12) Which of the following is NOT included in aggregate expenditure?
A) consumption expenditure
B) investment
C) government expenditure
D) taxes
E) net exports
Skill: Level 1: Deinition
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
13) The aggregate expenditure (AE) curve
A) includes expenditures by domestic residents only.
B) includes expenditures on foreign as well as domestic goods.
C) does not include expenditures on either imports or exports.
D) includes all expenditures on domestic goods.
E) adds expenditures on imports because they are consumed in the nation and subtracts
expenditures on exports because they are consumed abroad.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
14) The AE curve illustrates the relationship between
A) aggregate planned expenditure and real GDP.
B) real GDP and actual expenditure.
C) real GDP and the interest rate.
D) the interest rate and aggregate planned expenditure.
E) the quantity of real GDP demanded and the price level.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
31
15) As real GDP ________, aggregate planned expenditure ________.
A) increases; increases
B) increases; decreases
C) decreases; remains the same, because it is independent from real GDP
D) increases; remains the same, because the increase in some components is precisely
ofset by the decrease in others
E) decreases; increases
Skill: Level 1: Deinition
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
16) Aggregate planned expenditure decreases if
A) government expenditure on goods and services increases.
B) exports increase.
C) real GDP decreases.
D) investment increases.
E) autonomous consumption increases.
Skill: Level 1: Deinition
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
17) For each one dollar increase in real GDP, aggregate planned expenditure
A) is unafected.
B) increases by one dollar.
C) increases by less than a dollar.
D) increases by more than a dollar.
E) increases only if autonomous expenditure increases.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
32
18) The above table presents data from the nation of Paciica. When real GDP equals $2.0
trillion, aggregate planned expenditure equals
A) $3.75 trillion.
B) $5.00 trillion.
C) $5.50 trillion.
D) $6.00 trillion.
E) $4.00 trillion.
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
19) The above table presents data from the nation of Paciica. Aggregate planned
expenditure equals $7.5 trillion when real GDP equals
A) $4.0 trillion.
B) $6.0 trillion.
C) $7.5 trillion.
D) $8.0 trillion.
E) $8.5 trillion.
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
33
20) Moving along the aggregate expenditure (AE) curve, when real GDP increases,
aggregate planned expenditures increase
A) by more than real GDP.
B) by the same amount as does real GDP.
C) by less than real GDP.
D) proportionately with real GDP.
E) by the same percentage as does real GDP.
Skill: Level 1: Deinition
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
21) Equilibrium expenditure occurs when
A) aggregate planned expenditure equals real GDP.
B) disposable income equals real GDP.
C) disposable income equals consumption expenditures plus imports.
D) real GDP plus net taxes equals disposable income.
E) real GDP minus net taxes equals disposable income.
Skill: Level 1: Deinition
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
22) Equilibrium expenditure is the level of aggregate expenditure at which
A) aggregate production equals real GDP.
B) aggregate actual expenditure equals real GDP.
C) aggregate planned expenditure equals real GDP.
D) aggregate private expenditure equals real GDP.
E) planned inventory investment equals zero.
Skill: Level 1: Deinition
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
34
23) Equilibrium expenditure is
A) the amount of aggregate expenditure at which aggregate planned expenditure equals
real GDP.
B) when unplanned inventory change is positive.
C) the amount of aggregate expenditure at which aggregate planned expenditure exceeds
real GDP.
D) the amount of aggregate expenditure at which aggregate planned expenditure is less
than real GDP.
E) when unplanned inventory change is zero or negative.
Skill: Level 1: Deinition
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
24) The equilibrium level of aggregate planned expenditure is found where
A) there is no saving and no dissaving.
B) aggregate planned expenditure equals real GDP.
C) net exports is zero.
D) autonomous expenditure equals equilibrium expenditure.
E) the price level is rising at a constant rate.
Skill: Level 1: Deinition
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
25) If aggregate planned expenditure equals GDP, then
A) irms’ inventories exceed planned inventories.
B) irms’ inventories are less than planned inventories.
C) irms’ inventories equal planned inventories.
D) irms do not have any inventories.
E) irms’ actual investment has no relationship to their planned investment.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
35
26) If aggregate planned expenditure equals GDP, then
A) there must be no change in irms’ inventories.
B) the change in irms’ inventories must be positive.
C) the change in irms’ inventories must be equal to the planned change.
D) the change in irms’ inventories must be negative.
E) actual aggregate expenditure might be greater than, equal to, or less than real GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
27) If actual aggregate expenditure equals aggregate planned expenditure, then
A) there is never any change in irms’ inventories.
B) unplanned inventory changes are positive.
C) irms obtain the desired change in their inventories.
D) unplanned inventory changes are negative.
E) actual aggregate expenditure might be greater than, equal to, or less than real GDP.
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
28) If aggregate planned expenditures equal real GDP, then
A) inventories increase above their planned levels and businesses decrease their
production.
B) inventories decrease below their planned levels and businesses increase their
production.
C) there is no equilibrium level of real GDP.
D) inventories decrease below their planned levels and businesses decrease their
production.
E) unplanned inventory changes equal zero.
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
36
29) In the aggregate expenditure (AE) model, the economy is driven to its equilibrium by
changes in
A) government expenditures on goods and services that are the result of changes in real
GDP.
B) induced expenditures that are the result of changes in real GDP.
C) investment that are the result of changes in real GDP.
D) autonomous expenditures that are the result of changes in real GDP.
E) net taxes that are the result of changes in real GDP.
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
30) Unplanned inventories increase when
A) real GDP is less than aggregate planned expenditure.
B) actual aggregate expenditure is greater than aggregate planned expenditure.
C) actual aggregate expenditure is equal to GDP.
D) aggregate planned expenditure is less than GDP.
E) actual aggregate expenditure is less than GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
31) When the change in unplanned inventories is positive, then
A) real GDP is less than aggregate planned expenditure.
B) real GDP equals aggregate planned expenditure.
C) real GDP is larger than aggregate planned expenditure.
D) economic growth will occur as the economy returns to equilibrium.
E) planned inventories will increase in order to return to equilibrium.
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
37
32) According to the aggregate expenditure model, when faced with unwanted inventory,
irms
A) are forced to go out of business.
B) decrease production.
C) immediately cut prices.
D) increase production.
E) do nothing and wait for equilibrium to be restored.
Skill: Level 1: Deinition
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
33) If real GDP ________ aggregate planned expenditure, then as a result irms ________
production.
A) equals; increase
B) exceeds; decrease
C) is less than; decrease
D) equals; decrease
E) exceeds; increase
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
34) A country reports that unplanned inventories increased during 2012. The increase in
unplanned inventories leads to
A) the government decreasing production, which decreases GDP.
B) consumers increasing their consumption expenditure, which increases GDP.
C) irms decreasing production, which decreases GDP.
D) irms increasing production, which increases GDP.
E) actual aggregate expenditure being diferent than real GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
38
35) If a irm accumulates unwanted inventories, then it
A) will increase its production.
B) must hire more workers.
C) has actual investment that is less than its planned investment.
D) will decrease its production.
E) has actual investment equal to its planned investment.
Skill: Level 1: Deinition
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
36) If irms’ inventories exceed their planned inventories, irms
A) increase production.
B) decrease production.
C) increase GDP.
D) increase income.
E) increase employment.
Skill: Level 1: Deinition
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
37) In the aggregate expenditure (AE) model, when real GDP exceeds aggregate planned
expenditure, actual inventories ________ planned inventories and real GDP ________.
A) exceed; increases
B) exceed; decreases
C) are less than; increases
D) are less than; decreases
E) exceed; does not change
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
39
38) When aggregate planned expenditure is less than GDP,
A) irms increase production until the economy reaches equilibrium expenditure.
B) irms decrease production until the economy reaches equilibrium expenditure.
C) the economy might be at its equilibrium expenditure and if it is, irms do not change
their production.
D) the economy deinitely is at its equilibrium expenditure and irms do not change
production.
E) the economy deinitely is at its equilibrium expenditure but even so, irms decrease
production.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
39) If real GDP exceeds aggregate planned expenditure, then the change in unplanned
inventories is ________ and irms ________ production.
A) positive; increase
B) positive; decrease
C) negative; increase
D) negative; decrease
E) zero; do not change
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
40) When aggregate planned expenditure ________ real GDP, there are unplanned ________
in inventories, and irms ________ production, therefore decreasing real GDP.
A) is less than; increases; decrease
B) exceeds; decreases; decrease
C) is less than; increases; increase
D) exceeds; increases; increase
E) is less than; decreases; decrease
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Relective thinking
40