Title: The Income-Expenditure Model
Course: Macro Quiz Test

Q: All of the following are components of the aggregate expenditure model except ________.
- consumption
- business investment
- import spending
A: import spending

Q: Which of the following is excluded from being a component of the aggregate expenditure model?
- consumption
- government spending
- import spending
A: import spending

Q: Aggregate Expenditure equals
- C + I + G + import spending.
- C + I + G + gross exports.
- C + I + G + (X-M).
A: C + I + G + (X-M).

Q: Which of the following formulations correctly equates aggregate expenditure?
- C + I + G + import spending
- C + I + G + gross exports
- C + I + G + (X-M)
A: C + I + G + (X-M)

Q: A key part of the Income-Expenditure model is understanding that as GDP (or national income) rises, so does ________.
- aggregate supply
- aggregate demand
- aggregate expenditure
A: aggregate expenditure

Q: One of the most important components to understand about the Income-Expenditure model is that as GDP (or national income) increases ________ increases as well.
- aggregate supply
- aggregate demand
- aggregate expenditure
A: aggregate expenditure

Q: The aggregate expenditure determines the total amount that firms and households plan to spend on goods and services at each level of income. Therefore this model focuses on the short run relationship between ________ and national income or GDP.
- real savings
- real interest rates
- real spending
A: real spending

Q: The total amount households and businesses plan to spend on goods and services at every level of income is determined by the aggregate expenditure. This model focuses on the short run relationship between real spending and ________.
- national exports
- aggregate demand
- national income or GDP
A: national income or GDP

Q: The consumption function is a graphical relationship between ________.
- unemployment and inflation
- borrowing and interest rates
- income and consumer spending
A: income and consumer spending

Q: The ________ is a graphical relationship between income and consumer spending.
- income-expenditure model
- spending model
- consumption function
A: consumption function

Q: Consumption still exists even if income is zero because ________.
- people always make a basic income no matter what
- people would get things on sale
- people still have basics needs they must meet
A: people still have basics needs they must meet

Q: If a person has zero income, consumption still exists because ________.
- a basic income is always made by people
- sales encourage people to buy
- there are basic needs people still have to meet
A: there are basic needs people still have to meet

Q: Looking at the figure above, the reason why the consumption function line does not start at zero is due to ________.
- marginal propensity to save
- marginal propensity to consume
- autonomous consumption
A: autonomous consumption

Q: Looking at the figure above, why does the line for the consumption function not start at zero?
- It does not start a zero because of the marginal propensity to save.
- It does not start a zero because of the marginal propensity to consume.
- It does not start a zero because of autonomous consumption.
A: It does not start a zero because of autonomous consumption.

Q: Algebraically, the consumption function is represented as ________.
- C = a + MPS*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPS is the marginal propensity to save, and Y is national income
- MPC + MPS = 1, where MPC is the marginal propensity to consume and MPS is the marginal propensity to save
- C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income
A: C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income

Q: To represent the consumption function through algebra, it would be expressed as ________.
- C = a + MPS*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPS is the marginal propensity to save, and Y is national income
- MPC + MPS = 1, where MPC is the marginal propensity to consume and MPS is the marginal propensity to save
- C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income
A: C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income

Q: An increase in the Marginal Propensity to Consume (MPC) ________ the consumption function.
- flattens
- does not affect
- steepens
A: steepens

Q: An decrease in the Marginal Propensity to Consume (MPC) ________ the consumption function.
- steepens
- does not affect
- flattens
A: flattens

Q: Which factor other than income can also cause the entire consumption function to shift?
- Export spending
- Government spending
- Changes in wealth
A: Changes in wealth

Q: Other than income, which factor can also shift the entire consumption function?
- Export spending
- Government spending
- Consumer expectations about the future
A: Consumer expectations about the future

Q: This year the economy is strong and there is every expectation that it will continue to be strong over the next few years. With this confidence in the economy, what would most likely happen to the consumption function?
- It will shift the consumption function downward.
- It will move consumption to a higher level along the existing consumption function.
- It will shift the consumption function upward.
A: It will shift the consumption function upward.

Q: This year the economy is takes a hit as another housing market bubble bursts and there is every expectation that the economy is in for a rough patch. What would most likely take place for the consumption function with this lack of confidence in the economy?
- It will move consumption to a higher level along the existing consumption function.
- It will shift the consumption function upward.
- It will shift the consumption function downward.
A: It will shift the consumption function downward.

Q: As an economist George is analyzing a consumption function graph and notices that the slope has flattened. What would cause this to occur?
- There was an increase in real wealth.
- There was a decrease in the Marginal Propensity to Consume (MPC).
- There was an increase in the Marginal Propensity to Consume (MPC).
A: There was an increase in the Marginal Propensity to Consume (MPC).

Q: Sandra, an economist is discussing a consumption function graph and sees that the slope has steepened from a prior graph. What would cause this change in the consumption function?
- There was an increase in the Marginal Propensity to Consume (MPC)
- There was an decrease in consumer confidence.
- There was a decrease in the Marginal Propensity to Consume (MPC).
A: There was a decrease in the Marginal Propensity to Consume (MPC).

Q: Which of the below is true about investment as function of national income?
- The slope of the investment function is one.
- There is a relationship between GDP and the investment function.
- The investment function can be drawn as a horizontal line.
A: The investment function can be drawn as a horizontal line.

Q: Of the following statements about investment, which is true when it comes to explaining its function with regards to national income?
- The investment function has a slope of one.
- There is a relationship between the investment function and the GDP.
- The investment function on a graph is drawn as a horizontal line.
A: The investment function on a graph is drawn as a horizontal line.

Q: Which of the following is NOT true about government spending as function of national income?
- Government spending appears as a horizontal line on the Keynesian cross diagram.
- Federal, state and local governments determine the level of government spending through the budget process.
- Government spending will fluctuate.
A: Government spending will fluctuate.

Q: Each of the following statements are about government spending as function of national income. Which one of the statements is a false statement?
- On a Keynesian cross diagram the government spending appears as a horizontal line.
- The budget process is what is used by the federal, state and local governments determine the level of government spending.
- There is fluctuation in government spending.
A: There is fluctuation in government spending.

Q: Which of the following is true about export and imports as function of national income?
- Both are horizontal lines with imports being positive as it relates to real GDP.
- Both are vertical lines with imports being negative as it relates to real GDP.
- Both are horizontal lines with imports being negative as it relates to real GDP.
A: Both are horizontal lines with imports being negative as it relates to real GDP.

Q: Consider national income, which statement is accurate about the function of export and imports in it?
- Exports and imports are horizontal lines, with imports being positive as it relates to real GDP.
- Exports and imports are vertical lines with imports being negative as it relates to real GDP.
- Exports and imports are horizontal lines with imports being negative as it relates to real GDP.
A: Exports and imports are horizontal lines with imports being negative as it relates to real GDP.

Q: Considering that Aggregate Expenditure = C + I + G + (X – M), which function is drawn as a horizontal line?
- Consumption
- Imports
- Investment
A: Investment

Q: What function is a horizontal line when Aggregate Expenditure = C + I + G + (X – M)?
- Imports
- Consumption
- Government spending
A: Government spending

Q: Autonomous expenditure does NOT depend on what factor?
- Consumer spending
- Future expectations
- GDP/output
A: GDP/output

Q: Which following factor is powerless to influence autonomous expenditure?
- Investments
- Net exports
- National income
A: National income

Q: When describing the economy’s aggregate expenditure components impacted by the real level of income, which of the following terms is excluded from that description?
- Autonomous expenditure
- Marginal Propensity to Consume
- Macroeconomic Equilibrium
A: Macroeconomic Equilibrium

Q: What economic term describes the economy’s aggregate expenditure components NOT impacted by the real level of income?
- Autonomous expenditure
- Marginal Propensity to Consume
- Macroeconomic Equilibrium
A: Macroeconomic Equilibrium

Q: Which line represents the C + I + G stacked functions in the graph?
- line 1
- line 2
- line 3
A: line 3

Q: Which of the lines represents the C + I stacked functions?
- line 1
- line 3
- line 2
A: line 2

Q: What are the components used to create a consolidation view or stacked graph (or stacking on top of each other) of the aggregate expenditure function?
- The graph would include the consumption function (after taxes), the investment function, and the government spending function.
- The graph would include the consumption function (after taxes) the government spending function, and the net export function.
- The graph would include the consumption function (after taxes), the investment function, the government spending function, and the net export function.
A: The graph would include the consumption function (after taxes), the investment function, the government spending function, and the net export function.

Q: Graphically, the aggregate expenditure function is formed by adding together (or stacking on top of each other) ________.
- the consumption function (after taxes), the investment function, and the government spending function
- the consumption function (after taxes) the government spending function, and the net export function
- the consumption function (after taxes), the investment function, the government spending function, and the net export function
A: the consumption function (after taxes), the investment function, the government spending function, and the net export function

Q: The income-expenditure model illustrates when what is out of balance or inefficient?
- price levels
- net exports
- levels of output or national income
A: levels of output or national income

Q: When ________ are inefficient or off balance, using the income-expenditure model reveals this inefficiency.
- price levels
- net exports
- levels of output or national income
A: levels of output or national income

Q: What is the term used when the income=expenditure line (i.e. the 45 degree line) and the aggregate expenditure line are combined on a graph?
- The economic equilibrium graph.
- The aggregate expenditure cluster.
- The Keynesian Cross
A: The Keynesian Cross

Q: The combination of the aggregate expenditure line and the income=expenditure line (i.e. the 45 degree line) is called ________.
- the macro equilibrium
- output aggregate expenditure
- the Keynesian Cross
A: the Keynesian Cross

Q: Macro equilibrium in the income-expenditure model occurs where aggregate expenditure is equal to national income; this occurs where the aggregate expenditure schedule crosses the ________.
- real GDP (Y) line
- potential GDP line
- 45-degree line
A: 45-degree line

Q: Equilibrium occurs in the macroeconomy with the income-expenditure model where national income and aggregate expenditure are equal. Where does this equilibrium occur?
- Where the aggregate expenditure schedule crosses the real GDP (Y) line.
- Where the aggregate expenditure schedule crosses the potential GDP line.
- Where the aggregate expenditure schedule crosses the 45-degree line.
A: Where the aggregate expenditure schedule crosses the 45-degree line.

Q: What is the income=expenditure line called in the Keynesian Cross Diagram?
- Macroeconomic equilibrium line
- Potential GDP line
- 45-degree line
A: 45-degree line

Q: Considering the Keynesian Cross Diagram, the income=expenditure line is also called the ________.
- macroeconomic equilibrium
- potential GDP line
- 45-degree line
A: 45-degree line

Q: To find macro equilibrium in a table, the numbers for ________ and ________ should equal each other.
- Keynesian Cross; taxes
- exports; imports
- aggregate expenditure; GDP/national income
A: aggregate expenditure; GDP/national income

Q: What factors should equal each other in order to find macro equilibrium in a table?
- taxes and the Keynesian Cross
- imports and exports
- gdp/national income and aggregate expenditure
A: gdp/national income and aggregate expenditure

Q: Where is the macro equilibrium found in the income-expenditure model graphically?
- At the level of GDP where AD equals AS.
- At the market level where demand equals supply.
- At the level of GDP where national income equals aggregate expenditure.
A: At the level of GDP where national income equals aggregate expenditure.

Q: When looking at the graph of an income-expenditure model where would the macro equilibrium be found?
- At the level of GDP where AS equals AD.
- At the market level where supply equals demand.
- At the level of GDP where aggregate expenditure equals national income.
A: At the level of GDP where aggregate expenditure equals national income.

Q: Considering the figure, the macro equilibrium which is where aggregate expenditure is equal to national income is represented by ________.
- point a
- point c
- point d
- point b
A: point b

Q: Looking at the figure, what represents the macro equilibrium where aggregate expenditure is equal to national income?
- point a
- point c
- point d
- point b
A: point b

Q: Considering the figure, the macro equilibrium occurs where the real GDP (Y) equals ________.
- $5,000
- $7,000
- $6,000
A: $6,000

Q: Using the figure, when the real GDP (Y) equals ________ it is at the macro equilibrium.
- $5,000
- $7,000
- $6,000
A: $6,000

Q: Suppose an economy is defined by the following: C = 210 + 0.8 (Yd). This algebraic equation represents the ________.
- autonomous consumption
- marginal propensity to consume
- consumption function
A: consumption function

Q: Say that an economy is defined by the following algebraic equation: C = 322 + 0.7 (Yd). What does the algebraic equation represent?
- autonomous consumption
- the marginal propensity to consume
- the consumption function
A: the consumption function

Q: Suppose an economy is defined by the following: C = 108 + 0.6 (Yd). The 108 in this algebraic equation represents the ________.
- consumption function
- marginal propensity to consume
- autonomous consumption
A: autonomous consumption

Q: Suppose an economy is defined by the following: C = 150 + 0.7 (Yd). The 0.6 in this algebraic equation represents the ________.
- autonomous consumption
- consumption function
- marginal propensity to consume
A: marginal propensity to consume

Q: Suppose an economy is defined by the following: C = 136 + 0.9 (Yd). The (Yd) in this algebraic equation represents the ________.
- pre-tax income
- discretionary income
- disposable income
A: disposable income

Q: If an economy is defined by the following algebraic equation: C = 209 + 0.6 (Yd). What does the (Yd) in this algebraic equation represent?
- pre-tax income
- discretionary income
- disposable income
A: disposable income

Q: Imagine the economy is defined by the consumption function of C = 140 + 0.9 (Yd) where 140 is autonomous consumption, 0.9 is marginal propensity to consume, and Yd is disposable income (after taxes) and Yd=Y-T, where Y is national income (or GDP) and T=Tax Revenues=0.3Y (0.3 is the avg. income tax rate). To find the macro equilibrium use the following equation Y = C + I + G + (X - M). Where C=140 + 0.9(Yd), I=400, G=800, X=600, M=0.15Y. What is the aggregate expenditure for this economy? [Remember Y=AE]
- Y = 4042
- Y = 3079
- Y = 3730
A: Y = 3730

Q: Imagine the economy is defined by the consumption function of C = 200 + 0.9 (Yd) where 200 is autonomous consumption, 0.9 is marginal propensity to consume, and Yd is disposable income (after taxes) and Yd=Y-T, where Y is national income (or GDP) and T=Tax Revenues=0.3Y (0.3 is the avg. income tax rate). Find the macro equilibrium using the following equation Y = C + I + G + (X - M) where C=200 + 0.9(Yd), I=600, G=1000, X=600, M=0.1Y. What is the equilibrium for this economy? [Remember Y=AE]
- Y = 4286
- Y = 3810
- Y = 5454
A: Y = 5454

Q: The potential GDP line is a vertical line on the ________ indicating where GDP is at potential on the horizontal axis.
- individual supply and demand graph
- microeconomic equilibrium graph
- Keynesian Cross diagram
A: Keynesian Cross diagram

Q: The potential GDP line is a ________ on the Keynesian Cross diagram which indicates GDP at its potential on the horizontal axis.
- sloping upward line
- horizontal line
- vertical line
A: vertical line

Q: Of these statements about the potential GDP line, which is incorrect?
- The potential GDP line is a vertical line.
- The potential GDP line indicates the quantity of output the economy can produce
- The potential GDP line makes the assumption that it is at less than full employment of its physical capital and labor.
A: The potential GDP line makes the assumption that it is at less than full employment of its physical capital and labor.

Q: Which of the following statements is incorrect regarding the potential GDP line?
- It is a vertical line
- It refers to the quantity of output the economy can produce
- It assumes less than full employment of its labor and physical capital.
A: It assumes less than full employment of its labor and physical capital.

Q: Potential real GDP is defined as ________.
- the quantity of output that the economy can produce when it is at less than potential employment of its resources
- the quantity of output that the economy can produce when it is above the natural rate of unemployment
- the quantity of output that the economy can produce when it is at full employment of its labor and physical capital
A: the quantity of output that the economy can produce when it is at full employment of its labor and physical capital

Q: The quantity of output that the economy can produce when it is at full employment of its labor and physical capital is the definition for
- gap GDP
- equilibrium GDP
- potential real GDP.
A: potential real GDP.

Q: and the y axis labeled Aggregate Expenditure (dollars). The x and y axis have points 0, 200, 400, 600, 700, 800, and 1,000. There are 4 lines. Line 1 is vertical with the plot point of 800,0, line 2 is an upward sloping line starting at 0,0 and ending at 800,800. Line 3 and 4 are upward sloping lines that start at around 0,400. There are two dotted lines that meet at point 700,700.) In the figure, which line is the potential GDP Line?
- line 2
- line 3
- line 4
- line 1
A: line 1

Q: and the y axis labeled Aggregate Expenditure (dollars). The x and y axis have points 0, 200, 400, 600, 700, 800, and 1,000. There are 4 lines. Line 1 is vertical with the plot point of 800,0, line 2 is an upward sloping line starting at 0,0 and ending at 800,800. Line 3 and 4 are upward sloping lines that start at around 0,400. There are two dotted lines that meet at point 700,700.) Of the lines in this graph, which indicates is the line for potential GDP?
- line 2
- line 3
- line 4
- line 1
A: line 1

Q: In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP?
- expenditure-output
- inflationary gap
- recessionary gap
A: recessionary gap

Q: In a Keynesian cross diagram, what name is given to the distance between an output level that is above potential GDP?
- expenditure-output
- recessionary gap
- inflationary gap
A: inflationary gap

Q: Causes of a recessionary gap include ________.
- a decline in savings
- an increase in government spending
- a decline in consumption
A: a decline in consumption

Q: Which of the following is a cause for a recessionary gap?
- Prices are low.
- Government spending has increased.
- Consumption is on the decline.
A: Consumption is on the decline.

Q: If the economy is experiencing an inflationary gap, the equilibrium level of GDP is
- less than potential GDP.
- equal to potential GDP.
- greater than potential GDP.
A: greater than potential GDP.

Q: How does an economist know if the economy is experiencing an inflationary gap?
- The equilibrium level of GDP is less than potential GDP.
- The equilibrium level of GDP is equal to potential GDP.
- The equilibrium level of GDP is greater than potential GDP.
A: The equilibrium level of GDP is greater than potential GDP.

Q: If the macroeconomy is experiencing a recessionary gap, what actions would a Keynesian economist suggest be taken to adjust the economy?
- a decrease in government spending
- an increase in taxesa
- an increase in government spending.
A: an increase in government spending.

Q: If the macroeconomy is experiencing an inflationary gap, what actions would a Keynesian economist suggest be taken to adjust the economy?
- decrease taxes
- increase government spending
- decrease government spending
A: decrease government spending

Q: If a Keynesian economist is advocating the current economic policy be to increase government spending, what is the state of the current economy?
- The economy is experiencing an inflationary gap.
- The economy is experiencing natural unemployment at potential GDP.
- The economy is experiencing a recessionary gap.
A: The economy is experiencing a recessionary gap.

Q: The current economic policy being implemented by the Keynesian economists in government is moving the economy bach toward potential GDP through increased taxation. Knowing this policy, what would you say is the current state of the economy?
- The economy is experiencing natural unemployment at potential GDP.
- The economy is experiencing a recessionary gap.
- The economy is experiencing an inflationary gap.
A: The economy is experiencing an inflationary gap.

Q: What is the best explanation for the relatively horizontal area of the short run aggregate supply curve?
- An increase in aggregate demand causes both real output and the price level to increase.
- An increase in aggregate demand when the economy is operating at potential output causes the price level to rise, with little or no effect on real output.
- An increase in aggregate demand when the economy is operating below potential output causes real output to grow, with little or no effect on the price level.
A: An increase in aggregate demand when the economy is operating below potential output causes real output to grow, with little or no effect on the price level.

Q: Of the following explanations of the short run aggregate supply curve, which best explains the relatively horizontal area?
- An increase in aggregate demand causes both the price level and real output to increase.
- With an economy operating at potential output, an increase in aggregate demand causes a rise in the price level, but has no or little effect on real output.
- With an economy operating below potential output, an increase in aggregate demand causes real output to increase with no or little effect on the price level.
A: With an economy operating below potential output, an increase in aggregate demand causes real output to increase with no or little effect on the price level.

Q: The pure Keynesian AD-AS model assumes that for any level of GDP below potential, any change in AD affects real GDP, but NOT the ________.
- spending level
- output level
- price level
A: price level

Q: According to a Keynesian AD-AS model, when any level of GDP is below potential, real GDP is affected with any change in AD, but the ________ remains unaffected.
- spending level
- export level
- price level
A: price level

Q: A horizontal AS curve means that changes in GDP will be caused by:
- cyclical unemployment
- changes in potential output.
- changes in aggregate demand.
A: changes in aggregate demand.

Q: For the GDP to change when the AS curve is horizontal, means it must change through:
- cyclical unemployment
- increases or decreases in potential output.
- increases or decreases in aggregate demand.
A: increases or decreases in aggregate demand.

Q: When potential GDP is reached, aggregate supply becomes vertical for ________.
- the income-expenditure model
- the traditional AD-AS model
- both the income-expenditure model and the traditional AD-AS model
A: both the income-expenditure model and the traditional AD-AS model

Q: What takes place when the economy reaches potential GDP and the aggregate supply becomes vertical?.
- The potential GDP is vertical only in the income-expenditure model.
- The potential GDP is vertical only the traditional AD-AS model.
- c, The potential GDP is vertical only in both the income-expenditure model and the traditional AD-AS model.
A: c, The potential GDP is vertical only in both the income-expenditure model and the traditional AD-AS model.

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