2. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 1 of 31 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

3. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 2 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 1). If the MPS is.60, MPC A) is 1.60. B) is.30. C) is.40. D) cannot be determined by the given information.

4. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 3 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 6) 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

5. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 4 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output Refer to the information provided in Figure 8.1 below to answer the questions that follow.

6. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 5 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 13) 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

7. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 6 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 14) Refer to Figure 8.1. The equation for this household ʹ s saving function is A) S = -200 +.8Y. B) S = -300 + 0.25Y. C) S = -500 +.5Y. D) S = -1,000 + 0.8Y.

8. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 7 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 15) 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

9. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 8 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 16) Refer to Figure 8.1. This household ʹ s consumption function is A) C = 200 + 0.2Y. B) C = 300 + 0.75Y. C) C = 500 + 0.5Y. D) C = 1,000 + 0.2Y.

10. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 9 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 17) Refer to Figure 8.1. This household saves -$300 at an income level of A) $400. B) $300 C) $250. D) $125.

11. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 10 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 18) 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.

12. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 11 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 33) 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

13. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 12 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 39) 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

14. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 13 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 40) If Lily ʹ s 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

15. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 14 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output Refer to the information provided in Table 8.1 below to answer the questions that follow. Table 8.1

16. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 15 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 42) 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.

17. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 16 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 43) Refer to Table 8.1. Society ʹ s MPC is A)0.90. B) 0.95. C) 0.80. D) 0.05. 44) Refer to Table 8.1. Society ʹ s MPS is A)0.05. B) 0.10. C) 0.20. D) 0.95. 45) Refer to Table 8.1. At an aggregate income level of $100, aggregate saving would be A) -$30. B) $30. C) -$70. D) $50.

18. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 17 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output Refer to the information provided in Figure 8.3 below to answer the questions that follow. Figure 8.3

19. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 18 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 52) 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.

20. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 19 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 53) 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

21. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 20 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 54) 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.

22. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 21 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 55) 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.

23. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 22 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 6) 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

24. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 23 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output Refer to the information provided in Table 8.3 below to answer the questions that follow. Table 8.3

25. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 24 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 6) 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

26. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 25 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 7) 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

27. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 26 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 8) 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

28. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 27 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 11) 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 ?

29. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 28 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 13) 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.

30. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 29 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 24) 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 27) 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

31. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 30 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output Refer to the information provided in Figure 8.8 below to answer the questions that follow.

32. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 31 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 28) 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.

33. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 32 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 29) Refer to Figure 8.8. Equilibrium output equals A) 100. B) 200. C) 150. D) 300.

34. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 33 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 30) 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.

35. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 34 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 33) 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

36. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 35 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 41) Firms react to unplanned inventory reductions by A) reducing output. B) increasing output. C) reducing planned investment. D) increasing consumption. Answer: B

37. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 36 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output Refer to the information provided in Figure 8.10 below to answer the questions that follow.

38. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 37 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 3) Refer to Figure 8.10. The value of the multiplier is A) 2. B) 2.5. C) 3. D) 4. Answer: D

39. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 38 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 4) 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

40. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 39 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 5) 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

41. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 40 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 6) 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

42. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 41 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 7) 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

43. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 42 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 6) 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.

44. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 43 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 12) 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

45. C H A P T E R 17: Introduction to Macroeconomics © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair 44 of 31 Chapter 4 Aggregate Expenditure and Equilibrium Output 13) 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.