978-0133460629 Chapter 14 Part 10

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4) Investment decreases by $300 billion, government expenditure is unchanged, and

exports increase by $500 billion. As a result, autonomous expenditure ________, the total

expenditure ________, and equilibrium real GDP ________.

A) decreases by $300 billion; decreases; decreases by more than $300 billion

B) increases by $500 billion; is unchanged; increases by more than $500 billion

C) is unchanged; is unchanged; is unchanged

D) increases by $800 billion; increases; increases by more than $800 billion

E) increases by $200 billion; increases; increases by more than $200 billion

Skill: Level 4: Applying models

Section: Integrative

Status: Old

AACSB: Analytical thinking

5) Exports decrease by $500 billion, investment increases by $300 billion, and government

expenditure increases by $200 billion. As a result, autonomous expenditures ________ , total

expenditures ________ , and equilibrium real GDP ________.

A) decreases by $300 billion; decreases; decreases by more than $300 billion

B) is unchanged; is unchanged; is unchanged

C) decreases by $200 billion; decreases; decreases by more than $200 billion

D) increases by $500 billion; increases; increases by more than $500 billion

E) increases by $3500 billion; increases; increases by more than $300 billion

Skill: Level 4: Applying models

Section: Integrative

Status: Old

AACSB: Analytical thinking

6) A ________ in the real interest rate ________ consumption expenditure and shifts the

consumption function ________.

A) fall; increases; upward

B) fall, decreases; upward

C) rise; decreases; upward

D) rise, increases; downward

E) fall; increases; downward

Skill: Level 4: Applying models

Section: Integrative

Status: New

AACSB: Relective thinking

7) When irms reduce their target level of inventories, planned investment ________, and

equilibrium expenditure and real GDP ________.

A) falls; decrease

B) falls; increase

C) rises; decrease

D) rises; increase

E) falls; remains the same

Skill: Level 4: Applying models

Section: Integrative

Status: New

AACSB: Relective thinking

8) When a(n) ________ in investment increases consumption and real GDP, part of the

increase in expenditure is on ________, not ________ goods and services.

A) increase; imports; foreign-produced

B) decrease; imports; U.S.-produced

C) decrease; exports ; U.S.-produced

D) increase; imports; U.S.-produced

E) increase; exports; U.S.-produced

Skill: Level 4: Applying models

Section: Integrative

Status: New

AACSB: Analytical thinking

9) When an expansion is triggered by a(n) ________ in autonomous expenditure, the

economy turns the corner into ________, and aggregate planned expenditure exceeds real

GDP. Firms’ inventories ________.

A) increase; expansion; increase

B) increase; recession; increase

C) increase; recession; decrease

D) decrease; expansion; decrease

E) increase; expansion; decrease

Skill: Level 4: Applying models

Section: Integrative

Status: New

AACSB: Analytical thinking

10) When a recession is triggered by a(n) ________ in autonomous expenditure, and as the

economy turns the corner into ________, real GDP exceeds aggregate planned expenditure

and unplanned inventories ________.

A) decrease; recession; decrease

B) decrease; recession; increase

C) decrease; expansion; increase

D) decrease; expansion; decrease

E) increase; recession; increase

Skill: Level 4: Applying models

Section: Integrative

Status: New

AACSB: Analytical thinking

11) To cut inventories, irms produce ________ and real GDP ________, which ________

people’s incomes.

A) more; rises; raises

B) more; falls; lowers

C) less; falls; lowers

D) less; rises; lowers

E) less; rises; raises

Skill: Level 4: Applying models

Section: Integrative

Status: New

AACSB: Analytical thinking

12) The consumption function shifted upward from 1960 to 2013 because as economic

growth brought ________ expected future income and ________ wealth, people chose to

________ their consumption expenditure from a given level of income.

A) higher; less; increase

B) higher; less; decrease

C) lower; greater; increase

D) higher; greater; increase

E) higher; greater; decrease

Skill: Level 5: Critical thinking

Section: Integrative

Status: New

AACSB: Analytical thinking

13) During the recession of 2009, the consumption function temporarily shifted ________ as

a fall in house prices ________ wealth and encouraged people to ________ more.

A) downward; lowered; spend

B) downward; raised; save

C) downward; raised; spend

D) upward; lowered; save

E) downward; lowered; save

Skill: Level 5: Critical thinking

Section: Integrative

Status: New

AACSB: Analytical thinking

14.7 Essay: Expenditure Plans and Real GDP

1) Deine autonomous consumption and explain how it is represented on a consumption

function graph.

Skill: Level 2: Using deinitions

Section: Checkpoint 14.1

Status: Old

AACSB: Relective thinking

2) What is the consumption function? What factor leads to a movement along the

consumption function?

Skill: Level 1: Deinition

Section: Checkpoint 14.1

Status: Old

AACSB: Written and oral communication

3) List and explain factors that inluence consumption expenditure.

Skill: Level 2: Using deinitions

Section: Checkpoint 14.1

Status: Old

AACSB: Written and oral communication

4) How is it possible for consumption expenditure to be positive even when disposable

income is zero?

Skill: Level 2: Using deinitions

Section: Checkpoint 14.1

Status: Old

AACSB: Written and oral communication

5) What is the marginal propensity to consume? Can the marginal propensity to consume

be greater than 1?

Skill: Level 1: Deinition

Section: Checkpoint 14.1

Status: Old

AACSB: Written and oral communication

6) What does the marginal propensity to consume measure and how is it related to the

consumption function?

Skill: Level 2: Using deinitions

Section: Checkpoint 14.1

Status: Old

AACSB: Written and oral communication

7) What is the relationship between U.S. real GDP and U.S. imports?

Skill: Level 1: Deinition

Section: Checkpoint 14.1

Status: Old

AACSB: Relective thinking

8) Discuss the link between real GDP and imports.

Skill: Level 1: Deinition

Section: Checkpoint 14.1

Status: Old

AACSB: Written and oral communication

9) The above table has data on the consumption function in the nation of Mojo.

a. What is the amount of autonomous consumption expenditure?

b. What is the marginal propensity to consume?

Skill: Level 2: Using deinitions

Section: Checkpoint 14.1

Status: Old

AACSB: Analytical thinking

10) When disposal income is $5.0 trillion, consumption expenditure is $4.5 trillion. When

disposal income is $6.0 trillion, consumption expenditure is $5.0 trillion. What is the

marginal propensity to consume?

Skill: Level 3: Using models

Section: Checkpoint 14.1

Status: Old

AACSB: Analytical thinking

11) At $10,000 of disposable income, Audrey’s consumption expenditure was $11,000. At

$20,000 of disposable income, Audrey‘s consumption expenditure was $19,000. What is

Audrey’s marginal propensity to consume?

Skill: Level 3: Using models

Section: Checkpoint 14.1

Status: Old

AACSB: Analytical thinking

14.8 Essay: Equilibrium Expenditure

1) What is the diference between induced and autonomous expenditure? Which

components of aggregate expenditure fall under which category?

Skill: Level 2: Using deinitions

Section: Checkpoint 14.2

Status: Old

AACSB: Written and oral communication

2) Deine induced expenditure and autonomous expenditure. Which expenditure items are

induced expenditure and which are autonomous expenditure?

Skill: Level 2: Using deinitions

Section: Checkpoint 14.2

Status: Old

AACSB: Written and oral communication

3) List the components of aggregate expenditure and describe how each of them changes

as real GDP increases.

Skill: Level 2: Using deinitions

Section: Checkpoint 14.2

Status: Old

AACSB: Written and oral communication

4) “Similar to imports, U.S. exports depend on the level of U.S. real GDP so that if real GDP

increases, U.S. exports increase.” Explain whether the previous sentence is correct or

incorrect.

Skill: Level 2: Using deinitions

Section: Checkpoint 14.2

Status: Old

AACSB: Written and oral communication

5) “Aggregate planned expenditure is the sum of planned consumption expenditure,

investment, government expenditures on goods and services, and exports minus imports.”

Is the previous statement correct or incorrect?

Skill: Level 1: Deinition

Section: Checkpoint 14.2

Status: Old

AACSB: Relective thinking

6) What is unplanned investment? How does it occur?

Skill: Level 2: Using deinitions

Section: Checkpoint 14.2

Status: Old

AACSB: Written and oral communication

7) If unplanned inventory changes are positive, what is the relationship between aggregate

planned expenditure and real GDP?

Skill: Level 2: Using deinitions

Section: Checkpoint 14.2

Status: Old

AACSB: Relective thinking

8) Explain the relationship between real GDP and aggregate planned expenditure, AE.

What change to inventories takes place when the two are not equal?

Skill: Level 3: Using models

Section: Checkpoint 14.2

Status: Old

AACSB: Written and oral communication

9) If real GDP exceeds aggregate planned expenditure, what happens to a irm’s unplanned

inventories?

Skill: Level 2: Using deinitions

Section: Checkpoint 14.2

Status: Old

AACSB: Written and oral communication

10) At the equilibrium level of aggregate expenditure, what does aggregate expenditure

equal? What happens at other levels of real GDP to bring about an equilibrium?

their production, so output increases and real GDP increases. At levels of real GDP where

aggregate expenditure is less than real GDP, business inventories are greater than their

target levels. In this situation, businesses decrease their production, so output decreases

and real GDP decreases.

Skill: Level 2: Using deinitions

Section: Checkpoint 14.2

Status: Old

AACSB: Written and oral communication

11) “If aggregate planned expenditure exceeds real GDP, then aggregate expenditure and

real GDP will increase.” Explain whether the previous sentence is correct or incorrect.

Skill: Level 2: Using deinitions

Section: Checkpoint 14.2

Status: Old

AACSB: Written and oral communication

12) Suppose that irms ind that their inventories are less than planned. In this case, what

is the initial relationship between aggregate planned expenditure and real GDP? Using the

aggregate expenditure model, what adjustments, if any, take place?

Skill: Level 3: Using models

Section: Checkpoint 14.2

Status: Old

AACSB: Written and oral communication

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