Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) At equilibrium expenditure 1) 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. 2) In the above figure, the multiplier is equal to 2) A) two. B) zero. C) one. D) three. 3) The intertemporal substitution effect of a change in the price level results from a 3) 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. 4) If the marginal propensity to import increases, then the 4) 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. 1
5) An increase in ________ shifts the AE curve ________ and an increase in ________ shifts the aggregate demand curve ________. 5) 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 6) Because of the multiplier, a one-time change in expenditure will 6) 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. 7) The MPS equals the ratio of 7) A) the change in saving to the change in consumption expenditure. B) saving to consumption expenditure.
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