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Exam 14: Aggregate Expenditure Multiplier

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Question 41

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Jack Nelson, a supervisor in the hardware department at Sears, received a $3,000 increase in his Annual disposable income. Suppose his marginal propensity to consume is 0.80. How much of the $3,000 increase will Jack spend on consumption?

A) $2,500
B) $3,000
C) $2,400
D) $2,750
E) $2,200

F) A) and E)
G) B) and E)

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Question 42

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If the price level increases, the AE curve shifts

A) downward and there is a movement along the AD curve.
B) upward and the AD curve shifts rightward.
C) upward and there is a movement along the AD curve.
D) downward and the AD curve shifts rightward.
E) upward and the AD curve shifts leftward.

F) None of the above
G) A) and B)

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Question 43

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When the price level _{--------------------} , equilibrium expenditure _{--------------------}and the quantity of real GDP demanded _{--------------------}.

$\begin{array} { c c c c c c } \hline \begin{array} { r } \text { Real GDP, } Y \\\text { (trillions of }\end{array} & \begin{array} { c } \text { Consumption } \\\text { expenditure, } C \\\text { (trillions of }\end{array} & \begin{array} { c } \text { Investment, } I \\\text { (trillions of }\end{array} & \begin{array} { c } \text { Government } \\\text { expenditure, } G \\\text { (trillions of }\end{array} & \begin{array} { c } \text { Exports, } X \\\text { (trillions of }\end{array} & \begin{array} { c } \text { Imports, } M \\\text { (trillions of }\end{array} \\\text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars ) } \\\hline 0.00 & 0.00 & 1.75 & 1.00 & 0.75 & 0.00 \\3.00 & 2.00 & 1.75 & 1.00 & 0.75 & 0.75 \\6.00 & 4.00 & 1.75 & 1.00 & 0.75 & 1.50 \\9.00 & 6.00 & 1.75 & 1.00 & 0.75 & 2.25 \\12.00 & 8.00 & 1.75 & 1.00 & 0.75 & 3.00 \\\hline\end{array}$ The above table gives data for the nation of Mojo. At what level of real GDP is the unplanned inventory change equal to $1.75 trillion?

An economy has no imports or income taxes. The MPC is 0.75 and real GDP is $120 billion. businesses increase investment by $4 billion. The new level of real GDP is

The slope of the consumption function is

If firms' inventories exceed their planned inventories, firms

Equilibrium expenditure is the level of expenditure at which

When aggregate planned expenditure exceeds real GDP, there is

In the figure above, if real GDP is $6 trillion, aggregate planned expenditure is

When aggregate planned expenditure is less than GDP,

The expenditure multiplier explains how a change in