C H A P T E R 8: Aggregate Expenditure and Equilibrium Output © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair

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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 1 of 31

Exercises

Chapter 4 Aggregate Expenditure and Equilibrium Output

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Exercises : Chapter 4 Aggregate Expenditure and Equilibrium Output

1). The MPS is

A) the change in saving divided by the change in income.

B) 1 + MPC

C) income divided by saving.

D) total saving divided by total income

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2). If the MPS is .60, MPC

A) is 1.60.

B) is .30.

C) is .40.

D) cannot be determined by the given information.

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3) If Logan received a $2,500 bonus and his MPS is 0.20, his consumption rises by $________ and his saving rises by $________.

• A) 500; 100

• B) 2,500; 200

• C) 2,000; 500

• D) 2,500; 20

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Refer to the information provided in Figure 8.1 below to answer the questions that follow.

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4) Refer to Figure 8.1. The MPS for this household is ________ and the MPC is ________.

• A) 0.4; 0.6

• B) 0.5; 0.5

• C) 0.2; 0.8

• D) 0.3; 0.7

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5) Refer to Figure 8.1. The equation for this householdʹs saving function is

• A) S = -200 + .8Y.

• B) S = -300 + 0.25Y.

• C) S = -500 + .5Y.

• D) S = -1,000 + 0.8Y.

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6) Refer to Figure 8.1. At income level $1,500, this household's saving is ________ than (to) zero and this household's consumption is ________ zero.

• A) less than; greater than

• B) equal to ; equal to

• C) greater than; less than

• D) greater than; greater than

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7) Refer to Figure 8.1. This householdʹs consumption function is

• A) C = 200 + 0.2Y.

• B) C = 300 + 0.75Y.

• C) C = 500 + 0.5Y.

• D) C = 1,000 + 0.2Y.

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8) Refer to Figure 8.1. This household saves -$300 at an income level of

• A) $400.

• B) $300

• C) $250.

• D) $125.

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9) Refer to Figure 8.1. This household consumes $2,000 at an income level of

• A) $3,000.

• B) $2,000.

• C) $2,275.

• D) $1,840.

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10) Suppose consumption is $5,000 when income is $8,000 and the MPC equals 0.9. When income increases to $10,000, consumption is

• A) $4,500.

• B) $2,700.

• C) $6,800.

• D) $7,200.

• Answer: C

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11) If the saving function is of the form S = -20 + 0.3Y, consumption at an income level of 200 is

• A) 80.

• B) 120.

• C) 160.

• D) 180.

• Answer: C

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12) If Lilyʹs consumption function is of the form C = 100 + 0.8Y, her saving equals zero at an income level of

A) 180.

B) 500.

C) 800.

D) cannot be determined from the given information

Answer: B

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Refer to the information provided in Table 8.1 below to answer the questions that follow.

• Table 8.1

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13) Refer to Table 8.1. The equation for the aggregate consumption function is

• A) C = 80 + .95Y.

• B)C = 80 + .9Y.

• C) C = 80 + .75Y.

• D)C = -80 + .45Y.

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14) Refer to Table 8.1. Societyʹs MPC is

A)0.90. B) 0.95. C) 0.80. D) 0.05.

15) Refer to Table 8.1. Societyʹs MPS is

A)0.05. B) 0.10. C) 0.20. D) 0.95.

16) Refer to Table 8.1. At an aggregate income level of $100, aggregate saving would be

A) -$30. B) $30. C) -$70. D) $50.

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• Figure 8.3

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17) Refer to Figure 8.3. The equation for the aggregate consumption function is

A) C = 140 + .5Y.

B)C = 60 + .7Y.

C) C = 80 + .6Y.

D) C = 60 + .4Y.

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18) Refer to Figure 8.3. The equation for the aggregate saving function is

A) S = -60 + .3Y.

B)S = -200 + .6Y.

C)S = -140 + .5Y.

D)S = -80 + .4Y

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19) Refer to Figure 8.3. In this economy, aggregate saving will be zero if income is

A) $100 billion.

B) $200 billion.

C) $300 billion.

D) $400 billion.

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20) Refer to Figure 8.3. For this society, aggregate saving is positive if aggregate income is

A) above zero.

B) between $0 and $150 billion.

C) equal to $200 billion.

D) above $200 billion.

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21) Assume that in Scandia, planned investment is $80 billion but actual investment is $60 billion. Unplanned inventory investment is

A) -$10 billion. B) $140 billion. C) -$20 billion. D) $70 billion.

Answer: C

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Refer to the information provided in Table 8.3 below to answer the questions that follow.

• Table 8.3

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22) Refer to Table 8.3. At an aggregate output level of $400 billion, planned expenditure equals

A) $550 billion. B) $450 billion. C) $500 billion. D) $850 billion.

Answer: A

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23) Refer to Table 8.3. At an aggregate output level of $800 billion, aggregate saving

A) equals -$50 billion.

B) equals $0.

C) equals $50 billion.

D) cannot be determined from this information.

Answer: C

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24) Refer to Table 8.3. At an aggregate output level of $200 billion, the unplanned inventory change is

A) -$150 billion. B) -$200 billion. C) -$50 billion. D) $100 billion.

Answer: B

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25) Refer to Table 8.3. The equilibrium level of aggregate output equals

A) $400 billion. B) $600 billion. C) $800 billion. D) $1,000 billion.

Answer: D

The MPC in this economy is ?

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26) Refer to Table 8.3. Planned saving equals planned investment at an aggregate output level

A) of $1000 billion.

B) of $600 billion.

C) of $800 billion.

D) that cannot be determined from this information.

C

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27) If C = 100 + .8Y and I = 50, then the equilibrium level of income is

A) 600. B) 375. C) 187.5. D) 750.

Answer: D

28) If C = 1,500 + .75Y and I = 500, then planned saving equals planned investment at aggregate output level of

A) 8,000. B) 20,000. C) 2,666.67. D) 10,000.

Answer: A

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29) Refer to Figure 8.8. What is the equation for the aggregate expenditure function (AE)?

A) AE = 200 + .5Y.

B) AE = 150 + .25Y.

C) AE = 200 + .8Y.

D) AE = 350 + .6Y.

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30) Refer to Figure 8.8. Equilibrium output equals

A) 100.

B) 200.

C) 150.

D) 300.

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31) Refer to Figure 8.8. At aggregate output level $300 million, there is a

A) $75 million unplanned increase in inventories.

B) $75 million unplanned decrease in inventories.

C) $100 million decrease in inventories.

D) $100 million increase in inventories.

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32) Refer to Figure 8.8. Leakages are greater than injections at an aggregate output level of

A) $300 million.

B) $100 million.

C) $200 million.

D) cannot be determined from the figure

Answer: A

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33) Firms react to unplanned inventory reductions by

A) reducing output.

B) increasing output.

C) reducing planned investment.

D) increasing consumption.

Answer: B

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34) Refer to Figure 8.10. The value of the multiplier is

A) 2.

B) 2.5.

C) 3.

D) 4.

Answer: D

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35) Refer to Figure 8.10. A $10 million increase in investment changes equilibrium output to

A) $240 million.

B) $90 million.

C) $225 million. .

D) $175 million.

Answer: A

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36) Refer to Figure 8.10. A $20 million decrease in autonomous consumption

A) changes equilibrium expenditure to $120 million.

B) changes equilibrium output to $180 million.

C) will change the MPC.

D) will change the MPS.

Answer: A

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37) Refer to Figure 8.10. If MPC increases to 0.8, equilibrium aggregate output

A) increases to $250 million.

B) remains at $200 million.

C) increases to $400 million.

D) cannot be determined from the given information.

Answer: A

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38) Assuming no government or foreign sector, if the MPC is 0.9, the multiplier is

A) 0.1. B) 5. C) 9. D) 10.

Answer: D

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39) Refer to Figure 8.10. If MPC increases to 0.8, equilibrium aggregate output

A) increases to $250 million.

B) remains at $200 million.

C) increases to $400 million.

D) cannot be determined from the given information.

C

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40) Assume there is no government or foreign sector. If the multiplier is 10, a $10 billion increase in planned investment will cause aggregate output to increase by

A) $1 billion.

B) $5 billion.

C) $10 billion.

D) $100 billion.

Answer: D

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41) Assume there is no government or foreign sector. If the MPS is 0.2, a $40 billion decrease in planned investment will cause aggregate output to decrease by

A) $20 billion.

B) $50 billion.

C) $80 billion.

D) $200 billion.

Documents

C H A P T E R 8: Aggregate Expenditure and Equilibrium Output © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair