Q: Which of the following is the correct formula for the multiplier in the aggregate expenditure model?

$$\text{Multiplier} = \frac{1}{1 - MPC}$$

Question 1

Which of the following best explains why long-run economic growth is important for a country like the United States?

Accepted Answer

It leads to higher average standards of living by increasing productivity over time.

Question 2

Suppose the marginal propensity to consume (MPC) is $$0.75. If $$the government increases spending by $$\200$ million, by how much will equilibrium GDP increase, assuming no other changes?

Accepted Answer

$$\800$ million

Question 3

Which of the following is NOT a function of the financial system in promoting long-run economic growth?

Accepted Answer

Ensuring that all investments are risk-free

Question 4

During the expansion phase of the business cycle, which of the following typically occurs?

Accepted Answer

Production, employment, and income all increase.

Question 5

In the aggregate expenditure model, which equation correctly represents total spending in the economy?

Accepted Answer

$$AE = C + I + G + NX$$

Question 6

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

Accepted Answer

$$5$$

Question 7

Which of the following would most likely cause an increase in consumption (C) in the aggregate expenditure model?

Accepted Answer

An increase in household wealth

Question 8

A firm plans to invest $$\1$ million in new equipment, but at the end of the year, its inventories have increased by $$\$$200,000$$ more than expected. What is the firm's actual investment?

Accepted Answer

$$\1.2$ million

Question 9

Which of the following best describes the Keynesian Cross diagram?

Accepted Answer

It uses a 45-degree line to show points where aggregate expenditure equals real GDP.

Question 10

If net exports (NX) decrease due to a stronger domestic currency, what is the likely effect on equilibrium GDP in the aggregate expenditure model?

Accepted Answer

Equilibrium GDP will decrease.

Question 11

Which of the following is the correct formula for the multiplier in the aggregate expenditure model?

Accepted Answer

$$	ext{Multiplier} = \frac{1}{1 - MPC}$$

Question 12

Which of the following would most likely increase investment (I) in the aggregate expenditure model?

Accepted Answer

A decrease in the real interest rate

Question 13

Suppose the government increases its purchases (G) by $$\100$ million, and the marginal propensity to consume (MPC) is 0.6$. What is the total change in equilibrium GDP?

Accepted Answer

$$\250$ million

Question 14

Which of the following is a key determinant of net exports (NX) in the aggregate expenditure model?

Accepted Answer

The exchange rate between domestic and foreign currencies

Question 15

If the aggregate expenditure line shifts upward on the Keynesian Cross diagram, what happens to the equilibrium level of real GDP?

Accepted Answer

It increases.

Question 16

Which of the following statements about government spending (G) in the aggregate expenditure model is correct?

Accepted Answer

It is determined by government policy decisions and is not directly affected by the level of income.

Question 17

If the marginal propensity to consume (MPC) is $$0.8$$, what is the marginal propensity to save (MPS)?

Accepted Answer

$$0.2$$

Question 18

Which of the following best describes the relationship between the aggregate demand curve and aggregate expenditures?

Accepted Answer

The aggregate demand curve shows the relationship between the price level and the level of aggregate expenditures in the economy.

Question 19

During a recession phase of the business cycle, which of the following typically occurs?

Accepted Answer

Production, employment, and income all decline.

Question 20

A country experiences an autonomous increase in net exports (NX) of $$\50$ million. If the marginal propensity to consume (MPC) is 0.5$, what is the total change in equilibrium GDP?

Accepted Answer

$$\100$ million

Macroeconomic Study Guide: Long-Run Growth, Business Cycles, and Aggregate Expenditure

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