Question 1

Which of the following best describes the aggregate expenditure model in macroeconomics?

Accepted Answer

A model that focuses on the short-run relationship between total spending and real GDP, assuming the price level is constant.

Question 2

In the aggregate expenditure model, which of the following is NOT considered a component of aggregate expenditure?

Accepted Answer

Transfer Payments (T)

Question 3

Suppose actual investment in an economy is $$500 billion, and there is an unplanned increase in inventories of 50 $$billion. What is the value of planned investment?

Accepted Answer

$450 billion

Question 4

Which equation correctly represents macroeconomic equilibrium in the aggregate expenditure model?

Accepted Answer

$$AE = C + I + G + NX$$

Question 5

If planned aggregate expenditure is less than real GDP, what will happen to inventories and GDP in the next period?

Accepted Answer

Inventories will rise, and GDP will decrease.

Question 6

Which of the following is a determinant of household consumption according to the aggregate expenditure model?

Accepted Answer

The interest rate

Question 7

Why is spending on consumer durable goods (like cars and RVs) more volatile than spending on non-durable goods?

Accepted Answer

Durable goods are long-lived, have good substitutes, and their purchases are sensitive to interest rates and economic cycles.

Question 8

If the marginal propensity to consume (MPC) is 0.8, what is the value of the multiplier?

Accepted Answer

$$\frac{1}{1-0.8} = 5$$

Question 9

Suppose the consumption function is $$C = 2,000 + 0.65Y$$, planned investment is $$3,500$$, government purchases are $$2,000$$, and net exports are $$-500. $$What is the equilibrium level of GDP ($$Y$$)?

Accepted Answer

$$Y = 20,000$$

Question 10

If the marginal propensity to consume (MPC) is 0.75 and there is an increase in autonomous investment of $$200$$ billion, what is the total change in equilibrium real GDP?

Accepted Answer

$$800$$ billion

Question 11

Which of the following would cause U.S. net exports to decrease, holding all else constant?

Accepted Answer

A higher price level in the U.S. compared to other countries

Question 12

If the marginal propensity to save (MPS) is 0.3, what is the marginal propensity to consume (MPC)?

Accepted Answer

0.7

Question 13

Which of the following best explains why the multiplier effect occurs?

Accepted Answer

Because an initial change in autonomous expenditure leads to a series of induced changes in consumption as income rises.

Question 14

If the U.S. experiences a recession and imports fall, what is the likely effect on net exports?

Accepted Answer

Net exports will become less negative (increase).

Question 15

Suppose the MPC is 0.6. If disposable income increases by $1,000, how much will consumption increase?

Accepted Answer

$600

Question 16

Which of the following is true about macroeconomic equilibrium in the aggregate expenditure model?

Accepted Answer

It occurs when planned aggregate expenditure equals real GDP.

Question 17

If the U.S. dollar appreciates relative to other currencies, what is the likely effect on U.S. net exports?

Accepted Answer

Net exports will decrease because U.S. goods become more expensive for foreigners.

Question 18

Which of the following is an example of an autonomous expenditure?

Accepted Answer

Planned investment that does not depend on the level of GDP.

Question 19

If the price level in the U.S. rises relative to other countries, what is the most likely effect on U.S. exports and imports?

Accepted Answer

Exports decrease and imports increase.

Question 20

A country has the following consumption function: $$C = 1,500 + 0.7Y. If $$national income increases by $$2,000$$, by how much does consumption increase?

Accepted Answer

$$1,400$$

Aggregate Expenditure and Output in the Short Run: Study Notes

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