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ECO-201 Principles of Macroeconomics
Lesson 11 – Aggregate Expenditures
Questions
For each of the following 15-questions, type the ONE best answer below.
Note: By selecting Window>Split, you can keep the answer sheet in the upper pane as you scroll
the questions in the lower pane.
1.
9.
2.
10.
3.
11.
4.
12.
5.
13.
6.
14.
7.
15.
8.
1. The most important determinant of consumer spending is:
A) the government budget deficit or surplus.
B) the price of gasoline.
C) the trade deficit.
D) disposable income.
Use the following to answer question 2:
Exhibit: Consumption Spending
Suppose that the consumption function is:
C = $500 + 0.8 × YD
where YD is disposable income.
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2. (Exhibit: Consumption Spending) Autonomous consumption is:
A) $500.
B) 0.
C) 0.8 of disposable income.
D) $1,300, if disposable income is $1,000.
3. If the marginal propensity to consume is 0.5, individual autonomous consumption is
$10,000, and disposable income is $40,000, then individual consumption spending is:
A) $20,000.
B) $25,000.
C) $30,000.
D) $45,000.
4. The consumption function will shift up if:
A) households expect an increase in the minimum wage in the future.
B) households expect a decrease in the minimum wage in the future.
C) the marginal propensity to consume decreases.
D) the marginal propensity to save increases.
5. Other things being equal, an increase in aggregate wealth would ________ and shifts the
consumption function _________.
A) increase autonomous consumption; to the left
B) decrease the marginal propensity to consume; to the left
C) decrease autonomous consumption; to the left
D) increase the marginal propensity to consume; to the right
Use the following to answer question 6:
Exhibit: Income-Expenditure Equilibrium 1
GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200.
The marginal propensity to consume is 0.8.
6. (Exhibit: Income-Expenditure Equilibrium 1) What is the consumption function?
A) C = 8,000 + .8 ×YD
B) C = 8,700 + .2 × YD
C) C = 500 + 0.8 × YD
D) C = 1,700 + .2 × YD
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7. Whenever GDP exceeds planned aggregate expenditure, unplanned investment is
_______; whenever GDP falls short of planned aggregate expenditure, unplanned
investment is _________.
A) positive; negative
B) negative; positive
C) zero; positive
D) zero; negative
8. Income-expenditure equilibrium GDP is:
A) the level of GDP at which the unemployment rate is zero.
B) the level of GDP at which GDP equals planned aggregate spending.
C) the level of GDP at which there are no savings.
D) the level of GDP at which autonomous consumption equals planned inventory
investment.
9. At the income-expenditure equilibrium:
A) investment net of depreciation is zero.
B) planned investment is zero.
C) unplanned inventory investment is zero.
D) inventory investment is zero.
10. An increase in the MPC:
A) increases the multiplier.
B) shifts the autonomous investment line upward.
C) decreases the multiplier.
D) shifts the autonomous investment line downward.
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Use the following to answer question 11:
Figure: The Multiplier
11. (Figure: The Multiplier) If this economy is currently at Y1, with potential output at Y2,
and investment spending decreases, then:
A) AD1 will shift to the left, reflecting a multiplied decrease in the real GDP at every
price level.
B) AD1 will shift to the right, reflecting a multiplied increase in the real GDP at every
price level.
C) an upward movement along the AD1 will take place, reflecting an increase in the
price level.
D) a downward movement along the AD1 will take place, reflecting a decrease in the
price level.
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12. In an economy without government purchases, government transfers, or taxes, aggregate
autonomous consumer spending is $250 billion, planned investment spending is $100
billion, and the marginal propensity to consume is 0.6. What is the expression for
planned aggregate spending?
A) AEplanned = $100 + .6 × YD
B) AEplanned = $250 + .4 × YD
C) AEplanned = $350 + .6 × YD
D) none of the above
13. According to an economist in the video “Aggregate Expenditures,” which of the
following is a factor affecting consumption spending?
A) Income
B) Expectations
C) Taxes
D) All of the above
14. In the video “Aggregate Expenditures,” which of the following U.S. industries receives
major benefits from trade?
A) Automobile
B) Agriculture
C) Textile
D) All of the above
15. In the video “Aggregate Expenditures,” which of the following is a factor in the
investment decisions of Owens Corning?
A) Infrastructure needs
B) Environmental concerns
C) Product support
D) All of the above
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