Question 1

In the aggregate expenditure model, what is the primary determinant of the level of real GDP in any given year?

Accepted Answer

The level of aggregate expenditure

Question 2

Which of the following best describes the role of inventories in the business cycle according to the aggregate expenditure model?

Accepted Answer

Inventories usually rise at the beginning of a recession and fall at the beginning of an expansion.

Question 3

Suppose Apple planned to add 100,000 iPhones to its inventory, expected to sell 2.1 million, but actually sold 1.9 million. What is Apple’s actual investment in inventories?

Accepted Answer

$$300,000$$

Question 4

Which of the following is NOT a determinant of investment spending in the aggregate expenditure model?

Accepted Answer

Household wealth

Question 5

If the marginal propensity to consume (MPC) is $$0.75$$, what is the value of the simple expenditure multiplier?

Accepted Answer

$$4$$

Question 6

Given the equation $$Y = 650 + 0.75Y$$, what is the equilibrium level of real GDP?

Accepted Answer

$$2600$$

Question 7

Refer to the 45-degree line diagram. What does the point where the AE line crosses the 45-degree line represent?

Accepted Answer

Macroeconomic equilibrium where planned aggregate expenditure equals real GDP

Question 8

If the MPC is $$0.8$$ and autonomous expenditure increases by $$75$$ billion, by how much will equilibrium GDP increase?

Accepted Answer

$$375$$ billion

Question 9

Which of the following would cause the value of the multiplier to be smaller in the real world?

Accepted Answer

An increase in imports as income rises

Question 10

If planned aggregate expenditure is less than real GDP, what will firms do?

Accepted Answer

Decrease production to reduce unintended inventories

Question 11

Which of the following best explains why the aggregate demand curve slopes downward?

Accepted Answer

A higher price level reduces the real value of household wealth, decreasing consumption and aggregate expenditure.

Question 12

If the marginal propensity to consume (MPC) is $$0.6$$, and autonomous expenditure increases by $$40$$ billion, what is the new equilibrium real GDP if the initial equilibrium was $$1000$$ billion?

Accepted Answer

$$1100$$ billion

Question 13

Which of the following is a real-world example of an increase in autonomous expenditure?

Accepted Answer

Tesla building a new factory in Canada

Question 14

If the Consumer Confidence Index rises, what is the likely effect on aggregate expenditure and real GDP?

Accepted Answer

Aggregate expenditure and real GDP will both increase

Question 15

Which of the following is the correct formula for the marginal propensity to save (MPS)?

Accepted Answer

$$MPS = \frac{\Delta S}{\Delta Y}$$

Question 16

If net exports are graphed as a downward-sloping line with respect to real GDP, what does this imply?

Accepted Answer

As real GDP increases, imports rise faster than exports, causing net exports to decline.

Question 17

Suppose the government increases its purchases by $$50$$ billion and the MPC is $$0.8. $$What is the total change in equilibrium GDP?

Accepted Answer

$$250$$ billion

Question 18

Which of the following would cause a movement along the aggregate demand curve rather than a shift of the curve?

Accepted Answer

A change in the price level

Question 19

If the price level in Canada rises relative to other countries, what is the likely effect on Canadian net exports?

Accepted Answer

Net exports will decrease

Question 20

Which of the following statements about saving and investment is correct in the context of macroeconomics?

Accepted Answer

Saving is putting money aside, while investment refers to the purchase of new capital equipment or inventory.

Step-by-Step Guidance for Aggregate Expenditure and Output in the Short Run

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