Inflation and Aggregate Expenditure

Topics: Inflation, Macroeconomics, Monetary policy Pages: 6 (1525 words) Published: December 14, 2010
1. A change in all of the following will cause a shift in the consumption function, EXCEPT: A. Investment
2. Planned investment is a function of which of the following variables? C. Technology
3. The planned investment function shows the relationship between planned investment and the real rate of interest, thus the planned investment curve is ____________________. A decrease in the price of capital will cause this curve to ___________________. D. Downward sloping; shift outward

4. An increase in the foreign price level relative to the U.S. price level would cause the import (IM) function to:
B. Shift downward
5. An increase in the real rate of interest would lead to which of the following outcomes? A. A decrease in consumption
B. A decrease in planned investment
C. A decrease in planned aggregate expenditure
D. All of the above
6. The planned aggregate expenditure (PAE) curve/line is:
A. Upward sloping
7. The import function is _______________ , while the net export function is __________. D. Upward sloping; downward sloping
8. An income tax decrease for individual consumers will cause the planned aggregate expenditure function to:
A. Shift upward
9. An increase in the real rate of interest will cause the planned aggregate expenditure function to:
B. Shift downward
10. Economic activity moves from a period of expansion to a _______ and then moves into a period of _______ until it reaches a _____.
B. Peak, recession; trough
11. Potential output is:
D. The maximum sustainable amount of output.
12. Planned investment may differ from actual investment because of: C. Unplanned changes in inventories.
13. The consumption function is the relationship between consumption and: D. Its determinants, such as disposable income.
14. The slope of the consumption function:
D. Equals the mpc.
15. The tendency of changes in asset prices to affect spending on consumption goods is called the _____ effect.
C. Wealth
16. When housing prices decrease, household wealth _____ and consumption _____. C. Decreases; decreases
17. The marginal propensity to consume is the:
B. Amount by which consumption increases when disposable income increases by $1. 18. Under the fixed price model where expected inflation is zero, an increase in government spending in the short run will lead to which of the following? A. An upward shift in the planned aggregate expenditure function B. An increase in real income

C. An increase in the nominal rate of interest
D. An increase in the real rate of interest
E. All of the above
19. The difference between potential output and actual output is called the____________. C. Output gap
20. The primary difference between active fiscal policy and automatic stabilizers in regards to their lagged impacts, is that active fiscal policy does not contain an inside lag period, while the automatic stabilizers do contain an inside lag period

B. False
21. If the economy experiences a credit crunch all of the following are true EXCEPT: D. The interest rate on bonds rises
22. To close a recessionary gap, the Fed ____ interest rates which ______ planned aggregate spending and _____ short-run equilibrium output.
A. Lowers; increases; increases
23. The aggregate demand curve shows the relationship between output and the ______ rate. D. Inflation
24. In the long run, an increase in the nominal money supply will cause the inflation rate to: A. Increase.
25. In the long run, an increase in the nominal money supply will cause output to: C. Remain unchanged.
26. In the long run, an increase in the nominal money supply will cause the nominal interest rate to:
C. Remain unchanged.
27. The macroeconomy is comprised of four primary markets: the labor market, the goods market, the money market, and the bond market. What is the minimum number of these individual markets that must be in equilibrium to ensure that the whole macroeconomy is equilibrium?

C. 3
28. The aggregate demand curve is:
B. Downward sloping...
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