Multiple Choice Answers
If autonomous investment falls by $50, then:
A. the consumption function will shift down.
B. the consumption function will shift up.
C. the aggregate expenditure function will shift down.
D. the aggregate expenditure function will shift up.
Given AE = $1,000 + .8Y, when income equals $6,000, expenditures will be:
The aggregate expenditure function:
A. gives the relationship between an economy’s expenditures and its income.
B. shifts upward if aggregate household wealth declines.
C. implies that annual expenditures in an economy are zero if income is zero.
D. is a horizontal line.
The multiplier model is designed to answer which one of the following questions?
A. What causes changes in aggregate expenditures?
B. How will output be affected by changes in aggregate expenditures?
C. How did the economy arrive at its current price and output level?
D. How will prices respond to changes in aggregate expenditures?
The multiplier process works because when expenditures don’t equal production:
A. businesses adjust prices.
B. businesses adjust production.
C. potential output adjusts.
D. the government steps in to adjust production.
In the multiplier model, induced expenditures are a function of:
A. consumer confidence.
C. interest rates.
A multiplier of 10 means that a $100 billion increase in autonomous investment will:
A. decrease equilibrium real GDP by $100 billion.
B. increase equilibrium real GDP by $10 billion.
C. increase equilibrium real GDP by $100 billion.
D. increase equilibrium real GDP by $1,000 billion.
Graphically, the equilibrium level of real income occurs where the expenditures function intersects the:
A. horizontal axis.
B. vertical axis.
C. aggregate supply curve.
D. 45-degree line going through the origin.
If the mpe is 0.8 and autonomous expenditures are $2,000, then the multiplier equation implies that total equilibrium expenditures in the economy will be:
For levels of income to the left of the point where the expenditure function intersects the aggregate production line:
A. planned expenditures exceed production.
B. production exceeds planned expenditures.
C. a surplus of goods exists.
D. expenditures equal income.
Refer to the graph above. If the economy in the graph is at point A, the most appropriate fiscal policy to return the economy to potential output would be:
A. a cut in the income tax rate.
B. a decrease in welfare payments.
C. an increase in government spending
D. an increase in the money supply
A shift in the AE curve from AE0 to AE1 could be due to:
A. a decrease in net exports.
B. an increase in autonomous expenditures.
C. an increase in government spending.
D. a decrease in taxes.
Refer to the graph above. A decrease in foreign income is most likely to cause the AE curve to shift from:
A. AE3 to AE1.
B. AE2 to AE1.
C. AE0 to AE2.
D. AE0 to AE1.