Aggregate Expenditure and Economic Equilibrium

• Consumption (C)

• Investment (I)

• Government spending (G)

• Savings (S)

An increase in which of the following is most likely to directly increase aggregate expenditure (AE)?

• Imports (M)

• Exports (X)

• Taxes

• Interest rates

Which factor is most likely to increase investment (I) in the AE model?

• Higher interest rates

• Lower business confidence

• Lower interest rates

• Increased imports

Government spending (G) in the AE model refers to:

• All government outlays, including transfer payments

• Only government purchases of goods and services

• Only government subsidies

• Only government investment in infrastructure

If the marginal propensity to consume (MPC) is 0.8, what is the marginal propensity to save (MPS)?

• 0.2

• 0.8

• 1.0

• 0.5

The consumption function shows the relationship between:

• Consumption and investment

• Consumption and income

• Consumption and government spending

• Consumption and exports

Which of the following would cause a downward shift in the consumption function?

• Increase in disposable income

• Increase in consumer confidence

• Increase in taxes

• Decrease in interest rates

If aggregate expenditure (AE) is greater than output (Y), what is likely to happen to inventories?

• Inventories will rise

• Inventories will fall

• Inventories will remain unchanged

• Inventories will be destroyed

Which of the following best describes macroeconomic equilibrium in the AE model?

• When AE is less than output

• When AE equals output

• When AE is greater than output

• When inventories are increasing