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Exploring Macroeconomics 5th Edition Robert L. Sexton - Solutions
8. If government purchases increased by $20 billion, other things being equal, what would be the resulting change in aggregate demand, and how much of that change would be a change in consumption, if the MPC werea. 1/3?b. 1/2?c. 2/3?d. 3/4?e. 4/5?
7. What would the multiplier be if the marginal propensity to consume wasa. 1/3?b. 1/2?c. 3/4?
6. What is a recessionary gap? What would be the appropriate fiscal policy to combat or offset one? What is an inflationary gap? What would be the appropriate fiscal policy to combat or offset one?
If the economy was operating on a completely flat segment of the short-run aggregate supply curve, an increase in aggregate demand woulda. increase output and increase the price level.b. increase output and decrease the price level.c. decrease output and increase the price level.d. decrease output
Which of the following would shift both the aggregate expenditure function and aggregate demand?a. an increase in consumption because disposable income roseb. an increase in consumption because the price level fellc. an increase in consumption because of increased consumer optimismd. All of the
When the price level falls,a. consumption increases because real wealth increases.b. investment rises because interest rates decline.c. net exports rise because exchange rates decline.d. all of the above are true.
Investment can depend ona. expectations.b. taxes.c. interest rates.d. current income.e. all of the above.
If the MPC equals 0.5,a. the expenditure multiplier will equal 2.b. a $5 billion increase in investment would tend to increase output by $10 billion.c. the expenditure multiplier is less than if the MPC 0.8.d. all of the above are true.
Equilibrium output would tend to rise whena. autonomous expenditures increase.b. the MPC increases.c. either autonomous expenditures increase or the MPC increases.d. neither autonomous expenditures increase nor the MPC increases.
Which of the following is true?a. A lower price level shifts the aggregate expenditure function upward, moving the economy down along the aggregate demand curve.b. A lower price level shifts the aggregate expenditure function upward, shifting the aggregate demand curve to the right.c. A lower price
Real GDP would tend to decrease when planned investment ____ or unplanned inventory investment ______.a. increases; increasesb. increases; decreasesc. decreases; increasesd. decreases; decreases
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.
Equilibrium output will tend to increase whena. 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.
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.
In addition to consumption, the major components of aggregate expenditures do not includea. investment.b. saving.c. government purchases.d. net exports.e. All of the above are included in aggregate expenditures.
Output equals incomea. always.b. only in equilibrium.c. only when MPC equals MPS.d. unless inventories are changing.
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.
If output was greater than the equilibrium level in the aggregate expenditure model, unplanned inventory investment would be _____, leading real output to ______.a. positive; increaseb. positive; decreasec. negative; increased. negative; decrease
If output was less than the equilibrium level in the aggregate expenditure model, people would be trying to buy ______ goods and services than are being produced, so producers would _____ the amount of production.a. more; increaseb. more; decreasec. less; increased. less; decrease
Which of the following need not be equal at equilibrium in the aggregate expenditure model?a. income and outputb. aggregate expenditures and outputc. consumption and incomed. All of the above must be equal at equilibrium in the aggregate expenditure model.
If the MPS is 0.25, which of the following is true?a. The slope of the consumption function would be 0.75.b. The MPC is 0.75.c. Consumption would not always be 75 percent of income.d. All of the above are true.
If an economy’s MPC was 0.8, which of the following is true?a. The MPS would be 1 divided by 0.8, or 0.125.b. Consumption would always be four-fifths of income.c. The slope of the consumption function would also be 0.8.d. An increase in income would not result in four times as large an increase
If an economy’s marginal propensity to consume was 0.75, which of the following is not true?a. The consumption function would have a slope of 0.75.b. The marginal propensity to save would be 0.25.c. Increases in disposable income would increase consumption spending by three times as much as it
If autonomous consumption fell, it could have been caused bya. falling interest rates.b. falling household debt.c. more optimistic expectations about future disposable income.d. increasing real wealth.e. none of the above.
Autonomous consumption will increase whena. real wealth increases.b. the interest rate increases.c. household debt increases.d. any of the above occur.
Demand for consumer goods will be affected by which of the following?a. disposable incomeb. credit conditionsc. the level of debt outstandingd. expectations about the futuree. all of the above
On the flat part of a short-run aggregate supply curve, a decrease in aggregate demand will primarily decrease real output and not change the price level. True or False.
In the long run, an increase in government purchases will increase aggregate demand but not real output. True or False.
The price level has no effect on real output in the long run. True or False.
When the aggregate expenditures function shifts up because of an increase in autonomous expenditures due to increased optimism, aggregate demand will shift right. True or False.
A change in the price level would shift the aggregate expenditure function but not aggregate demand. True or False.
An increase in the price level shifts up the aggregate expenditure function. True or False.
An increase in the price level would increase investment but decrease net exports. True or False.
The components of aggregate demand depend on the price level. True or False.
The aggregate expenditure model is best seen as a model of aggregate demand, and not a complete model of the economy. True or False.
An autonomous increase in saving would also be a decrease in autonomous consumption, resulting in decreased output, in the aggregate expenditure model. True or False.
Investment as well as consumption spending can depend on current income. True or False.
If MPC equals 0.75, the expenditure multiplier equals True or False.
The greater is MPC, the greater is the expenditure multiplier. True or False.
Whenever a component of autonomous expenditures increases, consumption will tend to increase as a result. True or False.
The multiplier process takes place almost instantaneously. True or False.
An increase of $10 million in autonomous consumption has the same effect on output as a $10 million increase in autonomous investment. True or False.
The expenditure multiplier applies to any increase in autonomous expenditures. True or False.
Increasing planned investment would tend to increase output, but positive unplanned inventory investment would tend to decrease output. True or False.
When unplanned inventory investment is negative, output will tend to fall. True or False.
If businesspeople are confident that the economy will be good in the future, output tends to increase. True or False.
Planned investment is sensitive to firms’ perceptions about the future. True or False.
If investment, government purchases, and net exports are autonomous, the aggregate expenditures curve will have the same slope as the consumption function. True or False.
The greater is savings, for a given level of income, the greater is aggregate expenditures. True or False.
When output is less than aggregate expenditures, output will fall. True or False.
In the aggregate expenditure model, when inventories fall below desired levels, output will rise. True or False.
When output is greater than the equilibrium level, inventories would build up above desired levels and producers would reduce output. True or False.
Income equals output in the economy only in equilibrium. True or False.
Aggregate expenditures always equal consumption expenditures. True or False.
When your disposable income rises, both your total consumption and your total saving rise. True or False.
The greater is the MPS, the steeper is the slope of the consumption function. True or False.
If your MPC was equal to 0.5, your MPS would also be 0.5. True or False.
The higher is MPC, the lower is MPS. True or False.
If your disposable income increased by $10,000 and as a result, your consumption spending increased by $8,000, you would have a marginal propensity to consume of 0.8. True or False.
Consumption spending depends most importantly on people’s expected future disposable income. True or False.
A decrease in consumer confidence would tend to reduce consumption spending. True or False.
If either interest rates fell or the level of household debt rose, autonomous consumption would tend to fall. True or False.
An increase in property values or a stock market boom would tend to reduce autonomous consumption. True or False.
Disposable income is one of the dominant factors in determining the demand for consumer goods. True or False.
The aggregate expenditure approach assumes that prices and wages are constant until we reach full employment. True or False.
When we assume the price level is constant, we do not have to distinguish real variable changes from nominal variable changes. True or False.
In the aggregate expenditure model, when total spending increases, firms increase their output and hire more workers. True or False.
The aggregate expenditure model could not explain the _____________ of the 1970s.
If the short-run aggregate supply curve slopes upward, an increase in aggregate demand will increase real output _____________ than aggregate expenditures in the short run.
The aggregate supply curve must be _____________ in the long run.
When the aggregate expenditure curve shifts up for reasons other than changes in the price level, the aggregate demand curve shifts _____________.
Changes in any of the components of aggregate expenditures for any reason other than a change in the _____________ or _____________ will also shift the aggregate demand curve.
In terms of the aggregate expenditure model, a fall in the price level shifts the aggregate expenditures curve _____________.
Consumption, investment, and net exports all increase as a result of a _____________ in the price level.
To go from the aggregate expenditure model to aggregate demand, we need to add how the _____________ affects each of the aggregate expenditure components.
The _____________ is MPC, the smaller is the expenditure multiplier.
When autonomous investment increases, the level of consumption will _____________ as a result.
The expenditure multiplier is equal to 1 divided by _____________, when consumption is the only component of aggregate expenditures.
An increase in autonomous government purchases by$2 billion will increase output by _____________$2 billion in the simple Keynesian model.
In equilibrium, unplanned business investment _____________ zero.
When unplanned inventory investment is _____________, output will tend to fall.
One reason that investment contributes to the business cycle is that _____________ investment responds dramatically to perceptions about future changes in business activity.
Only in equilibrium do aggregate expenditures _____________ output.
In addition to consumption, the major components of aggregate expenditures are _____________, _____________, and _____________.
When aggregate expenditures exceed output, output will _____________.
When inventories rise above desired levels, output will _____________.
In the Keynesian model, if output were lower than its equilibrium level, inventories would _____________ desired levels and producers would _____________ output.
Aggregate _____________ equal _____________ when the economy is in equilibrium.
Income and _____________ are always the same in the economy.
Consumption spending is partly _____________, or independent of income, and partly _____________, or dependent on income.
The MPC is equal to the _____________ of the consumption function.
The MPC and MPS must add up to _____________.
Your marginal propensity to save is equal to the change in _____________ divided by the change in _____________.
The more you spend out of any given increase in income, the _____________ your marginal propensity to consume.
Your marginal propensity to consume is equal to the change in _____________ divided by the change in _____________.
Personal consumption spending depends most importantly on your current _____________.
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