Question

1. In a closed economy to have sustainable output, Aggregate Expenditures are equal to

a. Consumption

b. Consumption + Investment

c. Consumption + Investment + Govemment

d. Consumption + Investment + Net Exports

2. The calculation 1 /(1-MPC) equals

a. Marginal Propensity to Save

b. Multiplier

c. Aggregate Expenditure

d. Average Consumption

3. In a closed economy, when Aggregate Expenditures equal GDP.

a. Consumption equals investment

b. Consumption equals aggregate expenditure

c. Saving = Planned Investment

d. Disposable income equals consumption minus saving

4. Net exports are calculated as

a. Imports

b. Imports - Exports

c. Exports - Imports

d. Exports

5. A change in government spending of $ 20 million and a multiplier of 5 would create a total change in. output of

a. $ 100 million

b. $ 5 million

c. $ 20 million

d. $ 4 million

6. An open economy does not include which component?

a. Consumption

b. Investment

c. Net Exports

d. Govemment

7. In the Aggregate Expenditures model at the sustainable output, unplanned inventories will be

a. positive

b. negative

c. zero

d. equal to consumption

8. In an open economy if AE> Cotton?

a. Output is sustainable

b. Output will decrease

c. Output will increase

d. Output will be unchanged

9. In a closed economy, saving is always equal to

a. Planned investment + unintended inventories.

b. Actual investment

c. Planned investment

d. Unintended changes in inventories

10. In a mixed open economy, equilibrium GDP exists where

a. _______  GDP=C+I+G

b. _______  C+I=S+T+X

c. C+I+X+G=GDP

d. C+I+X=S+T

11. In the Aggregate Expenditure model, when unplanned inventories are greater than zero

a. Consumption will decrease

b. Output will increase

c. Output will decrease

d. Imports will decrease

12. When GDP>AE, what is the situation in the marketplace?

a. shortage

b. equilibrium

c. efficiency

d. surplus

13. In a closed economy the only participants are.

a. Businesses and Investors

b. Consumers and Businesses

c. Government and Consumers

d. Businesses and Government

14. When an economy is at equilibrium this best represents which portion of the business cycle?

a. trough

b. expansion

c. peak

d. recession

15. By including what participant and open economy, becomes a mixed economy?

a. Government

b. Net Exports

c. Unplanned Inventories

d. Consumers

Answer 1

consumption & sumption & Investment & Government. b) multiplier . c) buwing . Planned muertinent c) Exports - imports 5) $20 * 5 $100 (a)

GDPD Pean Recension: Though peer Time Peak is best represents the economy at egal, boum Ayue 110im (c) " Bytocluding guernment sh open economy. becomes mixed ecuring Anus uption (A).

Answer 2

9. In a closed economy , savings is always equal to actual investment. Hence,option(B) is correct.

10. In a mixed open economy , equilibrium GDP exists where C+I+X+G = GDP. Hence,option(C) is correct.

11. In the aggregate expenditure model, when unintended inventories are greater than zero ,then output will decrease. Hence, option(C) is correct.

12. When GDP>AE , this situation implies surplus in the market. Hence,option(D) is correct.

13. In a closed economy , the only participants are consumers and businesses. Hence,option(B) is correct.

Answer 3

consumption & sumption & Investment & Government. b) multiplier . c) buwing . Planned muertinent c) Exports - imports 5) $20 * 5 $100 (a)

Answer 4

(9) a. Planned Investment + unintended inventories. We assume that all income is either consumed or saved and all output is either sold or kept as inventory. That part of the output that is sold equals the part of income spend on consumption. Therefore, it follows that the inventory would equal the savings and inventory is considered to be investment. A part of this inventory is planned by businesses, but there also exists some amount of unplanned inventory. Hence, it follows that saving equals the sum of planned investment as well as unintended inventories.

(10) c. C + I + X + G = GDP

(11) c. Output will decrease. When unplanned inventories rise it indicates that there is overproduction and not adequate demand, hence the buildup of inventories. To prevent inventories from increasing further, firms cut back on production and therefore, output decreases.

(12) d. Surplus. When GDP> AE it implies that there has been a buildup of inventories but not enough expenditure on this output being produced. Thus, it implies that there is a surplus of output in the economy.

(13) b. Consumers and Businesses. Such an economy does not engage in foreign trade and the sole purpose of the economy is to satisfy the requirements of domestic consumers, which is done by domestic businesses.

(14)

(15) a. Government. An economy becomes a mixed economy with the participation of the Government as there are now both private, as well as public players in the economy.

Answer 5

1. In a closed economy to have sustainable output , aggregate expenditure are equal to consumption +Investment . Hence,option(B) is correct.

2. The 1/(1-MPC) equals multiplier. Hence, option(B) is correct.

3. In a closed economy when aggregate expenditure equals GDP , savings equals planned investment . Hence,option(C) is correct.

4. Net exports are calculated as exports -Imports . Hence,option(C) is correct.

5. Change in G= $20 million

multiplier =5

So, total change in output =(5)($20 million) = $100 million. Hence, option (A) is correct.