#1
Which of the following is a component of aggregate expenditure in macroeconomics?
Government spending
ExplanationGovernment spending contributes to total spending in the economy.
#2
What is the formula for calculating aggregate expenditure?
Consumption + Investment + Government spending + Net exports
ExplanationAggregate expenditure is the sum of consumption, investment, government spending, and net exports.
#3
What is the relationship between aggregate expenditure and GDP in macroeconomics?
Aggregate expenditure is always equal to GDP
ExplanationIn macroeconomic equilibrium, aggregate expenditure matches GDP.
#4
What is the difference between planned investment and actual investment in macroeconomics?
Planned investment considers future expectations, while actual investment reflects current expenditures
ExplanationPlanned investment includes firms' expectations, while actual investment represents realized spending.
#5
What does the term 'crowding out' refer to in macroeconomics?
A decrease in private investment caused by increased government borrowing
ExplanationGovernment borrowing can absorb funds, reducing resources available for private investment.
#6
What does the aggregate expenditure line represent in the Keynesian cross diagram?
Equilibrium income at different expenditure levels
ExplanationIt depicts the level of income where planned spending equals output.
#7
In the Keynesian cross model, what happens if planned expenditure exceeds actual output?
A decrease in inventories
ExplanationExcess planned spending leads to depleted inventories.
#8
In the Keynesian cross model, what does the 45-degree line represent?
Equilibrium level of income
ExplanationIt signifies the point where planned spending equals actual output.
#9
What is the significance of the consumption function in macroeconomics?
It illustrates how consumption varies with income
ExplanationThe function shows how changes in income influence consumer spending.
#10
Which of the following is NOT a component of planned investment in the Keynesian model?
Government spending on infrastructure
ExplanationPlanned investment excludes government spending on infrastructure.
#11
What is the slope of the consumption function in the Keynesian model?
Less than 1
ExplanationThe slope indicates that consumption increases less than proportionally to income.
#12
Which of the following is an assumption of the simple Keynesian model of macroeconomic equilibrium?
Aggregate supply equals aggregate demand
ExplanationThe model assumes equilibrium when total demand matches total supply.
#13
What is the multiplier effect in macroeconomics?
The process by which an initial change in spending leads to a larger change in national income
ExplanationIt demonstrates how initial spending ripples through the economy, magnifying its impact.
#14
What happens to the equilibrium level of income if there is an increase in autonomous consumption in the Keynesian model?
The equilibrium level of income increases
ExplanationHigher autonomous consumption raises overall demand, pushing equilibrium income up.
#15
What is the difference between the expenditure multiplier and the tax multiplier?
Expenditure multiplier affects overall spending, while tax multiplier affects disposable income
ExplanationThe expenditure multiplier measures the impact of spending changes, while the tax multiplier quantifies the effect of tax changes on disposable income.
#16
In the Keynesian model, what effect does an increase in the marginal propensity to consume (MPC) have on the multiplier?
Increases the multiplier
ExplanationHigher MPC implies more of each additional dollar is spent, amplifying the multiplier effect.
#17
What is the significance of the marginal propensity to consume (MPC) in the Keynesian model?
It indicates the fraction of disposable income spent on consumption
ExplanationMPC reflects the portion of additional income that consumers spend.