Question 1

Suppose the consumption function is given by $$C = 1,000 + 0.75Y. If $$disposable income increases by $400, by how much does consumption increase?

Accepted Answer

$$300$$

Question 2

Given the aggregate expenditure function $$AE = C + I + G + NX$$, with $$C = 1,000 + 0.75Y$$, $$I = 2,500$$, $$G = 2,500$$, and $$NX = -1,000$$, what is the equation for $$AE in $$terms of $$Y$$?

Accepted Answer

$$AE = 5,000 + 0.75Y$$

Question 3

If the marginal propensity to consume (MPC) is $$0.8$$, what is the value of the multiplier?

Accepted Answer

$$5$$

Question 4

Which of the following best describes the relationship between planned aggregate expenditure (AE) and actual output (Y) at macroeconomic equilibrium?

Accepted Answer

$$Y = AE$$

Question 5

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

Accepted Answer

Inventories will rise and production will decrease.

Question 6

Suppose autonomous consumption increases by $$200$$ and the marginal propensity to consume is $$0.75. By $$how much will equilibrium output ($$Y^*) $$increase?

Accepted Answer

$$800$$

Question 7

If the marginal propensity to consume (MPC) is $$0.6$$, what is the marginal propensity to save (MPS)?

Accepted Answer

$$0.4$$

Question 8

Which of the following is NOT included in the calculation of planned aggregate expenditure ($$AE$$)?

Accepted Answer

Taxes paid to the government ($$T)$$

Question 9

If the U.S. experiences an increase in exports while imports remain constant, what happens to net exports ($$NX) $$and aggregate expenditure ($$AE$$)?

Accepted Answer

Both $$NX$$ and $$AE$$ increase.

Question 10

Given the consumption function $$C = 1,000 + 0.75Y$$, what is the value of autonomous consumption?

Accepted Answer

$$1,000$$

Question 11

If government purchases ($$G) $$increase by $$500$$ and the marginal propensity to consume is $$0.8$$, what is the total change in equilibrium output ($$Y^*$$)?

Accepted Answer

$$2,500$$

Question 12

Which of the following statements about the multiplier effect is TRUE?

Accepted Answer

The larger the marginal propensity to consume, the larger the multiplier.

Question 13

If the aggregate expenditure function is $$AE = 5,000 + 0.75Y$$, what is the equilibrium level of output ($$Y^*$$)?

Accepted Answer

$$20,000$$

Question 14

Which of the following best explains why the multiplier effect makes the economy more sensitive to changes in aggregate expenditure?

Accepted Answer

An initial change in autonomous expenditure leads to a series of changes in income and consumption.

Question 15

If the marginal propensity to consume (MPC) is $$0.75$$ and planned investment ($$I) $$increases by $$100$$, what is the total increase in equilibrium output ($$Y^*$$)?

Accepted Answer

$$400$$

Question 16

Which of the following is a correct interpretation of the vertical intercept of the consumption function $$C = 1,000 + 0.75Y$$?

Accepted Answer

It represents autonomous consumption, the level of consumption when income is zero.

Question 17

If the U.S. government increases taxes ($$T) $$while holding everything else constant, what is the immediate effect on disposable income ($$Y_D) $$and consumption ($$C$$)?

Accepted Answer

Disposable income and consumption both decrease.

Question 18

Which of the following best describes the role of inventories in determining macroeconomic equilibrium?

Accepted Answer

Inventories adjust when planned aggregate expenditure does not equal output, signaling firms to change production.

Question 19

If net exports ($$NX) $$are negative, what does this imply about the country's trade balance and its effect on aggregate expenditure?

Accepted Answer

The country imports more than it exports, reducing aggregate expenditure.

Question 20

Suppose the marginal propensity to consume (MPC) increases from $$0.6 to$$ $$0.8. $$What happens to the value of the multiplier?

Accepted Answer

It increases from $$2.5 to$$ $$5.$$

Aggregate Expenditure, Macroeconomic Equilibrium, and the Multiplier Effect

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