Question 1

Which of the following best describes the condition for equilibrium in the goods market in a simple two-sector economy (no government, no foreign trade)?

Accepted Answer

$$Y = C + I$$

Question 2

Given the consumption function $$C = 200 + 0.8Y$$, what is the corresponding saving function?

Accepted Answer

$$S = 0.2Y - 200$$

Question 3

If the marginal propensity to consume (MPC) is 0.75, what is the value of the multiplier?

Accepted Answer

$$4$$

Question 4

Suppose in a two-sector economy, $$C = 100 + 0.9Y$$ and $$I = 50. $$What is the equilibrium level of output ($$Y^*$$)?

Accepted Answer

$$Y^* = 1500$$

Question 5

If the economy is operating at $$Y = 1400$$ with $$C = 100 + 0.9Y$$ and $$I = 50$$, what is the level of unplanned investment?

Accepted Answer

$$-310$$

Question 6

Which of the following would cause an upward shift in the aggregate consumption function?

Accepted Answer

An increase in expected future income

Question 7

If planned aggregate expenditure ($$AE) is $$less than actual output ($$Y$$), what will happen to inventories and output?

Accepted Answer

Inventories will rise and output will decrease

Question 8

Which equation correctly represents the relationship between saving and investment at equilibrium in a simple closed economy?

Accepted Answer

$$S = I$$

Question 9

If the marginal propensity to consume (MPC) increases, what happens to the size of the multiplier?

Accepted Answer

The multiplier increases

Question 10

Suppose the government increases its spending by $$20$$ billion and the MPC is $$0.8. By $$how much will equilibrium output increase, assuming no crowding out?

Accepted Answer

$$100$$ billion

Question 11

Which of the following is NOT a component of aggregate planned expenditure in an open economy?

Accepted Answer

Unplanned inventory changes

Question 12

If the consumption function is $$C = 100 + 0.75Y$$ and income increases by $$200$$, by how much does consumption increase?

Accepted Answer

$$150$$

Question 13

Which of the following best describes an autonomous variable in the context of the multiplier?

Accepted Answer

A variable that does not depend on the state of the economy

Question 14

If actual investment is greater than planned investment, what does this imply about inventories?

Accepted Answer

Inventories have increased unexpectedly

Question 15

Which of the following would shift the consumption function upward?

Accepted Answer

An increase in household wealth

Question 16

If the marginal propensity to save (MPS) is $$0.2$$, what is the value of the multiplier?

Accepted Answer

$$5$$

Question 17

Which of the following is true at the equilibrium level of output in the Keynesian cross model?

Accepted Answer

Planned aggregate expenditure equals actual output

Question 18

If the marginal propensity to consume is $$0.6$$ and there is an autonomous increase in investment of $$30$$ billion, what is the total change in equilibrium output?

Accepted Answer

$$75$$ billion

Question 19

Which of the following best explains why the multiplier in the real world is often less than the simple theoretical value?

Accepted Answer

Leakages such as taxes, imports, and saving reduce the size of the multiplier

Question 20

If the consumption function is $$C = 50 + 0.9Y$$ and income is $$1000$$, what is the level of saving?

Accepted Answer

$$50$$

Aggregate Expenditure and Equilibrium Output: Core Concepts in Macroeconomics

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