Question 1

The economy of Finland experienced a setback in 2016 because:

Accepted Answer

A)   of the advent of digital technology.
B)   a drop in the price of oil.
C)   of poor business practices at Nokia.
D)   of climate change.

Question 2

According to the _____, there is a positive relationship between planned investment spending and the expected growth rate of real GDP.

Accepted Answer

A)   paradox of thrift
B)   life-cycle hypothesis
C)   multiplier effect
D)   accelerator principle

Question 3

Income-expenditure equilibrium occurs when:

Accepted Answer

A)   real GDP equals planned aggregate spending.
B)   real GDP equals actual aggregate spending.
C)   real GDP equals unplanned aggregate expenditure.
D)   consumption and investment are equal.

Question 4

In an income-expenditure equilibrium:

Accepted Answer

A)   there are no inventories.
B)   there is no unplanned inventory investment.
C)   inventory investment equals consumption.
D)   there are no savings.

Question 5

If real GDP is less than aggregate expenditure, then inventories will _____, and firms will _____.

Accepted Answer

A)   increase; cut back on future production
B)   fall; decrease the prices of their products
C)   increase; lower their product prices
D)   fall; increase their future production

Question 6

Which formula MOST accurately depicts the expenditure multiplier?

Accepted Answer

A)   1/(1- MPS) 
B)   1/(MPC - 1) 
C)   1/(1 - MP
C)  
D)   1/(1 + MP
C)

Question 7

Which factor will cause a decrease in unplanned inventory investment?

Accepted Answer

A)   an increase in interest rates
B)   an unexpected increase in consumer spending
C)   an increase in the growth rate of real GDP
D)   a sudden decrease in consumer wealth

Question 8

If aggregate expenditures equal $800 billion and real GDP equals $600 billion:

Accepted Answer

A)   unplanned inventory accumulation equals $200 billion.
B)   unplanned inventory accumulation equals -$200 billion.
C)   consumption plus investment equals $200 billion.
D)   actual investment equals -$200 billion.

Question 9

The higher the production capacity of the economy:

Accepted Answer

A)   the higher is planned investment spending.
B)   the lower is planned investment spending.
C)   the higher is actual production.
D)   the lower is current production.

Question 10

If a store has 10,000 CDs at the start of the period and 15,000 CDs at the end, then its inventory investment during the period was _____ CDs.

Accepted Answer

A)   -5,000
B)   0.67
C)   1.5
D)   5,000

Question 11

The accelerator principle states that planned investment spending by firms is:

Accepted Answer

A)   positively related to the expected growth of real GDP.
B)   negatively related to the expected growth of real GDP.
C)   negatively related to the current level of real GDP.
D)   positively related to the current level of real GDP.

Question 12

Other things being equal, investment spending _____ when _____.

Accepted Answer

A)   decreases; firms expect sales to fall
B)   increases; firms have excessive production capacity
C)   increases; the rate of growth of real GDP is low
D)   decreases; the obsolete or worn out physical capital increases

Question 13

The marginal propensity to consume plus the marginal propensity to save must:

Accepted Answer

A)   equal each other.
B)   equal 1.
C)   be less than 1.
D)   be greater than 1.

Question 14

Planned investment spending will decrease if:

Accepted Answer

A)   the interest rate rises.
B)   firms expect the growth of real GDP to increase.
C)   firms are producing near full capacity.
D)   consumer expectations about wealth grow more optimistic.

Question 15

Suppose that the government increases spending by $100 billion as a stimulus package. If the marginal propensity to consume is 0.6, then real GDP will:

Accepted Answer

A)   decrease by $250 billion.
B)   increase by $250 billion.
C)   increase by $600 billion.
D)   decrease by $400 billion.

Question 16

If your disposable personal income increases from $10,000 to $15,000 and your consumption increases from $9,000 to $13,000, your marginal propensity to consume is:

Accepted Answer

A)   0.2.
B)   0.4.
C)   0.6.
D)   0.8.

Question 17

An increase in the marginal propensity to consume:

Accepted Answer

A)   increases the multiplier.
B)   shifts the autonomous investment line upward.
C)   decreases the multiplier.
D)   shifts the autonomous investment line downward.

Question 18

If the marginal propensity to save is 0.3, the size of the multiplier is:

Accepted Answer

A)   3.3.
B)   2.3.
C)   1.3.
D)   0.7.

Question 19

In a simple, closed economy (no government or foreign sector) , if disposable income increases by $1,000 and consumption increases by $600, the marginal propensity to consume is:

Accepted Answer

A)   $600.
B)   $400.
C)   1.67.
D)   0.60.

Question 20

In a simple, closed economy (no government or foreign sector) , if the marginal propensity to save decreases, the marginal propensity to consume will:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain constant.
D)   fluctuate randomly.

Exam 11: Income and Expenditure

If aggregate expenditures equal $800 billion and real GDP equals $600 billion:

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The accelerator principle states that planned investment spending by firms is:

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In a simple, closed economy (no government or foreign sector) , if disposable income increases by $1,000 and consumption increases by $600, the marginal propensity to consume is:

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If the marginal propensity to save is 0.3, the size of the multiplier is:

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The higher the production capacity of the economy:

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Income-expenditure equilibrium occurs when:

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If real GDP is less than aggregate expenditure, then inventories will _____, and firms will _____.

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In a simple, closed economy (no government or foreign sector) , if the marginal propensity to save decreases, the marginal propensity to consume will:

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The economy of Finland experienced a setback in 2016 because:

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Which formula MOST accurately depicts the expenditure multiplier?

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According to the _____, there is a positive relationship between planned investment spending and the expected growth rate of real GDP.

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Other things being equal, investment spending _____ when _____.

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Suppose that the government increases spending by $100 billion as a stimulus package. If the marginal propensity to consume is 0.6, then real GDP will:

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Which factor will cause a decrease in unplanned inventory investment?

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In an income-expenditure equilibrium:

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The marginal propensity to consume plus the marginal propensity to save must:

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Planned investment spending will decrease if:

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If a store has 10,000 CDs at the start of the period and 15,000 CDs at the end, then its inventory investment during the period was _____ CDs.

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An increase in the marginal propensity to consume:

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If your disposable personal income increases from $10,000 to $15,000 and your consumption increases from $9,000 to $13,000, your marginal propensity to consume is:

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If real GDP is less than aggregate expenditure, then inventories will _, and firms will _.

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Other things being equal, investment spending _ when _.

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