Title: The Expenditure Multiplier
Course: TEST Course

Q: In the figure, the spending multiplier is represented by ΔY/ΔAE and ________.
- graphically by the decrease in the AE line
- graphically by the increase in the 45 degree line
- graphically by the increase in the AE line
A: graphically by the increase in the AE line

Q: In the figure, ΔY/ΔAE represents the spending multiplier, but how is it represented graphically?
- The spending multiplier is represented by the decrease in the AE line.
- The spending multiplier is represented by the increase in the 45 degree line
- The spending multiplier is represented by the increase in the AE line.
A: The spending multiplier is represented by the increase in the AE line.

Q: When looking to discover what the increase in expenditure is, the graph identifies it as the vertical increase from ________.
- AE1 to the Keynesian Cross
- AE0 to the Keynesian Cross
- AE0 to AE1
A: AE0 to AE1

Q: In the figure, the increase in expenditure is the vertical increase from ________.
- AE1 to the Keynesian Cross
- AE0 to the Keynesian Cross
- AE0 to AE1
A: AE0 to AE1

Q: In the figure, which of the following is true?
- The increase in expenditure (AE0 to AE1) is larger than the increase in equilibrium output.
- The increase in expenditure (AE0 to AE1) is the same as the increase in equilibrium output.
- The increase in expenditure (AE0 to AE1) is smaller than the increase in equilibrium output.
A: The increase in expenditure (AE0 to AE1) is smaller than the increase in equilibrium output.

Q: According to the graph, which statement is accurate?
- The increase in equilibrium output is smaller than the increase in expenditure (AE0 to AE1).
- The increase in equilibrium output is the same as the increase in expenditure (AE0 to AE1).
- The increase in equilibrium output is larger than the increase in expenditure (AE0 to AE1).
A: The increase in equilibrium output is larger than the increase in expenditure (AE0 to AE1).

Q: According to the graph, which is a true statement?
- An increase in AE0 to AE11 creates a smaller increase in equilibrium output.
- An increase in AE0 to AE11 creates the same increase in equilibrium output.
- An increase in AE0 to AE11 creates a new equilibrium.
A: An increase in AE0 to AE11 creates a new equilibrium.

Q: According to the graph, which of the following statements is accurate?
- A smaller increase in equilibrium outputs is created with an increase in AE0 to AE1.
- The same increase in equilibrium output is created with an increase in AE0 to AE1.
- A new equilibrium is created with an increase in AE0 to AE1.
A: A new equilibrium is created with an increase in AE0 to AE1.

Q: During a recessionary gap due to insufficient aggregate demand, the government should ________ spending by an amount determined by the spending multiplier in an attempt to return the economy to potential GDP/full employment.
- decrease
- stay the same
- increase
A: increase

Q: During an inflationary gap due to overly sufficient aggregate demand, the government should ________ spending by an amount determined by the spending multiplier in an attempt to return the economy to potential GDP/full employment.
- increase
- stay the same
- decrease
A: decrease

Q: It is important to remember ________ when calculating the spending multiplier to determine government spending in order to return the economy to potential GDP/full employment.
- Aggregate Expenditure = C + I + G + (X – M)
- Aggregate Expenditure = C + I + G + net exports
- Y (national income) = AE (aggregate expenditure)
A: Y (national income) = AE (aggregate expenditure)

Q: In order to bring the economy back to its potential GDP/full employment level, what is vital to remember when calculating the spending multiplier in order to discover the amount of government spending needed?
- Need to remember that Aggregate Expenditure = C + I + G + (X – M).
- Need to remember that Aggregate Expenditure = C + I + G + net exports.
- Need to remember that Y (national income) = AE (aggregate expenditure).
A: Need to remember that Y (national income) = AE (aggregate expenditure).

Q: It is important to remember when calculating the spending multiplier to determine government spending (in order to influencing the economy), the ________ in the income-expenditure model is found at the point where the level of GDP/national income equals aggregate expenditure.
- micro equilibrium
- formula
- macro equilibrium
A: macro equilibrium

Q: What is a very important piece of information to remember when calculating the spending multiplier which determines the level of government spending to impact the economy?
- The micro equilibrium in the income-expenditure model is found at the point where the level of GDP/national income equals aggregate expenditure.
- The formula in the income-expenditure model is found at the point where the level of GDP/national income equals aggregate expenditure.
- The macro equilibrium in the income-expenditure model is found at the point where the level of GDP/national income equals aggregate expenditure.
A: The macro equilibrium in the income-expenditure model is found at the point where the level of GDP/national income equals aggregate expenditure.

Q: Assume the following macroeconomic variable ( in $ billion) for an economy:

Y = national income = Aggregate Expenditures

Aggregate Expenditures = Consumption + Investment + Government Spending + Net Export

Assuming that the full employment level in $6,000 billion, determine the change in government spending needed to reach full employment.

(Hint: calculate the current GDP, then calculate aggregate expenditures using national income of $6,000 and find the difference)

Consumption (80% of disposable or after tax income) + $300 | C = $300 + 0.8 (Y - T)
Tax (20% of income) | T = 0.2 Y
Investment | $800
Government Spending | $700
Exports | $400
Imports | 0.1 (Y - T)
- -$440
- $560
- $440
A: $440

Q: Assume the following macroeconomic variable ( in $ billion) for an economy:

Y = national income = Aggregate Expenditures

Aggregate Expenditures = Consumption + Investment + Government Spending + Net Export

Assuming that the full employment level in $6,000 billion, determine the change in government spending needed to reach full employment.

(Hint: calculate the current GDP, then calculate aggregate expenditures using national income of $6,000 and find the difference)

Consumption (80% of disposable or after tax income) + $300 | C = $350 + 0.8 (Y - T)
Tax (20% of income) | T = 0.2 Y
Investment | $700
Government Spending | $1000
Exports | $550
Imports | 0.1 (Y - T)
- -$40
- $160
- $40
A: $40