Learning Catalytic Questions – Macro Exam 2 – Flashcards
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the Aggregate Expenditure model focuses on the ______ relationship between real spending and _________
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short-run; real GDP
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The key idea of the Aggregate Expenditure model is that in any particular year, the level of GDP is determined mainly by ______________
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the level of aggregate expenditure
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Aggregate expenditure includes spending on ___________
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Consumption+ Investment + Government+Net Exports
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Inventories refer to ______________
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goods that have been produced but not yet sold
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An unplanned increase in inventories results from ______________
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actual investment that is greater than planned investment
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Macroeconomic equilibrium occurs when __________
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aggregate expenditure = GDP
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When aggregate expenditure is less than GDP, which of the following is true?
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there was an unplanned increase in inventories
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If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium?
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Inventories will decline, and GDP and employment will rise
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if aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium?
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Inventories will rise, and GDP and employment will decline
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Which is the largest component of aggregate expenditure?
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consumption expenditures
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Consumption spending will ___________ when disposable income ____________
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increase; increases
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The marginal propensity to consume is defined as ____________
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the change in consumption divided by the change in the disposable income
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The marginal propensity to save is defined as __________
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the change in saving divided by the change in disposable income
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The sum of marginal propensity to consume and the marginal propensity to save is always equal to _________
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1
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If disposable income increases by $500 million, and consumption increases by $400 million, then the marginal propensity to consume is ______
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.8
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If the MPC is 0.95, then a $10 million increase in disposable income will ____________
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increase consumption by $9.5 million
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If the marginal propensity to save is 0.25, then a $10,000 decrease in disposable income will _________
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decrease consumption by 7,5000
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If inflation in the United States is higher than inflation in other countries, what will be the effect on net exports for the United States?
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net exports will decrease as U.S. exports decrease
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Which of the following will decrease aggregate expenditure in the United States?
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a decrease in government purchases
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If planned aggregate expenditure is greater than total production then
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firms will experience an unplanned decrease in inventories
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Assume that inventories declined by more than analysts predicted. That implies that __________________
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planned aggregate expenditure was greater than real GDP
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If an increase in investment spending of $50 million results in a $200 million increase in equilibrium, then
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the expenditure multiplier is 4
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If an increase in government expenditure of $10 million results in a $50 million increase in equilibrium real GDP, then ____________
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the MPC is 0.8
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All of the following are true statements about the multiplier EXCEPT
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the multiplier is a value between zero and one
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Assume the economy is experiencing a $500 billion output gap. With a MPS of 0.2, how much would taxes have to change by to push the economy back to full employment?
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-$125 billion
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Assume that the economy is experiencing a $500 billion out gap. With a MPC of 0.80, how much would government expenditures have to change by to push the economy back to full employment?
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$100 billion
