Question 1

Which equation correctly represents aggregate planned expenditure (AE) in the simple aggregate expenditure model described in the study materials?

Accepted Answer

$$AE = C + I + G + X - IM$$

Question 2

Given the consumption function $$C = 0.8Y - 80$$, what is the marginal propensity to consume (MPC)?

Accepted Answer

$$MPC = 0.8$$

Question 3

If real GDP ($$Y) is$$ $$1000$$, what is the value of planned consumption ($$C) $$using the function $$C = 0.8Y - 80$$?

Accepted Answer

$$C = 720$$

Question 4

Which of the following is considered a leakage in the circular flow model?

Accepted Answer

Imports ($$IM)$$

Question 5

If injections ($$I + G + X) $$are greater than leakages ($$S + T + IM$$), what happens to real GDP ($$Y) $$according to the bathtub model?

Accepted Answer

Real GDP increases

Question 6

Using the aggregate expenditure equation $$AE = 500 + 0.5Y$$, what is the equilibrium level of real GDP ($$Y$$)?

Accepted Answer

$$Y = 1000$$

Question 7

If the marginal propensity to save (MPS) is $$0.2$$, what is the marginal propensity to consume (MPC)?

Accepted Answer

$$MPC = 0.8$$

Question 8

Which row in the table represents equilibrium, where aggregate planned expenditure equals real GDP?

Accepted Answer

Row C

Question 9

If real GDP ($$Y) is$$ $$1200$$, what is the value of planned imports ($$IM) $$using the function $$IM = 0.3Y$$?

Accepted Answer

$$IM = 360$$

Question 10

Which of the following best describes autonomous spending in the aggregate expenditure model?

Accepted Answer

Spending that does not depend on real GDP

Question 11

If aggregate planned expenditure ($$AE) is $$less than real GDP ($$Y$$), what is the effect on unplanned inventory changes?

Accepted Answer

Unplanned inventories increase

Question 12

Which formula correctly expresses the relationship between disposable income ($$YD$$), consumption ($$C$$), and savings ($$S$$)?

Accepted Answer

$$C + S = YD$$

Question 13

If the marginal propensity to import (MPIM) is $$0.3$$, what does this mean?

Accepted Answer

For every dollar increase in income, $$0.30 is $$spent on imports

Question 14

If leakages exceed injections in the economy, what is the expected change in real GDP ($$Y$$)?

Accepted Answer

Real GDP decreases

Question 15

Which of the following is an example of induced spending in the aggregate expenditure model?

Accepted Answer

Planned consumption spending ($$C)$$

Question 16

If the government increases its purchases ($$G) by$$ $$50$$, what is the immediate effect on aggregate planned expenditure ($$AE$$)?

Accepted Answer

AE increases by $$50$$

Question 17

In the aggregate expenditure model, what is the significance of the 45º line on the AE vs. Y graph?

Accepted Answer

It represents points where AE equals real GDP ($$Y)$$

Question 18

If disposable income ($$YD) is$$ $$900$$, what is the value of savings ($$S) $$using $$S = 0.2YD$$?

Accepted Answer

$$S = 180$$

Question 19

Which of the following statements about equilibrium expenditure is correct?

Accepted Answer

Equilibrium occurs when aggregate planned expenditure equals real GDP

Question 20

If the tax ($$T) is$$ $$100$$ and real GDP ($$Y) is$$ $$1200$$, what is disposable income ($$YD$$)?

Accepted Answer

$$YD = 1100$$

Chapter 10 for final exam studying

Study Guide - Practice Questions