases by $25. D) consumption expenditure is always more than disposable income. 29) 30) If the multiplier is 3.33 and there are no imports or income taxes, then the A) MPS is 0.3. B) MPC is 0.7. C) Both of the above answers are correct. D) None of the above answers are correct. 30) 6 ... View Full Document