Parkin&Bade, Macroeconomics, 2nd edition

Chapter 12: Aggregate Expenditure Multiplier

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1) What is the key difference between the aggregate expenditure model and the aggregate demand/aggregate supply model?

A) The aggregate demand/aggregate supply model assumes that the price level is fixed.

B) The aggregate expenditure model assumes that real GDP is fixed.

C) The aggregate expenditure model examines monetary policy, whereas the aggregate demand/aggregate supply model does not.

D) The aggregate expenditure model assumes that the price level is fixed.

E) Monetary and real factors interact in the aggregate demand/aggregate supply model.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

2) Aggregate expenditure is equal to

A) C + I + G - NX.

B) C - I - G - NX.

C) C + I + G.

D) Y + C + I + G + NX.

E) C + I + G + NX.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

3) During 2018, a country has consumption expenditures of $3.0 trillion, investment expenditures of $1.5 trillion, government expenditure of $1.5 trillion, exports of $1.0 trillion, and imports of $1.5 trillion. Aggregate expenditure for the country is

A) $7.0 trillion.

B) $5.5 trillion.

C) $8.5 trillion.

D) $6.0 trillion.

E) $6.5 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

4) The consumption function shows the relationship between

A) consumption expenditure and the price level.

B) consumption expenditure and planned income.

C) consumption expenditure and disposable income.

D) inventory levels and real GDP.

E) consumption expenditure and planned inventory investment.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

5) When disposable income increases, consumption expenditure

A) does not change.

B) also increases, and by an equal amount.

C) also increases, and by more.

D) decreases by the same amount.

E) also increases, but by less.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

6) If disposable income decreases during a recession, there is

A) an upward shift in the consumption function.

B) a downward shift in the consumption function.

C) no change in consumption expenditures.

D) movement upward along the consumption function.

E) movement downward along the consumption function.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

7) As a household's disposable income increases, its autonomous expenditures ________ and its induced expenditures ________.

A) decrease; do not change

B) do not change; increase by a smaller amount than the increase in income

C) do not change; increase by an amount equal to the increase in income

D) increase; do not change

E) increase; increase by a smaller amount than the increase in income

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

8) Consumption expenditure exceeds disposable income

A) only when the economy is in equilibrium.

B) when there is dissaving.

C) never.

D) when there is positive saving.

E) always.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

9) If your planned consumption expenditure is $600 per month and your disposable income is $500 per month, your

A) dissaving is $100 per month.

B) saving is $100 per month.

C) autonomous consumption is -$100 per month.

D) autonomous consumption must be zero per month.

E) induced consumption is $600.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

10) The slope of the consumption function is

A) equal to the MPC and is equal to 1.

B) equal to the MPC and is greater than 1.

C) equal to the MPC and is less than 1.

D) not equal to the MPC and is less than 1.

E) not equal to the MPC and is equal to 1.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

11) The above table has data from the nation of Atlantic. Based on these data, at what point does saving equal zero?

A) None, dissavings occurs at all of the above points.

B) None, savings occurs at all of the above points.

C) Between disposable income of $8.0 trillion and $7.5 trillion.

D) Between disposable income of $0.0 and $1.5 trillion.

E) At disposable income of $6.0 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

12) The above table has data from the nation of Atlantica. Based on these data, when disposable income equals 8.0 there is

A) savings of $0.5 trillion.

B) dissavings of $15.5 trillion.

C) dissavings of $7.5 trillion.

D) dissavings of $0.5 trillion.

E) savings of $15.5 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

13) The above table has data from the nation of Atlantica. Based on these data, when disposable income equals $2.0 trillion there is

A) savings of $1.0 trillion.

B) dissavings of $1.0 trillion.

C) savings of $3.0 trillion.

D) dissavings of $3.0 trillion.

E) dissavings of $5.0 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

14) The above table has data from the nation of Atlantica. Based on these data, the amount of autonomous consumption is

A) $7.5 trillion.

B) $1.0 trillion.

C) $0.5 trillion.

D) $6.0 trillion.

E) $1.5 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

15) The above table has data from the nation of Atlantica. Based on these data, what is the marginal propensity to consume?

A) 1.00

B) 1.50

C) 0.50

D) 1.33

E) 0.75

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

16) In the figure above, when disposable income equals $10 trillion,

A) consumption expenditure is less than disposable income, so consumers are saving.

B) consumption expenditure is greater than disposable income, so consumers are dissaving.

C) consumption expenditure is greater than disposable income but it is not possible to determine if consumers are saving or dissaving.

D) consumption expenditure is greater than disposable income, so consumers are saving.

E) consumption expenditure is less than disposable income, so consumers are dissaving.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

17) In the figure above, when disposable income equals $20 trillion,

A) consumption expenditure is less than disposable income, so consumers are dissaving.

B) consumption expenditure is greater than disposable income, so consumers are dissaving.

C) consumption expenditure is greater than disposable income, so consumers are saving.

D) consumption expenditure is less than disposable income, so consumers are saving.

E) consumption expenditure is less than disposable income but it is not possible to determine whether consumers are saving or dissaving.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

18) In the figure above, what is the MPC?

A) 0.50

B) 1.00

C) 0.75

D) 0.90

E) 0.80

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

19) The marginal propensity to consume equals

A) consumption expenditure divided by the change in disposable income.

B) the change in autonomous consumption divided by the change in induced consumption.

C) consumption expenditure divided by disposable income.

D) the change in consumption expenditure divided by the change in disposable income.

E) the change in consumption expenditure divided by disposable income.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

20) Jane supports herself at university by working in a bookstore earning $300 a month, which she spends entirely every month. If she gets a salary increase of $100 a month, she spends $90 more dollars on consumption expenditure. Jane's MPC is equal to

A) 0.10.

B) $90.

C) 1.00.

D) 0.50.

E) 0.90.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

21) When disposable income is $8 trillion, consumption expenditure is $5 trillion; when disposable income is $5 trillion, consumption expenditure is $3 trillion. The MPC is

A) (5 + 3) ÷ (8 + 5) = 0.615.

B) (5 - 3) ÷ (8 - 5) = 0.667.

C) (5 + 3) ÷ (8 - 5) = 2.667.

D) (5/8 + 3/5) = 1.225.

E) (8 - 5) ÷ (5 - 3) = 1.333.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

22) What is the value of the MPC if $66 out of every $100 increase in disposable income is consumed?

A) 0.34

B) $166

C) $34

D) 0.66

E) More information is needed to determine the MPC.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

23) The above table has data from the nation of Media. Based on these data, when disposable income is $8.0 trillion, saving is

A) $1.5 trillion.

B) $0.5 trillion.

C) -$0.5 trillion.

D) $7.5 trillion.

E) -$1.5 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

24) The above table has data from the nation of Media. Based on these data, the marginal propensity to consume is

A) 0.67.

B) 1.33.

C) 0.25.

D) 0.75.

E) 1.50.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

25) When the real interest rate rises, there is

A) an upward movement along the consumption function.

B) a downward movement along the consumption function.

C) neither a shift of the consumption function nor a movement along the consumption function.

D) an upward shift of the consumption function.

E) a downward shift of the consumption function.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

26) A rise in the real interest rate ________ consumption expenditure and ________.

A) decreases; shifts the consumption function upward

B) decreases; results in a movement downward along the consumption function

C) increases; shifts the consumption function upward

D) increases; shifts the consumption function downward

E) decreases; shifts the consumption function downward

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

27) In Germany, expected future income increased during 2014. This increase led to

A) a downward shift of the consumption function.

B) no movement along the consumption function and no shift of the consumption function.

C) a movement upward along the consumption function.

D) a movement downward along the consumption function.

E) an upward shift of the consumption function.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

28) When the economy enters an expansion of a business cycle, households become more optimistic about expected future disposable income. The increase in optimism leads to

A) a shift upward of the consumption function.

B) a movement downward along the consumption function.

C) a movement upward along the consumption function.

D) an increase in consumption expenditures.

E) no change in the level of consumption expenditures.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

29) Other things remaining the same, ________ in Australian real GDP results in ________ in Australian imports.

A) an increase; a decrease

B) a decrease; an increase

C) an increase; an increase

D) an increase; a decrease followed by no change

E) a decrease; no change

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

30) If the marginal propensity to import is ________, then a $2 trillion increase in disposable income would increase import expenditure by $0.2 trillion. If the marginal propensity to import is ________, then a $2 trillion increase in disposable income would increase import expenditure by $0.6 trillion.

A) 1.0; 3.0

B) 0.6; 2.0

C) 0.2; 0.6

D) 0.1; 0.3

E) 0.3; 0.1

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

31) When disposable income increases from $400 billion to $500 billion, consumption expenditure increases from $320 billion to $400 trillion. The MPC is

A) $6.8 trillion.

B) 0.60.

C) 1.00.

D) 0.68.

E) 0.80.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

32) Autonomous expenditure is expenditure that is

A) not influenced by the interest rate.

B) not influenced by the price level.

C) influenced by real GDP.

D) not influenced by real GDP.

E) influenced by the interest rate.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

33) Autonomous expenditure includes

A) investment, government expenditure on goods and services, and exports.

B) consumption expenditure, investment and net taxes.

C) consumption expenditures, investment and exports.

D) investment, government expenditure for goods and services, and imports.

E) consumption expenditure, investment and imports.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

34) Induced expenditures are defined as that part of

A) autonomous expenditure that responds to changes in real GDP.

B) aggregate expenditure that responds to changes in real GDP.

C) autonomous expenditure that does not respond to changes in real GDP.

D) real GDP that does not respond to changes in aggregate expenditure.

E) aggregate expenditure that does not respond to changes in real GDP.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

35) Which components of aggregate expenditure change as a result of real GDP changing?

A) Consumption expenditure and imports

B) Consumption expenditure, investment and exports

C) Consumption expenditure and investment

D) Consumption expenditure, investment, and government expenditure on goods and services

E) Consumption expenditure and government expenditure on goods and services

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

36) Which of the following is NOT included in aggregate expenditure?

A) Government expenditure

B) Net exports

C) Consumption expenditure

D) Taxes

E) Investment

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

37) The AE curve illustrates the relationship between

A) the quantity of real GDP demanded and the price level.

B) the interest rate and aggregate planned expenditure.

C) real GDP and the interest rate.

D) aggregate planned expenditure and real GDP.

E) real GDP and actual expenditure.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

38) For each one dollar increase in real GDP, aggregate planned expenditure

A) increases by more than a dollar.

B) increases by less than a dollar.

C) is unaffected.

D) increases only if autonomous expenditure increases.

E) increases by one dollar.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

39) The above table presents data from the nation of Pacifica. When real GDP equals $2.0 trillion, aggregate planned expenditure equals

A) $5.00 trillion.

B) $3.75 trillion.

C) $4.00 trillion.

D) $5.50 trillion.

E) $6.00 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

40) The above table presents data from the nation of Pacifica. Aggregate planned expenditure equals $7.5 trillion when real GDP equals

A) $8.5 trillion.

B) $7.5 trillion.

C) $4.0 trillion.

D) $8.0 trillion.

E) $6.0 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

41) The equilibrium level of aggregate planned expenditure is found where

A) there is no saving and no dissaving.

B) the price level is rising at a constant rate.

C) autonomous expenditure equals equilibrium expenditure.

D) aggregate planned expenditure equals real GDP.

E) net exports is zero.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

42) If aggregate planned expenditure equals GDP, then

A) the change in firms' inventories must be negative.

B) the change in firms' inventories must be positive.

C) actual aggregate expenditure might be greater than, equal to or less than real GDP.

D) there must be no change in firms' inventories.

E) the change in firms' inventories must be equal to the planned change.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

43) In the aggregate expenditure (AE) model, the economy is driven to its equilibrium by changes in

A) government expenditures on goods and services that are the result of changes in real GDP.

B) investment that are the result of changes in real GDP.

C) autonomous expenditures that are the result of changes in real GDP.

D) induced expenditures that are the result of changes in real GDP.

E) net taxes that are the result of changes in real GDP.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

44) When the change in unplanned inventories is positive, then

A) real GDP is larger than aggregate planned expenditure.

B) real GDP equals aggregate planned expenditure.

C) planned inventories will increase in order to return to equilibrium.

D) real GDP is less than aggregate planned expenditure.

E) economic growth will occur as the economy returns to equilibrium.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

45) A country reports that unplanned inventories increased during 2014. The increase in unplanned inventories leads to

A) consumers increasing their consumption expenditure, which increases GDP.

B) firms decreasing production, which decreases GDP.

C) firms increasing production, which increases GDP.

D) actual aggregate expenditure being different than real GDP.

E) the government decreasing production, which decreases GDP.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

46) In the aggregate expenditure (AE) model, when real GDP exceeds aggregate planned expenditure, actual inventories ________ planned inventories and real GDP ________.

A) exceed; increases

B) exceed; does not change

C) exceed; decreases

D) are less than; increases

E) are less than; decreases

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

47) When aggregate planned expenditure is less than GDP,

A) the economy definitely is at its equilibrium expenditure and firms do not change production.

B) the economy definitely is at its equilibrium expenditure but, even so, firms decrease production.

C) the economy might be at its equilibrium expenditure and, if it is, firms do not change their production.

D) firms increase production until the economy reaches equilibrium expenditure.

E) firms decrease production until the economy reaches equilibrium expenditure.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

48) When GDP = $2.5 trillion, C = $1.0 trillion, I = $0.6 trillion, G = $0.4 trillion, and NX = $0, then

A) equilibrium expenditure = $2.0 trillion.

B) aggregate planned expenditure = $1.6 trillion.

C) aggregate planned expenditure = $2.5 trillion.

D) unplanned inventory change = -$0.5 trillion.

E) unplanned inventory change = $0.5 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

49) When aggregate planned expenditure exceeds real GDP,

A) real GDP decreases.

B) an unplanned increase in inventories occurs.

C) firms decrease production.

D) an unplanned decrease in inventories occurs.

E) real GDP remains at its equilibrium level.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

50) When aggregate planned expenditure exceeds real GDP, there are unplanned ________ in inventories, and firms ________ production, so that real GDP ________.

A) decreases; increase; increases

B) decreases; decrease; increases

C) decreases; decrease; decreases

D) increases; increase; increases

E) increases; decrease; decreases

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

51) If the level of real GDP is $14 trillion while aggregate planned expenditure is $15 trillion, then

A) real GDP increases and planned expenditure decreases reaching equilibrium in the middle.

B) inventories fall more than planned, leading firms to increase production.

C) inventories rise more than planned, leading firms to increase production.

D) inventories rise more than planned, leading firms to cut production.

E) aggregate planned expenditure decreases to reach the equilibrium of $14 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

52) The above table gives data for the nation of Mouseville. There are no imports into or exports from Mouseville. The equilibrium level of real GDP is

A) $700 billion.

B) $900 billion.

C) $800 billion.

D) $500 billion.

E) $100 billion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

53) The above table gives data for the nation of Mouseville. There are no imports into or exports from Mouseville. Aggregate planned expenditure is less than actual expenditure if real GDP is

A) less than $800 billion.

B) more than $800 billion.

C) less than $700 billion.

D) $800 billion.

E) more than $700 billion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

54) The above table gives data for the nation of Mouseville. There are no imports into or exports from Mouseville. If real GDP is equal to $400 billion then,

A) aggregate expenditure is $450 billion.

B) unplanned inventory is -$200 billion.

C) aggregate expenditure is equal to consumption expenditure.

D) unplanned inventory is $200 billion.

E) unplanned inventory is -$300 billion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

55) The above table gives data for the nation of Mouseville. There are no imports into or exports from Mouseville. Unplanned inventory changes are zero when real GDP equals

A) $500 billion.

B) $900 billion.

C) $300 billion.

D) $700 billion.

E) $800 billion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

56) The above table gives data for the nation of Mouseville. There are no imports into or exports from Mouseville. Unplanned inventory changes equal $50 billion when real GDP equals

A) $900 billion.

B) $300 billion.

C) $700 billion.

D) $500 billion.

E) $800 billion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

57) The table above gives data for the nation of Mosh. If real GDP is $6 trillion, then

A) firms decrease production because inventories exceed their target levels.

B) firms increase production because inventories exceed their target levels.

C) firms increase production because inventories are less than their target levels.

D) the economy has reached equilibrium and no change in production will occur.

E) We need more information to determine whether firms increase, decrease or do not change their production.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

58) The table above gives data for the nation of Mosh. If real GDP is $10 trillion, then

A) firms decrease production because inventories exceed their target levels.

B) firms increase production because inventories are less than their target levels.

C) firms decrease production because inventories are less than their target levels.

D) the economy has reached equilibrium and no change in production will occur.

E) We need more information to determine whether firms increase, decrease or do not change their production.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

59) The table above gives data for the nation of Mosh. In Mosh, equilibrium expenditure equals

A) $4 trillion.

B) $9 trillion.

C) $6 trillion.

D) $10 trillion.

E) $7 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

60) The table above gives data for the nation of Mosh. If we graphed these data, we would see that when GDP equals

A) $4 trillion, the AE curve intersects the 45° line.

B) $6 trillion, the AE curve is below the 45° line.

C) $9 trillion, the AE curve intersects the 45° line.

D) $10 trillion, the 45° line is above the AE curve.

E) $10 trillion, the AE curve intersects the 45° line.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

61) The table above gives data for the nation of Mosh. If real GDP is $9 trillion, then unplanned inventory change equals

A) $5.5 trillion.

B) 0.

C) $5 trillion.

D) $9 trillion.

E) $1.25 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

62) In the figure above, if real GDP is $20 trillion, aggregate planned expenditure is ________ $20 trillion and unplanned inventory changes are ________.

A) less than; positive

B) less than; negative

C) equal to; negative

D) equal to; positive

E) equal to; equals to zero

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

63) In the figure above, if real GDP is $10 trillion, aggregate planned expenditure is

A) equal to $10 trillion and there are no unplanned inventory changes.

B) less than $10 trillion and unplanned inventory changes are positive.

C) more than $10 trillion and unplanned inventory changes are negative.

D) equal to $10 trillion and unplanned inventory changes are negative.

E) equal to $10 trillion and unplanned inventory changes are positive.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

64) In the above figure, equilibrium expenditure is equal to

A) $5 trillion.

B) $15 trillion.

C) $20 trillion.

D) $10 trillion.

E) None of the above answers is correct

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

65) The expenditure multiplier measures the change in

A) autonomous spending that results from a change in equilibrium expenditure.

B) equilibrium expenditure that results from a change in autonomous expenditure.

C) the price level that results from a change in real GDP.

D) consumption expenditure for a given change in disposable income.

E) equilibrium expenditure from a change in induced consumption.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

66) In an economy in with no income taxes or imports, the multiplier equals

A) .

B) .

C) .

D) .

E) .

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

67) The expenditure multiplier is typically

A) negative.

B) greater than 1.

C) equal to 1.

D) less than 1 but greater than 0.

E) greater than 10.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

68) Increases in autonomous expenditure induce ________ in aggregate expenditure thereby making the multiplier ________.

A) a decrease; less than one

B) further increases; less than one

C) further increases; greater than one

D) further increases; unnecessary

E) a decrease; greater than one

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

69) If autonomous spending decreases, then

A) the expenditure multiplier means that equilibrium expenditure decreases by a larger amount.

B) equilibrium expenditure does not change.

C) equilibrium expenditure decreases by the same amount.

D) the expenditure multiplier means that equilibrium expenditure increases by a larger amount.

E) the expenditure multiplier means that equilibrium expenditure increases by a smaller amount.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

70) If an increase of $10 billion in investment results in an increase in equilibrium expenditure of $40 billion, the multiplier equals

A) $10 billion × $40 billion = $400 billion.

B) $10 billion - $40 billion = -$30 billion.

C) $10 billion ÷ $40 billion = 0.25.

D) $40 billion ÷ $10 billion = 4.

E) $40 billion - $10 billion = $30 billion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

71) When the multiplier is ________, an autonomous decrease in investment of $200 billion decreases equilibrium real GDP by $400 billion. When the multiplier is ________, an autonomous decrease in investment of $200 billion decreases equilibrium real GDP by $800 billion.

A) 2.0; 4.0

B) 0.4; 0.2

C) $400 billion; $800 billion

D) 4.0; 8.0

E) 0.2; 0.4

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

72) If the MPC is 0.6 and there are no imports or income taxes, the multiplier is

A) 1.7.

B) 6.

C) 0.4.

D) 0.6.

E) 2.5.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

73) A $1.5 trillion increase in investment leads equilibrium expenditure to increase from $7.0 trillion to $10.5 trillion. In this case, the expenditure multiplier is

A) 7.00.

B) 10.5.

C) 2.33.

D) 4.67.

E) 1.50.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

74) As a result of an initial increase in investment of $200 billion, real GDP increased by $800 billion. Given this information, the expenditure multiplier equals

A) 2.

B) 6.

C) 4.

D) 1/4.

E) $800 billion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

75) 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) $140 billion.

B) $132 billion.

C) $136 billion.

D) $124 billion.

E) $128 billion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

76) In an economy with no income taxes or imports, if the multiplier is 5, what does the MPC equal?

A) 0.9

B) 0.4

C) 0.8

D) 0.5

E) 0.2

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

77) The above table contains information about the nation of Syldavia. There are no income taxes or imports in this nation. The equilibrium expenditure is

A) $15 billion.

B) $30 billion.

C) $10 billion.

D) $20 billion.

E) $25 billion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

78) The above table contains information about the nation of Syldavia. There are no income taxes or imports in this nation. The expenditure multiplier is equal to

A) 10.

B) 2.

C) 1.25.

D) 5.

E) 0.8.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

The figure above shows two aggregate expenditure lines.

79) In the figure above, what is the size of the multiplier?

A) 4.0

B) 0.25

C) $2 trillion

D) $0.5 trillion

E) More information is needed to determine the size of the multiplier.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

80) In the figure above, what would happen to the size of the multiplier if marginal income tax rates were increased?

A) The multiplier would fall in value and might become negative.

B) The multiplier would fall in value but would not become negative.

C) The multiplier would rise in value.

D) The multiplier would not change in value.

E) More information is needed to determine the effect on the size of the multiplier.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

81) In the figure above, if the MPC increased, the aggregate expenditure lines would ________ and the multiplier would ________ in value.

A) become less steep; rise

B) become steeper; rise

C) not change; rise

D) not change; fall

E) become steeper; fall

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

82) In the figure above, if the marginal propensity to import increased, the aggregate expenditure lines would ________ and the multiplier would ________ in value.

A) become less steep; fall

B) become less steep; rise

C) not change; fall

D) become steeper; rise

E) not change; rise

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

83) The size of the expenditure multiplier is influenced by

i. the marginal propensity to consume.

ii. autonomous spending.

iii. the marginal tax rate.

A) i only

B) ii only

C) iii only

D) ii and iii

E) i and iii

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

84) The ________ the marginal tax rate, the ________ the effect on aggregate expenditure from a change in investment.

A) larger; larger

B) larger; smaller

C) smaller; smaller

D) smaller; larger

E) More information about the effect on GDP is needed to answer the question.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

85) Compared to the magnitude of the multiplier in an economy without imports, the multiplier in an identical economy with imports is

A) exactly the same.

B) smaller only if imports exceed exports.

C) always smaller.

D) larger only if exports exceed imports.

E) always larger.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

86) If the slope of the aggregate expenditure curve is 0.75, the expenditure multiplier is equal to

A) 4.00.

B) 0.25.

C) 5.00.

D) 1.33.

E) 0.75.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

87) During 2018, exports increase from $1.0 trillion to $1.5 trillion. If the slope of the aggregate planned expenditure (AE) curve is 0.75, real GDP increases by

A) $1.0 trillion.

B) $6.0 trillion.

C) $4.0 trillion.

D) $8.0 trillion.

E) $2.0 trillion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

88) As the economy turns the corner into a recession, the level of unplanned inventories ________ and firms ________ production.

A) increases; begin to increase

B) decreases; begin to decrease

C) increases; begin to decrease

D) increases; do not change

E) decreases; begin to increase

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

89) During the start of an expansion, aggregate planned expenditure

A) is slowly decreasing.

B) increases the magnitude of the expenditure multiplier.

C) decreases the magnitude of the expenditure multiplier.

D) exceeds real GDP.

E) is less than real GDP.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

90) The multiplier effect

A) reinforces the negative effects of any reduction in spending.

B) explains what causes a recession.

C) explains how the economy recovers from a recession.

D) has no impact on equilibrium expenditure.

E) explains what causes an expansion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

91) When the price level ________, equilibrium expenditure ________ and the quantity of real GDP demanded ________.

A) rises; increases; decreases

B) rises; decreases; increases

C) falls; increases; decreases

D) rises; increases; increases

E) falls; increases; increases

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

92) An increase in the price level shifts the AE curve

A) downward and does not shift the AD curve.

B) downward and shifts the AD curve rightward.

C) upward and shifts the AD curve rightward.

D) downward and shifts the AD curve leftward.

E) upward and shifts the AD curve leftward.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

93) An increase in the price level leads to

A) a leftward movement along both the AE and AD curves.

B) a downward shift in the AE curve and a movement upward along the AD curve.

C) an upward shift in the AE curve and a movement upward along the AD curve.

D) a downward shift in both the AE and AD curves.

E) a downward shift in the AD curve and a movement downward along the AE curve.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

94) When the AE curve shifts upward because the price level falls, the corresponding effect on the aggregate demand curve is

A) a shift rightward of the aggregate demand curve.

B) a shift leftward of the aggregate demand curve.

C) nothing because aggregate demand does respond to changes in the price level.

D) a movement downward along the aggregate demand curve.

E) a movement upward along the aggregate demand curve.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

95) When the price level increases, aggregate planned expenditure decreases, which leads to

A) a rightward shift of the aggregate demand curve.

B) a leftward shift of the aggregate demand curve.

C) neither a movement along nor a shift of the aggregate demand curve.

D) an upward movement along the aggregate demand curve.

E) a downward movement along the aggregate demand curve.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

96) When the price level increases, aggregate planned expenditure ________ and equilibrium real GDP ________. As a result, in the AS-AD model, the aggregate demand curve has a ________ slope.

A) decreases; increases; negative

B) increases; increases; positive

C) increases; decreases; negative

D) decreases; decreases; positive

E) decreases; decreases; negative

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

97) A change in the price level

A) shifts the AE curve and the AD curve in the same direction.

B) shifts the AE curve and the AD curve in opposite directions.

C) shifts the AE curve and creates a movement along the AD curve.

D) creates a movement along the AE curve and shifts the AD curve.

E) creates a movement along both the AE curve and the AD curve.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking