Question 3 (2 pts) All of the following are components of aggregate expenditure except: - Consumption spending. - Government spending. - Planned investment spending. - Actual investment spending. - Net export spending. Question 4 (2 pts) What would you expect to be true if firms find that consumers are purchasing more than expected? - Aggregate expenditure will likely be greater than GDP. - Aggregate expenditure will likely be less than GDP. - The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment fall. - The economy will adjust to macroeconomic equilibrium as inventories rise, and production and employment fall. Question 5 (2 pts) An economy's consumption increases by $56.6 million when disposable income increases by $922.8 million. Assuming the marginal propensity to consume remains constant, what is the marginal propensity to save? Please round to the closest two decimal places. Question 6 (2 pts) Holding all else constant, if the economy's marginal propensity to save (MPS) increases, the consumption function will: - Shift upwards - Not change - Become steeper - Become flatter - Shift downwards Question 7 (2 pts) Assume that, coming out of a recession, firms are more optimistic that future profits will rise and remain high for the next few years. If this is true, then: - Investment spending will remain unaffected. - Investment spending will rise and then fall. - Investment spending will fall. - Investment spending will rise. Question 8 (2 pts) If the price level in the United States is changing at a faster rate than the price level in other countries, what will be the effect on net exports for the United States? - Net exports will decrease as U.S. imports decrease. - Net exports will decrease as U.S. exports decrease. - Net exports will rise as U.S. imports decrease. - Net exports will rise as U.S. exports increase.
Answer (1)
Question 3: The component of aggregate expenditure that is not included is Actual investment spending . Aggregate expenditure includes planned investment spending, not actual investment spending, because the focus is on planned economic activity rather than what actually occurs.
Question 4: If firms find that consumers are purchasing more than expected, aggregate expenditure will likely be greater than GDP . When demand is higher than expected, it indicates that planned aggregate expenditure exceeds actual output (GDP), leading to a decrease in inventories and potentially prompting firms to increase production.
Question 5: To find the marginal propensity to save (MPS) when consumption increases by $56.6 million with a disposable income increase of $922.8 million, you first find the marginal propensity to consume (MPC):
MPC = 922.8 56.6 ≈ 0.06
The MPC and MPS must add up to 1, so:
MPS = 1 − MPC = 1 − 0.06 = 0.94
Question 6: If the economy's marginal propensity to save (MPS) increases, the consumption function will become flatter . An increase in MPS means a decrease in MPC, leading to a smaller slope in the consumption curve.
Question 7: If firms are optimistic about rising future profits following a recession, investment spending will rise . Businesses are more likely to invest in capital and resources, anticipating higher future returns.
Question 8: If the price level in the United States is changing faster than in other countries, net exports will decrease as U.S. exports decrease . Faster rising prices domestically make U.S. goods more expensive for foreign buyers, potentially reducing demand for exports.
