AP Macro MACRO: Concepts and Models 3

Question 1

In the Keynesian model, the primary determinant of aggregate expenditure in the short run is:

Accepted Answer

Aggregate income and output

Answer

In the Keynesian expenditure model, spending components like consumption are primarily driven by the level of income and output (Y).

Question 2

The multiplier effect in the Keynesian model occurs because:

Accepted Answer

An initial change in spending generates subsequent rounds of income and spending

Answer

An initial injection of spending becomes income for others, who then spend a fraction, creating a chain reaction that multiplies the initial impact on GDP.

Question 3

If the marginal propensity to consume (MPC) is 0.75, the simple spending multiplier is:

Accepted Answer

4

Answer

The simple multiplier = 1 / (1 - MPC) = 1 / (1 - 0.75) = 1 / 0.25 = 4.

Question 4

In the aggregate expenditure (AE) model, equilibrium GDP is determined where:

Accepted Answer

AE = GDP (actual output)

Answer

Equilibrium in the AE model occurs where planned aggregate expenditures equal actual output (GDP), so there is no unplanned inventory change.

Question 5

Which of the following would shift the aggregate demand (AD) curve to the right?

Accepted Answer

An increase in government spending

Answer

Increased government spending raises total spending in the economy, directly shifting the AD curve rightward.

AP Practice Test

AP Practice Test

AP Macro MACRO: Concepts and Models 3