b.
movement downward along the consumption function.
c.
upward shift of the consumption function.
d.
downward shift of the consumption function.
Answer: c

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If real GDP exceeds aggregate planned expenditure, then the change in unplanned
inventories is ____ and firms will ____ production.
a.
positive; increase
b.
positive; decrease
c.
negative; increase
d.
negative; decrease
Answer: b
Equilibrium expenditure is the level of aggregate expenditure when
a.
aggregate production equals real GDP.
b.
aggregate actual expenditure equals real GDP.
c.
aggregate planned expenditure equals real GDP.
d.
aggregate private expenditure equals real GDP.
Answer: c
Points where the aggregate expenditure (AE) curve lie above the 45º line are points
where aggregate planned expenditure is
a.
greater than real GDP.
b.
less than real GDP.
c.
equal to real GDP.
d.
the inverse of real GDP.
Answer: a
The expenditure multiplier explains how a change in
a.
real GDP leads to a change in autonomous expenditures.
b.
induced expenditure leads to a change in real GDP.
c.
autonomous expenditure leads to a change in real GDP.
d.
real GDP leads to a change in induced expenditure.
Answer: c
When investment increases, the multiplier points out that
a.
consumption decreases by a greater amount.
b.
real GDP increases by a greater amount.
c.
consumption increases by the same amount.
d.
real GDP decreases by a greater amount.
Answer: b
In an economy with no income taxes or imports, the expenditure multiplier is
a.
less than 1.
b.
greater than 1 if the MPC is greater than 1.
c.
equal to 1 if the MPC is greater than 1.
d.
greater than 1 if the MPC is less than 1.
Answer: d
An economy has no imports or income taxes. The MPC is 0.75 and real GDP is $120
billion. Businesses increase investment by $4 billion. The multiplier is ____ and the
change in real GDP from the increase in investment is ____ billion.
a.
5; $25
b.
4; $16
c.
5; $16

d.
4; $25
Answer: b
An economy has no imports or income taxes. The MPC is 0.75 and real GDP is $120
billion. Businesses increase investment by $4 billion. The new level of real GDP is
a.
$124 billion.
b.
$128 billion.
c.
$132 billion.
d.
$136 billion.
Answer: d
Which of the following reduces the magnitude of the expenditure multiplier?
a.
higher marginal tax rates
b.
decrease in imports
c.
decrease in saving
d.
decrease in government purchases of goods and services
Answer: a
The smaller the slope of the aggregate planned expenditure (AE) curve, the
a.
larger the multiplier.
b.
smaller the multiplier.
c.
larger is the marginal tax rate.
d.
larger are imports.

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- Fall '18