CH 30

The equation for aggregate expenditure in an open economy is:

• Y - C - I

• C - I - G - NX

• C + I + G + (X - M)

• C + I + G

Consumption is $151 billion, government expenditure is $70.2 billion, investment is $65.8 billion, and net
exports amount to -$21 billion. What is aggregate expenditure in this economy?

• $308 billion

• $287 billion

• $266 billion

• $151 billion

Refer to the table shown here. What is the level of aggregate expenditure in the economy?

• -$0.6 trillion

• $11.76 trillion

• $13.91 trillion

• $11.16 trillion

If Y > AE, what will happen in the economy?

• There will be a build-up of inventories in the economy.

• The stock of inventories will fall in the economy.

• Managers will respond by ramping up production.

• The economy has surpassed potential GDP.

If Y < AE, what will happen in the economy?

• Managers will respond by lowering production.

• The stock of inventories will fall in the economy.

• The economy must be producing less than potential GDP.

• There will be a build-up of inventories in the economy.

If actual GDP is less than potential GDP, what can be inferred?

• Businesses are producing at maximum capacity.

• Unemployment must be less than the natural rate of unemployment.

• The economy can experience deflation.

• Planned investment will be less than actual investment.

If actual GDP is greater than potential GDP, what can be inferred?

• Unemployment must be higher than the natural rate of unemployment.

• Businesses are not producing at maximum capacity.

• Businesses can easily increase supply.

• The economy can experience inflation.

If potential GDP is $19.04 trillion and actual GDP is $20.07 trillion, what is the output gap?

• 1.03%

• 5.41%

• 5.13%

• -1.03%

When does the output gap become zero?

• The economy is experiencing macroeconomic equilibrium.

• Potential GDP meets actual GDP.

• Planned investment equals actual investment.

• Monetary and fiscal policy are in agreement.

How is the IS curve constructed?

• Plotting savings at each real interest rate.

• Adding consumption and savings at each real interest rate.

• Adding up consumption and investment and plotting these two expenditure levels to income.

• Adding up the level of aggregate expenditure at each real interest rate.