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# ECON

The investment schedule shows the

inverse relationship between the expected rate of return and the quantity of investment demanded.

positive relationship between the expected rate of return and the quantity of investment demanded.

C. amounts business firms collectively intend to invest at each possible level of GDP.

D. rate of interest that business firms must pay when they make investments in capital goods.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-02 Explain how an economys investment schedule is derived from the investment demand curve and an interest rate.

Test Bank: II Topic: Consumption and Investment Schedules

The difference between the investment demand curve and the investment schedule is that the former shows

a direct relationship between investment and interest rate, while the latter shows no correlation between investment and income.

B. an inverse relationship between investment and interest rate, while the latter shows no correlation between investment and income.

a direct relationship between investment and income, while the latter shows no correlation between investment and interest rate.

an inverse relationship between investment and income, while the latter shows no correlation between investment and interest rate.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-02 Explain how an economys investment schedule is derived from the investment demand curve and an interest rate.

Test Bank: II Topic: Consumption and Investment Schedules

Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model?

the saving schedule

B. the investment schedule

the consumption schedule

the investment demand curve

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-02 Explain how an economys investment schedule is derived from the investment demand curve and an interest rate.

Test Bank: II Topic: Consumption and Investment Schedules

In the aggregate expenditures model, which of the following variables is assumed to be independent of real GDP?

profit

saving

C. investment

D. consumption

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-02 Explain how an economys investment schedule is derived from the investment demand curve and an interest rate.

Test Bank: II Topic: Consumption and Investment Schedules

243.

The accompanying graph indicates that

A. I'g is an investment schedule that assumes that the investment plans of business are independent of the current level of income, whereas Ig does not.

B. Ig is an investment schedule that assumes that the investment plans of business are independent of the current level of income, whereas I'g does not.

the equilibrium level of investment is determined at the point where investment schedule I'g crosses the Ig investment schedule.

investment schedule I'g shows the inverse relationship between real domestic product and investment.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-02 Explain how an economys investment schedule is derived from the investment demand curve and an interest rate.

Test Bank: II Topic: Consumption and Investment Schedules

A rightward shift of the investment demand curve will

shift the investment schedule downward.

B. shift the investment schedule upward.

decrease the quantity of investment.

decrease the real rate of interest.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-02 Explain how an economys investment schedule is derived from the investment demand curve and an interest rate.

Test Bank: II Topic: Consumption and Investment Schedules

If the real interest rate falls, then the

investment schedule will shift upward.

investment schedule will shift downward.

point moves along the investment schedule to the right.

consumption schedule will shift downward.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-02 Explain how an economys investment schedule is derived from the investment demand curve and an interest rate.

Test Bank: II Topic: Consumption and Investment Schedules

If the stock of available capital in the economy is running too low, then the

investment schedule will shift upward.

investment schedule will shift downward.

consumption schedule will shift upward.

consumption schedule will shift downward.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-02 Explain how an economys investment schedule is derived from the investment demand curve and an interest rate.

Test Bank: II Topic: Consumption and Investment Schedules

If the expected rate of return on investment decreases, then most likely the

investment schedule will shift upward.

B. investment schedule will shift downward.

consumption schedule will shift upward.

consumption schedule will shift downward.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-02 Explain how an economys investment schedule is derived from the investment demand curve and an interest rate.

Test Bank: II Topic: Consumption and Investment Schedules

In a private closed economy, the equilibrium condition for the economy is

AE = C + Ig = GDP.

AE = G + Ig = GDP.

AE = C + Ig + G = GDP.

C + Ig + G + NX = GDP.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

When aggregate expenditure is greater than GDP, then there will be an

unplanned increase in inventories and GDP will increase.

B. unplanned decrease in inventories and GDP will increase.

unplanned increase in inventories and GDP will decrease.

unplanned decrease in inventories and GDP will decrease.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

In a private closed economy, there will be an unplanned increase in inventories when

aggregate expenditures exceed GDP.

aggregate expenditures exceed (C + Ig).

(C + Ig) exceeds aggregate expenditures.

D. GDP exceeds aggregate expenditures.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

251.

The table gives data for a private (no government) closed economy. All figures are in billions of dollars. If planned investment is \$25 billion, then aggregate expenditures at the income level of \$560 billion will be

A. \$565 billion.

B. \$580 billion.

\$585 billion.

\$595 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

252.

The table gives data for a private (no government) closed economy. All figures are in billions of dollars. If planned investment is \$25 billion, the equilibrium level of GDP will be

\$600 billion.

\$620 billion.

C. \$640 billion.

D. \$660 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

253.

The table gives data for a private (no government) closed economy. All figures are in billions of dollars. If planned investment is \$15 billion, then at the \$560 billion level of output, there will be an

unplanned increase in inventories of \$5 billion.

unplanned increase in inventories of \$10 billion.

unplanned decrease in inventories of \$5 billion.

D. unplanned decrease in inventories of \$10 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

254.

The table gives data for a private (no government) closed economy. All figures are in billions of dollars. If planned investment is \$18 billion, then at the \$660 billion level of disposable income, there will be an

A. unplanned increase in inventories of \$12 billion.

unplanned increase in inventories of \$30 billion.

unplanned decrease in inventories of \$12 billion.

unplanned decrease in inventories of \$30 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

255.

Refer to the table. All figures are in billions of dollars. When there is no investment in this private closed economy, the equilibrium level of GDP will be

A. \$240 billion.

B. \$250 billion.

\$260 billion.

\$270 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

256.

Refer to the table. All figures are in billions of dollars. If gross investment is \$12 billion, the equilibrium level of GDP will be

\$260 billion.

\$270 billion.

C. \$280 billion.

D. \$290 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

257.

Refer to the table. All figures are in billions of dollars. Suppose investment is \$12 billion and the economy revises its saving plans so as to save \$4 billion less at all levels of income. The new equilibrium GDP will be

\$260 billion.

\$270 billion.

\$280 billion.

D. \$290 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

258.

Refer to the graph for a private closed economy. In this economy, investment is

A. \$50 billion.

B. \$100 billion.

\$150 billion.

\$200 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

Type: Graph

259.

Refer to the graph for a private closed economy. The equilibrium level of GDP in this economy is

\$150 billion.

\$250 billion.

\$350 billion.

D. \$450 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

Type: Graph

260.

Refer to the graph for a private closed economy. At the equilibrium level of GDP, saving will be

A. \$50 billion.

B. \$100 billion.

\$150 billion.

an amount that cannot be determined from the information given.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

Type: Graph

261.

Refer to the graph for a private closed economy. At the \$150-billion level of GDP,

aggregate expenditures are less than real GDP, so GDP will rise.

aggregate expenditures are more than real GDP, so GDP will fall.

C. aggregate expenditures are more than real GDP, so GDP will rise.

D. aggregate expenditures will be equal to GDP, so there will be no change in GDP.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

Type: Graph

262.

Refer to the graph for a private closed economy. When output or income is \$350 billion, there will be

equilibrium GDP.

saving exceeding planned investment.

unplanned increases in inventories.

D. unplanned decreases in inventories.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

Type: Graph

263.

The table shows a private closed economy. All figures are in billions of dollars. If the real rate of interest is 2 percent, then the equilibrium level of GDP will be

\$800 billion.

\$1000 billion.

C. \$1200 billion.

D. \$1400 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

264.

The table shows a private closed economy. All figures are in billions of dollars. An increase in the real interest rate from 2 percent to 6 percent will

decrease the equilibrium level of GDP by \$200 billion.

decrease the equilibrium level of GDP by \$300 billion.

C. decrease the equilibrium level of GDP by \$400 billion.

D. increase the equilibrium level of GDP by \$400 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-03 Illustrate how economists combine consumption and investment to depict an aggregate expenditures schedule for a private closed economy and how that schedule can be used to demonstrate the economys equilibrium level of output where the total quantity of goods produced equals the total quantity of goods purchased.

Test Bank: II Topic: Equilibrium GDP: C Ig = GDP

Which of the following will not occur when the economy is at its equilibrium GDP level?

Aggregate expenditures = GDP.

B. Inventories will be zero.

Saving equals planned investment.

There are no unplanned changes in inventories.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

In the flow of income and spending, saving and investment are, respectively,

an injection and a leakage.

B. a leakage and an injection.

wealth and income.

income and wealth.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

If GDP exceeds aggregate expenditures in a private closed economy,

saving will exceed planned investment.

planned investment will exceed saving.

planned investment will exceed actual investment.

injections will exceed leakages.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

When planned investment exceeds saving in a private closed economy,

aggregate expenditures will equal GDP.

B. aggregate expenditures will exceed GDP.

aggregate expenditures will be less than GDP.

consumption plus investment will equal GDP.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

If actual investment exceeds planned investment in a private closed economy, then

real GDP will decrease.

real GDP will increase.

saving exceeds planned investment.

there is an unplanned decrease in inventories.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

When saving is less than planned investment in the aggregate expenditures model of a private closed economy, then

real GDP will decrease

the rate of interest will decline.

there will be a decline in the price level.

D. there will be a rise in real GDP.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

Which of the following is not true when there is an unplanned decrease in inventories?

GDP is less than aggregate expenditures.

Saving is less than planned investment.

C. Actual investment is greater than planned investment.

D. Real GDP will be rising.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

Saving is \$15 billion at the \$125 billion equilibrium level of output in a closed, private economy. Actual investment must be

less than saving

greater than saving.

C. equal to \$15 billion.

D. equal to \$125 billion.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

Planned investment is \$20 billion and saving is \$15 billion when GDP in the economy is \$180 billion. The economy

is at the equilibrium level of GDP.

B. is disequilibrium and its GDP will increase.

is disequilibrium and its GDP will decrease.

has a GDP level that is greater than its aggregate expenditures.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

Saving is \$40 billion and planned investment is \$28 billion at the \$175 billion level of output in a private closed economy. At this level,

consumption will be \$147 billion.

actual investment will be \$28 billion.

C. unplanned investment will be positive \$12 billion.

D. unplanned investment will be negative \$12 billion.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

Actual investment is \$28 billion and saving is \$15 billion at the \$166 billion level of output in a private closed economy. At this level,

consumption will be \$151 billion.

planned investment will be \$13 billion.

unplanned investment will be \$15 billion.

planned investment minus saving will be \$38 billion.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

Consumption is \$141 billion, planned investment is \$15 billion, and saving is \$15 billion in a private, closed economy. At this level,

actual investment does not equal planned investment.

there will be unplanned increases in inventories.

there will be unplanned decreases in inventories.

D. the economy is in equilibrium.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 11-04 Discuss the two other ways to characterize the equilibrium level of real GDP in a private closed economy: saving = investment, and no unplanned changes in inventories.

Test Bank: II Topic: Other Features of Equilibrium GDP

If the MPC in an economy is 0.75 and aggregate expenditures increase by \$5 billion, then equilibrium GDP will increase by

\$3.75 billion.

\$6.7 billion.

\$8.75 billion.

D. \$20 billion.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation

Blooms: Analyze Difficulty: 03 Hard

Learning Objective: 11-05 Analyze how changes in equilibrium real GDP can occur in the aggregate expenditures model and describe how those changes relate to the multiplier.

Test Bank: II Topic: Changes in Equilibrium GDP and the Multiplier

278.

The table gives data for a private closed economy. All figures are in billions of dollars. The MPC and multiplier are, respectively,

A. 0.80 and 5.

B. 0.75 and 4.

C. 0.75 and 1.33.

D. 0.80 and 1.25.

AACSB: Analytical Thinking

Blooms: Analyze Difficulty: 03 Hard

Learning Objective: 11-05 Analyze how changes in equilibrium real GDP can occur in the aggregate expenditures model and describe how those changes relate to the multiplier.

Test Bank: II Topic: Changes in Equilibrium GDP and the Multiplier

279.

Refer to the graph for a private closed economy. The multiplier for the economy in the graph is

A. 2.

B. 3.

4.

5.

AACSB: Analytical Thinking

Blooms: Analyze Difficulty: 03 Hard

Learning Objective: 11-05 Analyze how changes in equilibrium real GDP can occur in the aggregate expenditures model and describe how those changes relate to the multiplier.

Test Bank: II Topic: Changes in Equilibrium GDP and the Multiplier

Type: Graph

280.

Refer to the graph for a private closed economy. If the consumption schedule shifts up by \$50 B at all levels of income or output, then the equilibrium GDP will increase to

A. \$550 B. B. \$300 B. C. \$600 B. D. \$150 B.

AACSB: Analytical Thinking

Blooms: Analyze Difficulty: 03 Hard

Learning Objective: 11-05 Analyze how changes in equilibrium real GDP can occur in the aggregate expenditures model and describe how those changes relate to the multiplier.

Test Bank: II Topic: Changes in Equilibrium GDP and the Multiplier

Type: Graph

In a private closed economy where MPC = 0.8, if consumers reduce their spending by \$10 billion and firms cut investments by \$5 billion, then equilibrium GDP will decrease by