Multiple Choice Questions:
1. If output was greater than the equilibrium level in the aggregate expenditure model, unplanned inventory investment would be _____, leading real output to ______.
a. Positive; increase
b. Positive; decrease
c. Negative; increase
d. Negative; decrease
2. If output was lower than its equilibrium level,
a. Inventories will exceed their desired level.
b. Output will rise.
c. Total expenditures will fall.
d. The marginal propensity to consume will rise.
3. Output equals income
a. Always.
b. Only in equilibrium.
c. Only when MPC equals MPS.
d. Unless inventories are changing.
4. In addition to consumption, the major components of aggregate expenditures do not include
a. Investment.
b. Saving.
c. Government purchases.
d. Net exports.
e. All of the above are included in aggregate expenditures.
5. When the autonomous level of investment increases,
a. At first, inventories will fall below desired levels.
b. Output will rise.
c. Consumption spending will rise.
d. All of the above will occur.
6. Equilibrium output will tend to increase when
a. Planned investment increases.
b. Unplanned investment is positive.
c. Either planned investment increases or unplanned investment is positive.
d. Either planned investment decreases or unplanned investment is negative.
7. Which of the following would increase aggregate expenditures?
a. Households become more optimistic about the future.
b. Interest rates fall.
c. Foreign economies improve.
d. Government purchases increase.
e. Any of the above would increase aggregate expenditures.
8. Real GDP would tend to decrease when planned investment ____ or unplanned inventory investment ______.
a. Increases; increases
b. Increases; decreases
c. Decreases; increases
d. Decreases; decreases