1. Chapter 4 Aggregate Expenditure and Equilibrium Output
Exercises
Chapter 4 Aggregate Expenditure and Equilibrium Output

2. Exercises : 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
2). 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
3) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
Refer to the information provided in Figure 8.1 below to answer the questions that follow.

6. Chapter 4 Aggregate Expenditure and Equilibrium Output
4) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
5) Refer to Figure 8.1. The equation for this householdʹs saving function is
A) S = Y.
B) S = Y.
C) S = Y.
D) S = -1, Y.

8. Chapter 4 Aggregate Expenditure and Equilibrium Output
6) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
7) Refer to Figure 8.1. This householdʹs consumption function is
A) C = Y.
B) C = Y.
C) C = Y.
D) C = 1, Y.

10. Chapter 4 Aggregate Expenditure and Equilibrium Output
8) Refer to Figure 8.1. This household saves -$300 at an income level of
A) $400.
B) $300
C) $250.
D) $125.

11. Chapter 4 Aggregate Expenditure and Equilibrium Output
9) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
10) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
11) If the saving function is of the form S = Y, consumption at an income level of 200 is
A) 80.
B) 120.
C) 160.
D) 180.
Answer: C

14. Chapter 4 Aggregate Expenditure and Equilibrium Output
12) If Lilyʹs consumption function is of the form C = Y, 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. 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
13) Refer to Table 8.1. The equation for the aggregate consumption function is
A) C = Y.
B)C = Y.
C) C = Y.
D)C = Y.

17. Chapter 4 Aggregate Expenditure and Equilibrium Output
14) Refer to Table 8.1. Societyʹs MPC is
0.90. B) C) D) 0.05.
15) Refer to Table 8.1. Societyʹs MPS is
0.05. B) C) D) 0.95.
16) 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. 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
17) Refer to Figure 8.3. The equation for the aggregate consumption function is
A) C = Y.
B)C = Y.
C) C = Y.
D) C = Y.

20. Chapter 4 Aggregate Expenditure and Equilibrium Output
18) Refer to Figure 8.3. The equation for the aggregate saving function is
A) S = Y.
B)S = Y.
C)S = Y.
D)S = Y

21. Chapter 4 Aggregate Expenditure and Equilibrium Output
19) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
20) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
21) 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. 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
22) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
23) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
24) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
25) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
26) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
27) If C = Y and I = 50, then the equilibrium level of income is
A) 600. B) 375. C) D) 750.
Answer: D
28) If C = 1, Y and I = 500, then planned saving equals planned investment at aggregate output level of
A) 8,000. B) 20,000. C) 2, D) 10,000.
Answer: A

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. Chapter 4 Aggregate Expenditure and Equilibrium Output
29) Refer to Figure 8.8. What is the equation for the aggregate expenditure function (AE)?
A) AE = Y.
B) AE = Y.
C) AE = Y.
D) AE = Y.

33. Chapter 4 Aggregate Expenditure and Equilibrium Output
30) Refer to Figure 8.8. Equilibrium output equals
A) 100.
B) 200.
C) 150.
D) 300.

34. Chapter 4 Aggregate Expenditure and Equilibrium Output
31) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
32) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
33) Firms react to unplanned inventory reductions by
A) reducing output.
B) increasing output.
C) reducing planned investment.
D) increasing consumption.
Answer: B

37. Chapter 4 Aggregate Expenditure and Equilibrium Output
Refer to the information provided in Figure 8.10 below to answer the questions that follow.

38. Chapter 4 Aggregate Expenditure and Equilibrium Output
34) Refer to Figure The value of the multiplier is
A) 2.
B) 2.5.
C) 3.
D) 4.
Answer: D

39. Chapter 4 Aggregate Expenditure and Equilibrium Output
35) Refer to Figure 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
36) Refer to Figure 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
37) Refer to Figure 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
38) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
39) Refer to Figure 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
40) 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. Chapter 4 Aggregate Expenditure and Equilibrium Output
41) 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.