CH-9b Aggregate Expenditure and Aggregate Demand – Macroeconomics: A Contemporary Introduction : Exam Guide

Chapter 9b—Aggregate Expenditure and Aggregate Demand 1. If there are no unintended changes in inventories, the economy is at its equilibrium level of real GDP demanded. A. True B. False 2. Consumption plus saving equals disposable income at every level of real GDP demanded. A. True B. False 3. Aggregate expenditure means total or combined spending. A. True B. False 4. The aggregate expenditure line shows total planned spending at each A. price level B. income level C. income level, holding the price level constant D. price level, holding the level of income constant E. interest rate, holding the price level constant 5. In an economy without a government and without international transactions, aggregate expenditure at each level of income is equal to A. consumption plus saving B. planned investment plus saving C. disposable income plus the price level D. consumption plus planned investment E. planned investment minus saving 6. Exhibit 9-5 In Exhibit 9-5, the government's budget is A. in surplus B. in deficit C. in balance D. indeterminate from the information given E. $0.5 trillion 7. Exhibit 9-5 In Exhibit 9-5, the the international sector has A. imports exceeding exports by $200 billion B. exports exceeding imports by $200 billion C. imports equal to exports D. imports equal to $200 billion E. exports equal to $200 billion 8. Exhibit 9-5 In Exhibit 9-5, which of the variables are autonomous? A. saving and consumption only B. net taxes and government purchases only C. net exports and government purchases only D. consumption, investment, and net exports only E. investment, net exports, net taxes, and government purchases 9. Exhibit 9-5 In Exhibit 9-5, the marginal propensity to consume equals A. 5/6 B. 4/5 C. 3/4 D. 1/2 E. 2/3 10. Exhibit 9-5 In Exhibit 9-5, the marginal propensity to save equals A. 5/6 B. 4/5 C. 3/4 D. 1/3 E. 2/3 11. Exhibit 9-5 In Exhibit 9-5, given that leakages must equal injections in equilibrium, which of the following is true? A. S + NT + NX = G + I B. S = I C. C + S = G + I D. S + NT = NX + G + I E. the answer is indeterminate 12. Exhibit 9-5 In Exhibit 9-5, the equilibrium level of income is A. $5.4 trillion B. where real GDP = total planned expenditures C. where disposable income = total planned expenditures D. $4.8 trillion E. where the government has a balanced budget, which is at each level of income in this example 13. If an economy is in equilibrium when net taxes = $50 trillion, saving = $40 trillion, government purchases = $50 trillion, exports = $30 trillion, and imports = $10 trillion, then planned investment spending must equal A. zero B. $50 C. $10 D. $20 E. the answer is indeterminate 14. Which of the following is not a part of planned aggregate spending? A. consumption B. investment C. government expenditures D. net exports E. saving 15. Movement along the aggregate expenditure curve is caused by a change in the level of income. A. True B. False 16. The aggregate expenditure line shows A. real GDP on the horizontal axis and aggregate expenditure on the vertical axis B. aggregate expenditure on the horizontal axis and real GDP on the vertical axis C. consumption on the horizontal axis and aggregate expenditure on the vertical axis D. aggregate expenditure on the horizontal axis and consumption on the vertical axis E. investment on the horizontal axis and aggregate expenditure on the vertical axis 17. The equilibrium quantity of aggregate output occurs when A. the economy reaches the full employment of labor B. planned aggregate expenditure equals income generated from production C. actual aggregate expenditures equal real GDP D. inventories of goods and services are increasing E. inventories of goods and services are decreasing 18. Which of the following best describes aggregate expenditure? A. C + I + G + (X - M) B. C + S + G + (X - M) C. C + I + G + (X + M) D. C + I + T + (X - M) E. C + I + T + (X + M) 19. Exhibit 9-6 In Exhibit 9-6, the equilibrium level of GDP is A. $5.0 trillion B. $5.5 trillion C. $6.0 trillion D. $6.5 trillion E. $7.0 trillion 20. Exhibit 9-6 At the equilibrium level of GDP in Exhibit 9-6, injections equal A. $1.0 trillion B. $1.5 trillion C. $1.4 trillion D. $1.2 trillion E. $1.3 trillion 21. Exhibit 9-6 At the equilibrium level of GDP in Exhibit 9-6, leakages equal A. $1.4 trillion B. $1.3 trillion C. $1.5 trillion D. $1.0 trillion E. $1.1 trillion 22. Exhibit 9-6 At the equilibrium level of GDP in Exhibit 9-6, saving equals A. $0.4 trillion B. $0.6 trillion C. $0.5 trillion D. $0.2 trillion E. $0.3 trillion 23. Exhibit 9-6 In equilibrium in Exhibit 9-6, S + NT = I + G + (X - M) and is equal to A. $1.1 trillion B. $1.2 trillion C. $1.3 trillion D. $1.4 trillion E. $1.5 trillion 24. Exhibit 9-6 The marginal propensity to consume (MPC) in Exhibit 9-6 equals A. 0.20 or 1/5 B. 0.40 or 2/5 C. 0.80 or 4/5 D. 0.90 or 9/10 E. 0.60 or 3/5 25. Exhibit 9-6 The marginal propensity to save (MPS) in Exhibit 9-6 equals A. 0.80 or 4/5 B. 0.60 or 3/5 C. 0.40 or 2/5 D. 0.10 or 1/10 E. 0.20 or 1/5 26. Exhibit 9-6 In Exhibit 9-6, which group of the following is considered autonomous with respect to income? A. C, I, (X - M) B. S, I, G, (X - M) C. NT, C, G, (X - M) D. NT, S, I, (X - M) E. I, G, X 27. Exhibit 9-6 In Exhibit 9-6, the government budget A. has a deficit of $1 trillion B. has a surplus of $1 trillion C. is balanced D. has a deficit of $2 trillion E. has a surplus of $2 trillion 28. If current aggregate expenditure equals current production, the economy is in equilibrium. A. True B. False 29. The aggregate expenditure line, along with the 45-degree line, determines equilibrium. This model is based on the assumption that A. production is constant B. production is constant and at the full employment level of GDP C. producers are ready to supply whatever amount of output is demanded at the existing price level D. producers will supply more at higher prices than they will at lower prices E. producers will supply more at lower prices than they will at higher prices 30. Exhibit 9-7 Which of the following best describes the situation at point B in Exhibit 9-7? A. consumption expenditures exceeds disposable income B. real GDP exceeds aggregate expenditure C. aggregate expenditure is exactly equal to real GDP D. aggregate expenditure exceeds real GDP E. producers are experiencing an unexpected accumulation of inventory 31. Exhibit 9-7 Which of the following best describes the situation at point B in Exhibit 9-7? A. consumption expenditures exceeds disposable income B. producers are experiencing an unexpected loss in inventory C. aggregate expenditure is exactly equal to real GDP D. real GDP exceeds aggregate expenditure E. producers are experiencing an unexpected accumulation of inventory 32. Suppose that at a particular level of real GDP, the unintended change in inventories is zero. Which of the following is true? A. That level of real GDP is less than the equilibrium level of real GDP demanded. B. That level of real GDP is greater than the equilibrium level of real GDP demanded. C. That level of real GDP is the equilibrium level of real GDP demanded. D. At that level of real GDP, there is no inflation. E. At that level of real GDP, there is no saving. 33. Which of the following is not true at the equilibrium quantity of GDP demanded? A. aggregate expenditure equals real GDP B. planned investment equals actual investment C. planned investment equals saving D. planned investment is greater than unintended inventory adjustment E. planned injections into the circular flow are less than planned leakages out of the flow 34. Which of the following is assumed constant along the aggregate expenditure line? A. the price level B. consumption C. unintended inventory adjustment D. actual investment E. real GDP 35. At the equilibrium level of real GDP, unplanned inventory adjustment equals A. planned investment B. saving C. zero D. actual investment E. consumption 36. Which of the following is illustrated by the distance between the aggregate expenditure line and the 45-degree line at each level of real GDP? A. saving B. unplanned inventory change C. planned investment D. marginal propensity to save E. marginal propensity to consume 37. If planned spending exceeds planned output, the result is A. unintended inventory increases B. a reduction in GDP C. a decrease in imports D. an increase in government purchases E. unintended inventory reductions 38. The economy will expand if A. leakages exceed injections B. injections exceed leakages C. leakages equal injections D. expenditures are less than output E. saving exceeds investment 39. The economy will contract (shrink) if A. leakages exceed injections B. injections exceed leakages C. injections equal leakages D. expenditures exceed output E. investment exceeds saving 40. Which of the following is not true? A. When planned aggregate expenditure is greater than output, real GDP demanded will rise. B. When planned aggregate expenditure is greater than output, real GDP demanded will fall. C. When planned aggregate expenditure is increasing, disposable income and consumption are increasing. D. When planned aggregate expenditure is increasing, consumption and saving are both increasing. E. As long as planned aggregate expenditure is increasing, real GDP demanded does also. 41. In the income-expenditure framework, if planned aggregate expenditures are greater than real GDP, A. the price level will fall B. consumption must fall C. inventories will increase D. inventories will decrease E. consumption will decrease 42. In the income-expenditure framework, if planned aggregate expenditures are less than real GDP, A. then saving must be larger than consumption B. the price level will increase C. inventories will increase D. inventories will decrease E. consumption will decrease 43. If output exceeds planned aggregate spending, the result is unintended inventory increases. A. True B. False 44. When current real production of goods and services (real GDP) is greater than planned aggregate expenditure A. inventories of goods and services are rising B. firms will increase production to replenish depleted inventories C. businesses and households will increase planned aggregate spending because it is in their interest to promote employment D. the price level will automatically rise to restore equilibrium in the economy E. leakages must equal planned injections 45. Exhibit 9-8 The MPC in the economy represented in Exhibit 9-8 is A. 0 B. 0.2 C. 0.8 D. 0.9 E. 80 46. Exhibit 9-8 The MPS in the economy represented in Exhibit 9-8 is A. 0 B. 0.1 C. 0.2 D. 0.8 E. 20 47. An increase in autonomous investment will A. shift the aggregate expenditure line upward B. shift the aggregate expenditure line downward C. result in an upward movement along the aggregate expenditure line D. result in a downward movement along the aggregate expenditure line E. increase aggregate expenditures only at high levels of income 48. A decrease in autonomous investment will A. shift the aggregate expenditure line upward B. shift the aggregate expenditure line downward C. result in an upward movement along the aggregate expenditure line D. result in a downward movement along the aggregate expenditure line E. decrease aggregate expenditures only at low levels of income 49. On the aggregate expenditure graph, if autonomous investment decreases by $10 billion, A. the aggregate expenditure line shifts upward by $10 billion B. planned saving increases by $10 billion C. the aggregate expenditure line shifts downward by $10 billion D. planned saving decreases by $10 billion E. the equilibrium level of real GDP demanded increases by $10 billion 50. On the aggregate expenditure graph, if autonomous investment increases by $20 billion, A. the aggregate expenditure line shifts upward by $20 billion B. planned saving increases by $20 billion C. the aggregate expenditure line shifts downward by $20 billion D. planned saving decreases by $20 billion E. the equilibrium level of real GDP demanded increases by $20 billion 51. On the aggregate expenditure graph, if autonomous saving increases by $15 billion, A. the aggregate expenditure line shifts upward by $15 billion B. planned investment increases by $15 billion C. the aggregate expenditure line shifts downward by $15 billion D. planned investment decreases by $15 billion E. the equilibrium level of real GDP demanded decreases by $15 billion 52. On the aggregate expenditure graph, if autonomous saving decreases by $15 billion, A. the aggregate expenditure line shifts upward by $15 billion B. planned investment increases by $15 billion C. the aggregate expenditure line shifts downward by $15 billion D. planned investment decreases by $15 billion E. the equilibrium level of real GDP demanded decreases by $15 billion 53. If households save $30 billion more at each level of income and the MPC = 0.9, the aggregate expenditure line will A. not be affected B. shift upward by $30 billion C. shift downward by $30 billion D. shift upward by $300 billion because of the multiplier E. shift downward by $300 billion because of the multiplier 54. If households save $40 billion less at each level of income and the MPC = 0.8, the aggregate expenditure line will A. not be affected B. shift upward by $40 billion C. shift downward by $40 billion D. shift upward by $200 billion because of the multiplier E. shift downward by $200 billion because of the multiplier 55. If the full employment level of income is $1200 billion and the present level of income is $1000 billion A. an inflationary gap exists B. autonomous expenditure is too low for a full employment equilibrium C. autonomous expenditure is too high for a full employment equilibrium D. a decrease in autonomous expenditure is required E. government purchases of goods and services should be reduced 56. If autonomous investment expenditures decline because of higher interest rates A. income increases B. the rate of return declines C. autonomous consumption declines D. aggregate demand increases E. aggregate demand decreases 57. If people spend 2/3 of any extra income they receive, new autonomous spending of $10 causes equilibrium to increase by A. $6.67 B. $16.67 C. $15.00 D. $30.00 E. $45.00 58. The simple multiplier A. when divided by consumption spending equals saving B. is defined as 1.0 divided by the marginal propensity to save C. is defined as 1.0 divided by the marginal propensity to consume D. is equal to the MPS plus the MPC E. is equal to the MPS minus the MPC 59. That fraction of a change in disposable income that is consumed is called A. autonomous consumption B. induced consumption C. the multiplier D. the marginal propensity to consume E. the marginal propensity to save 60. If the mps is 0.25, the simple multiplier is A. 25 B. 75 C. 5 D. 3/4 E. 4 61. If investment increases by $100 and, as a result, GDP ultimately increases by $200, the multiplier equals A. 1 B. 2 C. 3 D. 4 E. 5 62. The larger the MPC, the greater the multiplier effect. A. True B. False 63. The larger the MPS, the smaller the multiplier effect. A. True B. False 64. Which of the following best describes the multiplier? A. It shows the magnified change in planned aggregate spending that arises from a change in output. B. It shows the magnified change in equilibrium output demanded that arises from a change in income. C. It shows the magnified change in planned aggregate spending that arises from a change in equilibrium output. D. It shows the magnified change in equilibrium output demanded that arises from a change in planned aggregate spending. E. It shows the change in planned aggregate spending that arises from a change in real output. 65. If the economy is currently at equilibrium at $1 trillion and the MPC is 0.6, a $100 decrease in government purchases of goods and services will result in a new equilibrium at A. $600 billion B. $400 billion C. $750 billion D. $1.4 trillion E. $1.6 trillion 66. If the spending multiplier is greater than 1.0, a $200 billion increase in autonomous investment will cause A. equilibrium investment to increase by less than $200 billion B. equilibrium investment to decrease by more than $200 billion C. equilibrium real GDP demanded to increase by more than $200 billion D. equilibrium real GDP demanded to decrease by less than $200 billion E. equilibrium saving to decrease by more than $200 billion 67. If the marginal propensity to consume equals 0.9, the multiplier is A. 1 B. 2 C. 5 D. 10 E. 12 68. Exhibit 9-9 In Exhibit 9-9, assume the economy is in equilibrium with real GDP of $5 trillion dollars. If aggregate expenditure (AE) increases by $1 trillion, we would expect the economy's equilibrium real GDP to A. increase by $1 trillion B. increase by more than $1 trillion C. increase by less than $1 trillion D. decrease by $1 trillion E. remain unchanged 69. The smaller the marginal propensity to save, other things constant, A. the smaller the marginal propensity to consume B. the larger the multiplier C. the smaller the multiplier D. the flatter the consumption function E. the steeper the saving function 70. The smaller the marginal propensity to save, other things constant, A. the smaller the marginal propensity to consume B. the larger the marginal propensity to consume C. the smaller the multiplier D. the flatter the consumption function E. the steeper the saving function 71. The smaller the marginal propensity to save, other things constant, A. the smaller the marginal propensity to consume B. the smaller the multiplier C. the flatter the consumption function D. the steeper the consumption function E. the steeper the saving function 72. The smaller the marginal propensity to save, other things constant, A. the smaller the marginal propensity to consume B. the smaller the multiplier C. the flatter the consumption function D. the flatter the saving function E. the steeper the saving function 73. The larger the marginal propensity to save, other things constant, A. the smaller the marginal propensity to consume B. the larger the marginal propensity to consume C. the larger the multiplier D. the steeper the consumption function E. the flatter the saving function 74. The larger the marginal propensity to save, other things constant, A. the larger the marginal propensity to consume B. the smaller the multiplier C. the larger the multiplier D. the steeper the consumption function E. the flatter the saving function 75. The larger the marginal propensity to save, other things constant, A. the larger the marginal propensity to consume B. the larger the multiplier C. the steeper the consumption function D. the steeper the saving function E. the flatter the saving function 76. The larger the marginal propensity to save, other things constant, A. the larger the marginal propensity to consume B. the larger the multiplier C. the steeper the consumption function D. the flatter the consumption function E. the flatter the saving function 77. The simple multiplier equals A. the marginal propensity to consume B. the marginal propensity to save C. the reciprocal of the marginal propensity to save D. the reciprocal of the marginal propensity to consume E. one minus the marginal propensity to consume 78. If the marginal propensity to save is 1/8, the value of the simple multiplier is A. 8 B. 1/8 C. 2 D. 1/2 E. 4 79. If the marginal propensity to consume is 4/5, the value of the simple multiplier is A. 4 B. 1/5 C. 4/5 D. 5/4 E. 5 80. Increases in the marginal propensity to consume, other things constant, A. increase the value of the multiplier B. decrease the value of the multiplier C. never change the value of the multiplier D. shift the aggregate expenditure curve downward E. cause a downward movement along an aggregate expenditure curve 81. If the marginal propensity to consume is 4/5, the simple multiplier is A. 1/6 B. 6 C. 5/6 D. 6/5 E. 5 82. If the marginal propensity to consume is 3/4, the simple multiplier is A. 3 B. 7 C. 4 D. 25 E. 3/10 83. If the simple multiplier is 8, the marginal propensity to consume is A. 1/8 B. 1/4 C. 4/5 D. 7/8 E. 8 84. If the simple multiplier is 10, the marginal propensity to save is A. 1/10 B. 9/10 C. 1/9 D. 10/9 E. 9 85. If autonomous investment increases by $100 billion, equilibrium real GDP demanded will A. increase by $100 billion B. not change C. increase by ($100 billion)/MPC D. increase by $100 billion × MPC E. increase by $100 billion/MPS 86. If autonomous investment decreases by $60 billion, equilibrium real GDP demanded will A. increase by $60 billion B. decrease by $60 billion C. decrease by ($60 billion) × MPC D. decrease by $60 billion × (1 - MPC) E. decrease by $60 billion/MPS 87. Suppose that planned investment increases by $200 billion and that the marginal propensity to consume equals 0.80. The aggregate expenditure line will shift upward by __________ at every level of real GDP. A. $40 billion B. $160 billion C. $200 billion D. $250 billion E. $1,000 billion 88. Suppose that planned autonomous investment increases by $200 billion and that the marginal propensity to consume equals 0.80. The equilibrium level of real GDP will increase by A. $40 billion B. $160 billion C. $200 billion D. $250 billion E. $1,000 billion 89. Which is true regarding the marginal propensity to consume and the multiplier? A. The lower the MPC, the higher the multiplier. B. The higher the MPC, the lower the multiplier. C. The MPC equals the multiplier. D. The sum of the MPC and the multiplier equals 1. E. The lower the MPC, the lower the multiplier. 90. If an increase in planned investment of $70 billion causes equilibrium output demanded to rise by $280 billion, the value of the marginal propensity to consume is A. 4 B. 4/3 C. 1/3 D. 1/4 E. 3/4 91. If autonomous consumption rises by $0.8 trillion and the marginal propensity to consume (MPC) equals 3/4, the equilibrium level of output demanded will rise by A. $0.2 trillion B. $0.6 trillion C. $1.07 trillion D. $2.4 trillion E. $3.2 trillion 92. Other things being equal, a decrease in an economy's exports will A. increase domestic aggregate expenditures and the equilibrium level of output B. decrease domestic aggregate expenditures and the equilibrium level of output C. have no impact on domestic aggregate expenditures or output D. decrease the marginal propensity to import E. change autonomous consumption 93. Which of the following would result from a decrease in autonomous saving? A. an upward shift of the aggregate expenditure line B. an upward shift of the 45-degree line C. a decrease in the equilibrium level of real GDP demanded D. an increase in the level of autonomous consumption E. an increase in the level of autonomous investment 94. If the multiplier is 4, a $10 billion increase in autonomous investment will cause a A. $10 billion increase in equilibrium investment B. $40 billion increase in equilibrium investment C. $40 billion increase in equilibrium real GDP demanded D. $400 billion increase in equilibrium real GDP demanded E. $40 billion increase in consumption spending 95. If the multiplier is 3, a $20 billion increase in autonomous consumption will cause a A. $20 billion increase in equilibrium consumption B. $60 billion increase in equilibrium consumption C. $20 billion increase in equilibrium real GDP demanded D. $60 billion increase in equilibrium real GDP demanded E. $60 billion decrease in autonomous saving 96. Suppose that the multiplier is 4, autonomous investment rises by $50 billion, and autonomous consumption falls by $50 billion at the same time. Which of the following is true? A. Equilibrium GDP demanded will be the same, but the type of goods produced will be different. B. Equilibrium GDP demanded will increase by $200 billion. C. Equilibrium GDP demanded will decrease by $200 billion. D. Equilibrium GDP demanded will increase by $400 billion. E. Equilibrium GDP demanded will decrease by $400 billion. 97. The aggregate expenditure model is A. most useful in explaining situations where changes in aggregate expenditures cause the price level to change B. not useful in situations where changes in aggregate expenditures cause the price level to change C. helpful in explaining situations where the economy is plagued by inflationary pressures D. the reciprocal of the aggregate demand model E. most useful when we are dealing with an economy dominated by a foreign sector 98. What does the marginal propensity to consume tell us? A. how much of our total income we spend on current consumption B. how much additional income is spent on consumption C. how much of aggregate expenditures will be allocated to consumption spending D. how much induced consumption there is in the economy E. the relationship between autonomous and induced consumption 99. Which of the following is true concerning the relationship between the marginal propensity to consume and the consumption function? A. the larger the MPC, the higher the level of autonomous consumption B. the larger the MPC, the steeper the consumption function C. the larger the MPC, the larger the MPS D. The smaller the MPC, the steeper the consumption function E. The larger the MPC, the larger the level of autonomous consumption 100. In the simple aggregate expenditure model, the slope of the aggregate expenditure line depends on A. interest rates B. government budget policy C. the price level D. the marginal propensity to consume E. all of the above 101. In the simple aggregate expenditures model, planned investment is A. a function of disposable income B. a function of profit expectations C. a function of the interest rate D. autonomous E. all of the above 102. If the marginal propensity to consume in your classmate's nation is 3/5 and the marginal propensity to save in your country is 1/10, which of the following must be true? A. The spending multiplier is larger in your classmate's nation than in your country. B. The spending multiplier is smaller in your classmate's nation than in your country. C. Autonomous consumption is higher in your classmate's nation than in your country. D. Autonomous consumption is lower in your classmate's nation than in your country. E. Total consumption is lower in your classmate's nation than in your country. 103. In a model with neither income taxes nor international trade, if the marginal propensity to consume in your classmate's nation is 3/5 and the marginal propensity to save in your country is 1/10, which of the following must be true? A. Increases in government purchases increase real GDP demanded more per dollar in your country than they do in your classmate's country. B. Decreases in government purchases increase real GDP demanded more per dollar in your country than they do in your classmate's country. C. Increases in autonomous saving increase real GDP demanded more per dollar in your country than they do in your classmate's country. D. Real GDP demanded is higher in your country than in your classmate's country. E. Total saving is higher in your classmate's country than in your country. 104. Which of the following is not true about a change in the price level? A. It will shift the aggregate demand curve. B. It will shift the aggregate expenditure curve. C. It will result in a new value of equilibrium real GDP demanded. D. It will change the real value of dollar-denominated assets. E. It will shift the consumption function. 105. We can use an aggregate expenditure line to trace out a single aggregate demand curve by A. shifting the 45-degree line B. letting changes in autonomous spending shift the aggregate expenditure line C. letting changes in the price level shift the aggregate expenditure line D. letting changes in the level of income shift the aggregate expenditure line E. letting changes in real GDP shift the aggregate expenditure line 106. The aggregate demand curve illustrates a relationship between A. interest rates and income levels B. the price level and real GDP C. the price level and interest rates D. income levels and real GDP levels E. income levels and nominal income levels 107. The aggregate demand curve slopes downward to the right, reflecting a relationship between the price level and A. real GDP B. interest rates C. the saving rate D. the investment level E. the consumption level 108. An increase in the price level can be indicated by a downward shift of the aggregate expenditure line. A. True B. False 109. Exhibit 9-10 According to the graph in Exhibit 9-10, if the price level increases, the new equilibrium level of real GDP must be A. less than $20 B. less than $100 C. zero D. greater than $100 E. greater than $200 110. Exhibit 9-10 According to the graph in Exhibit 9-10, if the price level decreases, the new equilibrium level of real GDP must be A. less than $20 B. less than $100 C. unchanged D. greater than $100 E. greater than $200 111. An increase in the price level will A. shift the aggregate expenditure line upward B. shift the aggregate expenditure line downward C. cause a movement up along the aggregate expenditure line D. cause a movement down along the aggregate expenditure line E. have no effect on the aggregate expenditure line or the equilibrium level of real GDP 112. An increase in the price level will A. shift the aggregate demand curve to the right B. shift the aggregate demand curve to the left C. increase the level of aggregate quantity demanded D. decrease the level of aggregate quantity demanded E. have no effect at all on aggregate demand 113. What is the effect of an increase in the price level? A. The real value of dollar-denominated assets will rise. B. The aggregate expenditure line will shift downward. C. The equilibrium level of output demanded will rise. D. There will be downward movement along a particular aggregate demand curve. E. The aggregate demand curve will shift rightward. 114. What is the effect of an increase in the price level? A. The real value of dollar-denominated assets will fall. B. The aggregate expenditure line will shift upward. C. The equilibrium level of output demanded will rise. D. There will be downward movement along a particular aggregate demand curve. E. The aggregate demand curve will shift rightward. 115. What is the effect of an increase in the price level? A. The real value of dollar-denominated assets will rise. B. The aggregate expenditure line will shift upward. C. The equilibrium level of output demanded will fall. D. There will be downward movement along a particular aggregate demand curve. E. The aggregate demand curve will shift rightward. 116. What is the effect of an increase in the price level? A. The real value of dollar-denominated assets will rise. B. The aggregate expenditure line will shift upward. C. The equilibrium level of output demanded will rise. D. There will be upward movement along a particular aggregate demand curve. E. The aggregate demand curve will shift rightward. 117. An increase in the price level will A. shift the aggregate expenditure line upward B. shift the aggregate expenditure line downward C. result in a movement upward along the aggregate expenditure line D. result in a movement downward along the aggregate expenditure line E. change the slope of the aggregate expenditure line 118. If the price level rises, A. the aggregate expenditures line shifts upward; the economy moves downward along the aggregate demand curve B. the aggregate expenditures line shifts downward; the economy moves upward along the aggregate demand curve C. the aggregate demand curve shifts to the right; the economy moves along the aggregate expenditure line D. the aggregate demand curve shifts to the left; the economy moves along the aggregate expenditure line E. the aggregate expenditure line shifts upward; the aggregate demand curve shifts to the right 119. If the price level increases, other things constant, consumption spending A. increases because real income rises B. decreases because real income rises C. increases because the real value of wealth increases D. decreases because the real value of wealth decreases E. increases because nominal income increases 120. Suppose that a pair of graphs represents a situation in which the aggregate expenditure line has shifted but the aggregate demand curve has not. The shift of the aggregate expenditure line was caused by a change in A. the marginal propensity to consume B. the price level C. autonomous investment D. autonomous saving E. disposable income 121. A rise in the price level will shift the aggregate expenditure curve A. upward and shift the aggregate demand curve to the right B. upward and shift the aggregate demand curve to the left C. downward and shift the aggregate demand curve to the left D. downward and shift the aggregate demand curve to the right E. downward and cause a movement along the aggregate demand curve 122. An increase in the price level will A. shift the aggregate demand curve to the left B. shift the aggregate demand curve to the right C. result in a movement up to the left along the aggregate demand curve D. result in a movement down to the right along the aggregate demand curve E. have no effect on the aggregate quantity demanded 123. An increase in the U.S. price level, other things constant, would A. increase U.S. exports and decrease U.S. imports B. increase U.S. exports and leave U.S. imports unchanged C. decrease U.S. exports and increase U.S. imports D. decrease U.S. exports and leave U.S. imports unchanged E. leave both U.S. exports and U.S. imports unchanged 124. As the U.S. price level rises relative to price levels in other countries, what would happen in the U.S.? A. consumption and net exports would decline B. consumption and net exports would increase C. consumption would increase and net exports would decrease D. consumption would decrease and net exports would increase E. consumption and net exports would remain constant 125. A decrease in the price level will A. shift the aggregate expenditure line upward B. shift the aggregate expenditure line downward C. cause a movement up along the aggregate expenditure line D. cause a movement down along the aggregate expenditure line E. have no effect on the aggregate expenditure or the equilibrium level of real GDP 126. A decrease in the price level will A. shift the aggregate demand curve to the right B. shift the aggregate demand curve to the left C. increase the level of aggregate quantity demanded D. decrease the level of aggregate quantity demanded E. have no effect at all on aggregate demand 127. A decrease in the price level will have which of the following effects? A. The real value of dollar-denominated assets will fall. B. The aggregate expenditure line will shift downward. C. The equilibrium level of output demanded will fall. D. There will be downward movement along a particular aggregate demand curve. E. The aggregate demand curve will shift leftward. 128. A decrease in the price level will have which of the following effects? A. The real value of dollar-denominated assets will rise. B. The aggregate expenditure line will shift downward. C. The equilibrium level of output demanded will fall. D. There will be upward movement along a particular aggregate demand curve. E. The aggregate demand curve will shift leftward. 129. A decrease in the price level will have which of the following effects? A. The real value of dollar-denominated assets will fall. B. The aggregate expenditure line will shift upward. C. The equilibrium level of output demanded will fall. D. There will be upward movement along a particular aggregate demand curve. E. The aggregate demand curve will shift rightward. 130. A decrease in the price level will have which of the following effects? A. The real value of dollar-denominated assets will fall. B. The aggregate expenditure line will shift downward. C. The equilibrium level of output demanded will rise. D. There will be upward movement along a particular aggregate demand curve. E. The aggregate demand curve will shift leftward. 131. A decrease in the price level will A. shift the aggregate demand curve to the right B. shift the aggregate demand curve to the left C. result in a movement upward along the aggregate demand curve D. result in a movement downward along the aggregate demand curve E. change the slope of the aggregate demand curve 132. If the price level decreases, A. the aggregate expenditures line shifts downward; the economy moves down along the aggregate demand curve B. the aggregate expenditures line shifts upward; the economy moves up along the aggregate demand curve C. the aggregate demand curve shifts to the right; the economy moves along the aggregate expenditures line D. the aggregate demand curve shifts to the left; the economy moves along the aggregate expenditures line E. the aggregate expenditures line shifts upward; the economy moves down along the aggregate demand curve 133. If the price level decreases, other things constant, people consume A. more because nominal income falls B. less because nominal income rises C. more because the real value of their wealth increases D. more because real income increases E. less because real income decreases 134. A fall in the price level will shift the aggregate expenditure curve A. upward and shift the aggregate demand curve to the right B. upward and shift the aggregate demand curve to the left C. downward and shift the aggregate demand curve to the left D. downward and shift the aggregate demand curve to the right E. upward and cause a movement along the aggregate demand curve 135. A decrease in the price level will A. shift the aggregate demand curve to the left B. shift the aggregate demand curve to the right C. result in a movement up and to the left along the aggregate demand curve D. result in a movement down and to the right along the aggregate demand curve E. have no effect on the aggregate quantity demanded 136. A decline in the U.S. price level, other things constant, would A. stimulate U.S. exports, pushing the aggregate demand curve to the right B. stimulate U.S. imports, pushing the aggregate demand curve to the right C. stimulate U.S. exports but discourage imports, causing a rightward movement along a given aggregate demand curve D. discourage U.S. exports but stimulate imports, causing a rightward movement along a given aggregate demand curve E. not affect U.S. net exports, so aggregate quantity demanded would remain constant 137. Movement along the aggregate demand curve may be caused by a change in autonomous investment spending. A. True B. False 138. Only a change in the price level can cause shifts in both the aggregate expenditure line and the aggregate demand curve. A. True B. False 139. Anything that causes a movement along the aggregate expenditure curve will also cause a shift of the aggregate demand curve. A. True B. False 140. If consumer spending increases, other things constant, the aggregate demand curve shifts inward. A. True B. False 141. Which of the following would cause a rightward shift of the aggregate demand curve? A. an increase in planned investment B. a drop in the price level C. a rise in the price level D. a decrease in autonomous consumption E. anything that causes an upward shift in the saving function 142. Which of the following would cause a leftward shift of the aggregate demand curve? A. an increase in planned investment B. a drop in the price level C. a rise in the price level D. an increase in autonomous consumption E. anything that causes an upward shift in the saving function 143. Which of the following is true about the relationship between the aggregate demand curve and the aggregate expenditure line? A. If the aggregate expenditure line shifts while prices are constant, the resulting change in equilibrium output demanded can be depicted as a movement along the aggregate demand curve. B. If the aggregate expenditure line shifts while prices are constant, the resulting change in equilibrium output demanded can be depicted as a shift of the aggregate demand curve. C. Any time the aggregate expenditure line shifts, the aggregate demand curve shifts as well. D. Any time there is a movement along the aggregate expenditure curve, there is movement along the aggregate demand curve as well. E. Any time the price level changes, the aggregate demand curve shifts. 144. Suppose that a pair of graphs represents a situation in which both the aggregate expenditure line and the aggregate demand curve have shifted. You can conclude that the shift of the aggregate expenditure line was caused by a change in A. disposable income B. the price level C. the level of income D. autonomous investment E. the level of real GDP 145. We can use an aggregate expenditure line to show how an aggregate demand curve shifts by A. shifting the 45-degree line B. letting changes in autonomous spending shift the aggregate expenditure line C. letting changes in the price level shift the aggregate expenditure line D. letting changes in the level of income shift the aggregate expenditure line E. letting changes in real GDP shift the aggregate expenditure line 146. If the level of autonomous spending increases at a given price level, A. the aggregate expenditure line shifts upward; the economy moves upward along the aggregate demand curve B. the aggregate expenditure line shifts downward; the economy moves upward along the aggregate demand curve C. the aggregate expenditure line shifts upward; the aggregate demand curve shifts to the right D. the aggregate expenditure line shifts downward; the aggregate demand curve shifts to the left E. the aggregate expenditure curve shifts upward; the aggregate demand curve shifts to the left 147. If the level of autonomous spending decreases at a given price level, A. the aggregate expenditure line shifts upward; the economy moves along the aggregate demand curve B. the aggregate expenditure line shifts downward; the economy moves along the aggregate demand curve C. the aggregate expenditure line shifts upward; the aggregate demand curve shifts to the right D. the aggregate expenditure line shifts downward; the aggregate demand curve shifts to the left E. the aggregate expenditure curve shifts downward; the aggregate demand curve shifts to the right 148. An increase in planned investment would shift the A. aggregate demand curve outward B. aggregate demand curve inward C. aggregate supply curve outward D. aggregate supply curve inward E. consumption function upward 149. A decrease in planned investment would shift the A. aggregate demand curve outward B. aggregate demand curve inward C. aggregate supply curve inward D. aggregate supply curve outward E. consumption function downward 150. A change in consumers' expectations about the future will shift both the aggregate expenditure curve and the aggregate demand curve. A. True B. False 151. To simplify the aggregate expenditure model, we assume that there is no A. consumption B. income C. government purchases D. net private investment E. capital depreciation nor business saving 152. Which of the following is not included in the aggregate expenditure line? A. C B. P C. I D. G E. (X-M) 153. The slope of the aggregate expenditure line equals the marginal propensity to consume. A. True B. False 154. The simple spending multiplier is like A. having a bird in the hand rather than two in the bush B. two wrongs making a right C. the spreading of ripples from a stone thrown in a pond D. getting too much of a good thing E. having too many chefs in the kitchen 155. Exhibit 9-11 In Exhibit 9-11, real GDP occurs at point A. A B. B C. C D. D E. E 156. Exhibit 9-11 In Exhibit 9-11, which of the following best describes the situation at GDP1? A. Equilibrium GDP B. Aggregate expenditure exceeds aggregate output and real GDP will increase C. Aggregate expenditure exceeds aggregate output and real GDP will decrease D. Aggregate expenditure is less than aggregate output and real GDP will increase E. Aggregate expenditure is less than aggregate output and real GDP will decrease 157. Exhibit 9-11 In Exhibit 9-11, which of the following best describes the situation at GDP1? A. Equilibrium GDP B. Inventories are falling and real GDP will increase C. Inventories are falling and real GDP will decrease D. Inventories are rising and real GDP will increase E. Inventories are falling and real GDP will decrease 158. Exhibit 9-11 In Exhibit 9-11, which of the following best describes the situation at GDP2? A. Equilibrium GDP B. Inventories are falling and real GDP will increase C. Inventories are falling and real GDP will decrease D. Inventories are rising and real GDP will increase E. Inventories are falling and real GDP will decrease 159. Exhibit 9-11 In Exhibit 9-11, which of the following best describes the situation at GDP2? A. Equilibrium GDP B. Aggregate expenditure exceeds aggregate output and real GDP will increase C. Aggregate expenditure exceeds aggregate output and real GDP will decrease D. Aggregate expenditure is less than aggregate output and real GDP will increase E. Aggregate expenditure is less than aggregate output and real GDP will decrease Test Bank for Macroeconomics: A Contemporary Introduction William A. McEachern 9781133188131, 9780538453776