Foundations of Macroeconomics, 7e (Bade/Parkin)
Chapter 14 Aggregate Expenditure Multiplier
14.1 Expenditure Plans and Real GDP
1) Which of the following variables is ixed in the aggregate expenditure model?
A) price level
B) consumption
C) output
D) investment
E) real GDP
Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
2) In order to analyze the factors that determine the quantity of real GDP demanded, in the
aggregate expenditure model we assume that
A) the unemployment level is ixed.
B) the inlation rate is assumed to equal the natural unemployment rate.
C) the natural rate of unemployment is ixed.
D) the price level is ixed.
E) real GDP does not change.
Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
3) What is the key diference between the aggregate expenditure model and the aggregate
demand/aggregate supply model?
A) The aggregate expenditure model examines monetary policy, whereas the aggregate
demand/aggregate supply model does not.
B) Monetary and real factors interact in the aggregate demand/aggregate supply model.
C) The aggregate expenditure model assumes that the price level is ixed.
D) The aggregate demand/aggregate supply model assumes that the price level is ixed.
E) The aggregate expenditure model assumes that real GDP is ixed.
Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
4) Which of the following is NOT a part of aggregate expenditure?
A) government expenditure
B) imports
C) investment
D) taxes
E) exports
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Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
5) Aggregate expenditure is equal to
A) C + I + G.
B) C + I + G – NX.
C) C – I – G – NX.
D) C + I + G + NX.
E) Y + C + I + G + NX.
Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
6) During 2012, 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) $5.5 trillion.
B) $6.0 trillion.
C) $7.0 trillion.
D) $8.5 trillion.
E) $6.5 trillion.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
2
7) Disposable income equals aggregate income
A) minus net taxes.
B) minus saving.
C) minus saving and minus net taxes.
D) plus saving minus net taxes.
E) plus net taxes.
Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
8) The consumption function shows the relationship between
A) consumption expenditure and disposable income.
B) inventory levels and real GDP.
C) consumption expenditure and planned income.
D) consumption expenditure and planned inventory investment.
E) consumption expenditure and the price level.
Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
9) A movement along the consumption function shows the change in consumption
expenditure as a result of a change in
A) disposable income.
B) the price level.
C) the interest rate.
D) saving.
E) net taxes.
Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
3
10) The relationship between disposable income and consumption expenditure is
A) positive.
B) negative.
C) nonexistent.
D) U-shaped.
E) not stable because it depends on whether the economy is in equilibrium or not.
Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
11) When disposable income increases, consumption expenditure
A) also increases, but by less.
B) does not change.
C) also increases, and by an equal amount.
D) decreases by the same amount.
E) also increases, and by more.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
12) As disposable income ________, planned consumption expenditure ________ by a ________
amount.
A) increases; increases; smaller
B) decreases; increases; smaller
C) increases; increases; larger
D) decreases; increases; larger
E) increases; decreases; smaller
Skill: Level 2: Using deinitions
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
4
13) When disposable income increases,
A) the consumption function shifts upward.
B) there is a movement upward along the consumption function, but the consumption
function does not shift.
C) there is no movement along the consumption function, and the consumption function
does not shift.
D) the consumption function shifts downward.
E) there is a movement downward along the consumption function, but the consumption
function does not shift.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
14) If disposable income decreases during a recession, there is
A) a downward shift in the consumption function.
B) movement downward along the consumption function.
C) no change in consumption expenditures.
D) an upward shift in the consumption function.
E) movement upward along the consumption function.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
15) As disposable income ________ planned consumption expenditure ________.
A) increases; decreases
B) decreases; increases
C) decreases; remains the same, since it is autonomous expenditure
D) increases; increases
E) increases; changes only if net taxes also change
Skill: Level 2: Using deinitions
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
5
16) As a household’s disposable income increases, its autonomous expenditures ________
and its induced expenditures ________.
A) increase; do not change
B) decrease; do not change
C) do not change; increase by a smaller amount than the increase in income
D) do not change; increase by an amount equal to the increase in income
E) increase; increase by a smaller amount than the increase in income
Skill: Level 2: Using deinitions
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
17) When disposable income is zero, consumption expenditure is
A) equal to autonomous consumption.
B) also zero.
C) negative.
D) equal to induced consumption expenditure.
E) None of the above answers is correct.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
18) The amount of consumption expenditure that takes place when income is zero is
A) equal to zero.
B) equal to saving.
C) called autonomous consumption.
D) called induced consumption.
E) called zero-based consumption.
Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
6
19) When consumption expenditure is ________ disposable income, saving is ________.
A) less than; positive
B) greater than; positive
C) equal to; positive
D) equal to; negative
E) less than; negative
Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
20) Consumption expenditure exceeds disposable income
A) never.
B) when there is positive saving.
C) when there is dissaving.
D) always.
E) only when the economy is in equilibrium.
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
21) In the range of disposable income where the consumption function lies above the 45°
line,
A) disposable income is negative.
B) saving is negative.
C) saving is positive.
D) disposable income equals planned expenditures.
E) induced consumption is zero.
Skill: Level 1: Deinition
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
7
22) On a graph of the consumption function, where the consumption function crosses the
45 degree line,
A) disposable income is zero.
B) the maximum level of disposable income is earned.
C) there is no saving and no dissaving.
D) there are no tax payments.
E) induced consumption equals zero.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
23) On a graph of the consumption function, where the consumption function is below the
45 degree line, there is
A) saving.
B) dissaving.
C) zero disposable income.
D) maximum disposable income.
E) no induced consumption.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
24) If your planned consumption expenditure is $600 per month and your disposable
income is $500 per month, your
A) autonomous consumption must be zero per month.
B) dissaving is $100 per month.
C) autonomous consumption is –$100 per month.
D) saving is $100 per month.
E) induced consumption is $600.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
8
25) The slope of the consumption function is
A) equal to the MPC and is less than 1.
B) equal to the MPC and is greater than 1.
C) equal to the MPC and is equal to 1.
D) not equal to the MPC and is equal to 1.
E) not equal to the MPC and is less than 1.
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Relective thinking
26) The above table has data from the nation of Atlantica. Based on these data, autonomous
consumption is
A) $1.8 trillion.
B) $2.6 trillion.
C) $3.2 trillion.
D) $4.0 trillion.
E) $5.8 trillion.
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
27) The above table has data from the nation of Atlantica. Based on these data, when
disposal income equals $3.0 trillion,
A) savings equals $4.0 trillion.
B) savings equals $1. trillion.
C) dissavings equals $4.0 trillion.
D) dissavings equals $1.0 trillion.
E) savings equals $3.0 trillion.
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
28) The above table has data from the nation of Atlantica. Based on these data, at what
point does saving equal zero?
A) None, dissavings is present at all of the above points.
B) None, savings is present at all of the above points.
C) Between disposable income of $0.0 and $1.8 trillion
D) Between disposable income of $4.0 trillion and $5.8 trillion
E) Between disposable income of $2.0 trillion and $3.2 trillion
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Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
29) The above table has data from the nation of Atlantica. 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 $0.0 and $1.5 trillion
D) Between disposable income of $8.0 trillion and $7.5 trillion
E) At disposable income of $6.0
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
30) The above table has data from the nation of Atlantica. Based on these data, when
disposable income equals 8.0 there is
A) dissavings of $7.5 trillion.
B) savings of $15.5 trillion.
C) dissavings of $15.5 trillion.
D) dissavings of $0.5 trillion.
E) savings of $0.5 trillion.
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
31) The above table has data from the nation of Atlantica. Based on these data, when
disposable income equals 2.0 there is
A) dissavings of $1.0 trillion.
B) savings of $1.0 trillion.
C) dissavings of $5.0 trillion.
D) dissavings of $3.0 trillion.
E) savings of $3.0 trillion.
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
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