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Figure 8.4 Figure 8.4 Alt text for Figure 8.4: In figure 8.4,a graph comparing real GDP and real aggregate expenditure. Long description for Figure 8.4: The x-axis is labelled,real GDP,Y (trillions of 2002 dollars) .The y-axis is labelled,real aggregate expenditure,AE (trillions of 2002 dollars) .Line AE1,begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Line AE2,begins half way along the x-axis and slopes up to the top right corner.Line AE2 is to the right of line AE1 and is on a similar path as line AE1.Line Y = AE,originates at the vertex and slopes up to the top right corner.Line Y = AE meets line AE2 at point K,half way along both lines.Line Y = AE meets line AE1 at point N,plotted close to the right end of line AE1.Point J is plotted a little less than half way along line AE2,to the left of point K.Point L is marked close to the right end of line AE2,to the right of point K. -Refer to Figure 8.4.Suppose that the level of GDP associated with point K is potential GDP.If the Canadian economy is currently at point N, A) firms are operating below capacity. B) the economy is at full employment. C) the economy is in an expansion. D) the level of unemployment is above the natural rate. E) the economy is in a recession. Alt text for Figure 8.4: In figure 8.4,a graph comparing real GDP and real aggregate expenditure. Long description for Figure 8.4: The x-axis is labelled,real GDP,Y (trillions of 2002 dollars) .The y-axis is labelled,real aggregate expenditure,AE (trillions of 2002 dollars) .Line AE1,begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Line AE2,begins half way along the x-axis and slopes up to the top right corner.Line AE2 is to the right of line AE1 and is on a similar path as line AE1.Line Y = AE,originates at the vertex and slopes up to the top right corner.Line Y = AE meets line AE2 at point K,half way along both lines.Line Y = AE meets line AE1 at point N,plotted close to the right end of line AE1.Point J is plotted a little less than half way along line AE2,to the left of point K.Point L is marked close to the right end of line AE2,to the right of point K. -Refer to Figure 8.4.Suppose that the level of GDP associated with point K is potential GDP.If the Canadian economy is currently at point N,


A) firms are operating below capacity.
B) the economy is at full employment.
C) the economy is in an expansion.
D) the level of unemployment is above the natural rate.
E) the economy is in a recession.

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An increase in the price level ________ real wealth,which causes consumption to ________.


A) lowers; increase
B) lowers; decrease
C) raises; increase
D) raises; decrease

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Figure 8.7 Figure 8.7 Alt text for Figure 8.7: In figure 8.7,a graph comparing real GDP and real aggregate expenditure. Long description for Figure 8.7: The x-axis is labelled,real GDP,Y (trillions of 2002 dollars) .The y-axis is labelled,real aggregate expenditure,AE (trillions of 2002 dollars) .Line AE1,begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Line AE2,is to the right of AE1 and is on a similar path as line AE1,sloping up to the top right corner.Line Y = AE,originates at the vertex and slopes up to the top right corner.Line Y = AE meets line AE2 at point K,half way along both the lines,and meets line AE1 at point N,plotted close to the right end of line AE1.Point J is plotted a little less than half way along line AE2,to the left of point K.Point L is marked close to the right end of line AE2,to the right of point K. -Refer to Figure 8.7.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP<sub>2</sub> to GDP<sub>1</sub>.If the MPC is 0.8,then what is the change in GDP? A) -$4 million B) -$5 million C) -$25 million D) -$40 million E) -$50 million Alt text for Figure 8.7: In figure 8.7,a graph comparing real GDP and real aggregate expenditure. Long description for Figure 8.7: The x-axis is labelled,real GDP,Y (trillions of 2002 dollars) .The y-axis is labelled,real aggregate expenditure,AE (trillions of 2002 dollars) .Line AE1,begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Line AE2,is to the right of AE1 and is on a similar path as line AE1,sloping up to the top right corner.Line Y = AE,originates at the vertex and slopes up to the top right corner.Line Y = AE meets line AE2 at point K,half way along both the lines,and meets line AE1 at point N,plotted close to the right end of line AE1.Point J is plotted a little less than half way along line AE2,to the left of point K.Point L is marked close to the right end of line AE2,to the right of point K. -Refer to Figure 8.7.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP2 to GDP1.If the MPC is 0.8,then what is the change in GDP?


A) -$4 million
B) -$5 million
C) -$25 million
D) -$40 million
E) -$50 million

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If aggregate expenditure is greater than GDP,how will the economy reach macroeconomic equilibrium?


A) Inventories will decline and GDP and employment will decline.
B) Inventories will rise and GDP and employment will decline.
C) Inventories will decline and GDP and employment will rise.
D) Inventories will rise and GDP and employment will rise.
E) Inventories will rise,GDP will fall,and employment will rise.

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If firms sell what they expected to sell,which of the following will be true?


A) Aggregate expenditure will be greater than GDP.
B) There will be no unplanned change in inventories.
C) Inventories will rise and GDP and employment will fall.
D) Aggregate expenditure will be less than GDP.
E) Employment will rise.

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When we graph consumption as a function of ________ rather than as a function of disposable income,the slope of this consumption function is ________.


A) national income; the MPC
B) personal income; (MPC - MPS)
C) national income; the MPS
D) personal income; the MPS
E) national savings; the MPS

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If planned aggregate expenditure is above potential GDP and planned aggregate expenditure equals GDP,then


A) actual inventory investment will be less than planned inventory investment.
B) actual inventory investment will be greater than planned inventory investment.
C) the economy is in an expansion.
D) the economy is at full employment.
E) the economy is in a recession.

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If national income increases by $20 million and consumption increases by $5 million,the marginal propensity to consume is


A) 4.
B) 0.75.
C) 0.5.
D) 0.25.
E) 0.1.

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The ratio of the increase in ________ to the increase in ________ is called the multiplier.


A) equilibrium nominal GDP; autonomous expenditure
B) equilibrium real GDP; autonomous expenditure
C) autonomous expenditure; equilibrium real GDP
D) induced expenditure; equilibrium real GDP
E) planned investment; consumer spending

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Which of the following is a true statement about the multiplier?


A) The multiplier rises as the MPC rises.
B) The smaller the MPC,the larger the multiplier.
C) The multiplier is a value between zero and one.
D) The multiplier effect does not occur when autonomous expenditure decreases.
E) The multiplier only applies to government spending.

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Autonomous expenditure is a type of expenditure that does not depend on


A) wealth.
B) expectations.
C) interest rates.
D) GDP.
E) price level.

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A decrease in the price level in Canada will shift the aggregate expenditure line downward.

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Figure 8.2 Figure 8.2 Alt text for Figure 8.2: In figure 8.2,a graph comparing real GDP and real aggregate expenditure. Long description for Figure 8.2: Line AE1,begins a little less than half way along the x-axis and slopes up toward the end of the x-axis.Line AE2,begins at a point half way on the x-axis and slopes up to the top right corner.Line AE2 is to the left of AE1,and is on a similar path as the line AE1.Line Y = AE,originates at the vertex and slopes upward toward the top right corner.Line Y = AE meets line AE1 at point K,half way along both lines,and meets line AE2 at point N,plotted close to the right end of the line AE2.Point J is plotted a little less than half way along the line AE1,to the left of point K.Another point L is marked close to the right end of line AE1,to the right of point K. -Refer to Figure 8.2.Suppose that the level of GDP associated with point N is potential GDP.If the Canadian economy is currently at point K, A) firms are operating above capacity. B) the economy is at full employment. C) the economy is in recession. D) the level of unemployment is equal to the natural rate. E) firms will experience rising inventories. Alt text for Figure 8.2: In figure 8.2,a graph comparing real GDP and real aggregate expenditure. Long description for Figure 8.2: Line AE1,begins a little less than half way along the x-axis and slopes up toward the end of the x-axis.Line AE2,begins at a point half way on the x-axis and slopes up to the top right corner.Line AE2 is to the left of AE1,and is on a similar path as the line AE1.Line Y = AE,originates at the vertex and slopes upward toward the top right corner.Line Y = AE meets line AE1 at point K,half way along both lines,and meets line AE2 at point N,plotted close to the right end of the line AE2.Point J is plotted a little less than half way along the line AE1,to the left of point K.Another point L is marked close to the right end of line AE1,to the right of point K. -Refer to Figure 8.2.Suppose that the level of GDP associated with point N is potential GDP.If the Canadian economy is currently at point K,


A) firms are operating above capacity.
B) the economy is at full employment.
C) the economy is in recession.
D) the level of unemployment is equal to the natural rate.
E) firms will experience rising inventories.

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Table 8.11 Table 8.11 -Refer to Table 8.11.Using the table above,calculate the unplanned change in inventories for each level of GDP,and explain what will happen to GDP. -Refer to Table 8.11.Using the table above,calculate the unplanned change in inventories for each level of GDP,and explain what will happen to GDP.

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The macroeconomic equilibrium is determi...

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A general formula for the multiplier is


A) A general formula for the multiplier is A) . B) . C) . D) . E) . .
B) A general formula for the multiplier is A) . B) . C) . D) . E) . .
C) A general formula for the multiplier is A) . B) . C) . D) . E) . .
D) A general formula for the multiplier is A) . B) . C) . D) . E) . .
E) A general formula for the multiplier is A) . B) . C) . D) . E) . .

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Firms in a small economy planned that inventories would grow over the past year by $300,000.Over that year,inventories actually grew by $400,000.This implies that


A) aggregate expenditure that year was less than GDP that year.
B) there was an unplanned decrease in inventories that year.
C) there was a planned decrease in inventories that year.
D) aggregate expenditure that year was equal to GDP that year.
E) consumer spending grew faster than expected.

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Planned aggregate expenditure is equal to


A) consumption spending only.
B) consumption spending plus planned investment spending.
C) planned investment spending only.
D) consumption spending plus planned investment spending plus government purchases plus net exports.
E) consumption spending plus planned investment spending plus government purchases minus taxes.

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Tariffs and trade wars cause net exports to ________ and real GDP to ________.


A) increase; increase
B) decrease; increase
C) increase; decrease
D) decrease; decrease

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Actual investment spending includes spending by consumers on


A) durable goods.
B) nondurable goods.
C) new houses.
D) services.
E) stocks and bonds.

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If firms find that consumers are purchasing more than expected,which of the following would you expect?


A) Aggregate expenditure will likely be greater than GDP.
B) Aggregate expenditure will likely be less than GDP.
C) The economy will adjust to macroeconomic equilibrium as inventories rise,and production and employment fall.
D) The economy will adjust to macroeconomic equilibrium as inventories fall,and production and employment fall.
E) Firms will see inventories rising.

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