School of Economics and Politics

First Year
Fall 2025
E101: Principles of Macroeconomics
Tutorial
AL. Dina Abdelhafiz

Tutorial 13
Chapter 28: Expenditure Multipliers

Question 1: Choose the correct answer:

1. The Keynesian model of aggregate expenditure describes the economy in

A) the short run.
B) the long run.
C) both the short run and the long run.
D) only a strong expansion.

2. The Keynesian model of aggregate expenditure assumes that

A) individual firmsʹ prices are flexible but the price level is fixed.
B) both individual firmsʹ prices and the price level are flexible.
C) both individual firmsʹ prices and the price level are fixed.
D) individual firmsʹ prices are fixed but the price level is flexible.

3. In the very short term, in the Keynesian model, which of the following is fixed and does
not change when GDP changes?
A) planned investment
B) planned consumption
C) planned imports
D) All of the above answers are correct

4. The components of aggregate expenditure include

I. imports.
II. consumption.
III. government transfer payments.
A) I and II
B) II only
C) II and III
D) I, II and III

5. Which of the following statements is FALSE?

A) Disposable income - saving = consumption expenditure.
B) Consumption expenditure + saving = disposable income.
C) Saving = disposable income - consumption expenditure.
D) Consumption expenditure = saving - disposable income.

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6. Real GDP
A) is always greater than aggregate income.
B) is always less than aggregate income.
C) might be less than or more than aggregate income depending on consumption.
D) is equal to aggregate income.

7. A consumption function shows a

A) negative (inverse) relationship between consumption expenditure and saving.
B) positive (direct) relationship between consumption expenditure and price level.
C) negative (inverse) relationship between consumption expenditure and disposable
income.
D) positive (direct) relationship between consumption expenditure and disposable
income.

8. The consumption function shows how much

A) all households plan to consume at each level of real disposable income.
B) all households plan to consume at each possible real interest rate.
C) real disposable income people will earn at each income tax bracket.
D) all households plan to consume at each level of savings.

9. The slope of the consumption function is

A) less than 1.
B) 1.
C) greater than 1.
D) negative.

10. A movement along the consumption function to higher levels of consumption

expenditure arises because
A) the level of disposable income decreases.
B) household wealth rises.
C) the level of disposable income increases.
D) the level of desired saving rises.

11. An increase in expected future income ________.

A) decreases consumption expenditure
B) increases saving
C) shifts the consumption function upward
D) shifts the saving function upward

12. ________ consumption is consumption that will occur ________ the level of GDP and
disposable income.
A) Autonomous; independent of
B) Autonomous; depending on
C) Induced; independent of
D) None of the above answers is correct.

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13. In the above figure, consumption and disposable income are equal at
A) any point along the consumption function.
B) a saving level of $1 trillion and disposable income level of $4 trillion.
C) a disposable income level of $0.
D) a disposable income level of $2 trillion.

14. In the above figure, at a disposable income level of $2 trillion, saving equals
A) disposable income.
B) zero.
C) $4 trillion.
D) consumption expenditures.

15. In the above figure, the line AB is called

A) the saving function.
B) the consumption function.
C) the 45-degree line.
D) the expenditure function.

16. When the consumption function lies above the 45-degree line, households
A) spend on consumption an increasing percentage of any increase in income.
B) spend on consumption a decreasing percentage of any increase in income.
C) are dissaving.
D) save all of any increase in income.

17. If the consumption function lies below the 45-degree line, then saving at these levels of
disposable income will
A) be positive.
B) be negative.
C) equal zero.
D) be some amount that cannot be determined without additional information.

18. At a level of disposable income of $0, consumption expenditure is $3500. Therefore,

when disposable income is $0,
A) saving and dissaving equal $0.

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 B) saving equals -$3500.
C) saving equals $3500.
D) the MPC = zero.

19. The marginal propensity to consume refers to

A) the additional saving that occurs out of an additional dollar of disposable income.
B) the additional consumption expenditure that occurs out of an additional dollar of
disposable income.
C) the additional consumption expenditure that occurs out of an additional dollar of
investment.
D) total consumption expenditure divided by total disposable income.

20. If consumption expenditures for a household increase from $1000 to $1800 when
disposable income rises from $1000 to $2000, the marginal propensity to consume is
A) 0.8.
B) 0.18.
C) 0.3.
D) 0.2.

21. When disposable income increases from $7 trillion to $7.5 trillion, consumption
expenditure increases from $6.5 trillion to $6.9 trillion. The MPS is equal to
A) 0.75.
B) 0.76.
C) 0.8.
D) 0.2.

22. For a household, the marginal propensity to save plus the marginal propensity to consume
A) equals 1.
B) equals 0.
C) equals a number that is larger the larger the householdʹs disposable income.
D) equals a number that is smaller the larger the householdʹs disposable income.

23. When the consumption function becomes steeper,

A) less of every dollar is consumed.
B) the saving function also become steeper.
C) the MPC rises.
D) the MPC falls.

24. When Egypt’s real GDP increases, then quantity of Egyptian imports
A) decreases.
B) increases.
C) remains constant.
D) at first decreases and then increases.

25. The aggregate expenditure curve shows

A) how consumption changes in response to a change in disposable income.

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 B) how planned aggregate expenditure and real GDP are related.
C) a negative relationship between the price level and real GDP.
D) Both answers B and C are correct.

26. The sum of the components of aggregate expenditure that vary with real GDP is called
A) induced expenditures.
B) the MPC.
C) autonomous expenditures.
D) autonomous consumption.

27. An increase in Egyptian exports because of increasing foreign incomes is ________ in

Egypt.
A) an increase in autonomous expenditure
B) a decrease in autonomous expenditure
C) an increase in induced expenditure
D) a decrease in induced expenditure

28. Aggregate planned expenditure

A) always equals actual aggregate expenditure.
B) is always less than actual aggregate expenditure.
C) is always greater than actual aggregate expenditure.
D) equals actual aggregate expenditure at the equilibrium level of real GDP.

29. When there is unplanned inventory investment, aggregate planned expenditure is

________ real GDP and actual investment is ________ planned investment.
A) greater than; greater than
B) greater than; less than
C) less than; greater than
D) less than; less than

30. If prices are fixed, when aggregate planned expenditure exceeds real GDP, then
A) inventories decrease, signaling firms to increase production and increase real
GDP.
B) inventories increase, signaling firms to decrease production and decrease real
GDP.
C) profits fall, signaling firms to decrease production and decrease real GDP.
D) None of the above answers are correct.

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31. In the above figure the economy is initially at point A on aggregate expenditure curve
AE0. Suppose firms expect profits to increase and decide to increase investment. As a
result
A) the AE curve shifts upward to a curve such as AE 2.
B) the AE curve shifts downward to a curve such as AE 1.
C) there is a movement along AE1 to a point such as B.
D) there is a movement along AE1 to a point such as C.

32. In the above figure the economy is initially at point A on aggregate expenditure curve
AE0. Suppose investment decreases. As a result
A) the AE curve shifts upward to a curve such as AE 2.
B) the AE curve shifts downward to a curve such as AE 1.
C) there is a movement along AE1 to a point such as B.
D) there is a movement along AE1 to a point such as C.

33. The multiplier effect

A) generates instability in autonomous expenditure.
B) promotes stability of the general price level.
C) magnifies small changes in spending into larger changes in real GDP.
D) increases the MPC.

34. The multiplier effect on real GDP occurs because

A) changes in price levels affect our willingness to invest, consume, import and
export.
B) an autonomous change in expenditure causes an induced change in consumption
expenditure.
C) of government stabilization policies.
D) of income taxes.

35. The multiplier is the ratio of the

A) change in real GDP to the change in autonomous expenditures.

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 B) equilibrium level of real GDP to the change in induced expenditures.
C) change in induced expenditures to the change in autonomous expenditures.
D) change in autonomous expenditures to the change in real GDP.

36. If investment increases by $300 and, in response, equilibrium aggregate expenditure

increases by $600, the multiplier is
A) 0.2.
B) 0.5.
C) 2.
D) 5.

37. If the multiplier is 6 and exports decrease by $30, what impact will that have on
aggregate expenditure?
A) increase by $30
B) increase by $180
C) decrease by $30
D) decrease by $180

38. An increase in the size of the multiplier can be caused by

A) an increase in the MPS.
B) an increase in the MPC.
C) a decrease in induced expenditures.
D) an increase in the marginal propensity to import.

39. In an economy with no income taxes or imports, the multiplier equals

A) 1/MPC.
B) 1/MPS.
C) 1/(1 - MPS).
D) 1/(MPC + MPS).

40. If the slope of the AE curve increases, the multiplier

A) decreases.
B) increases.
C) stays the same.
D) can either increase or decrease depending on what happens to the MPC.

41. Suppose that last year the slope of the AE curve is 0.67 and this year the slope of the AE
curve changes to 0.8. Which of the following best describes what happens to the
multiplier?
A) It rises from 3 to 5.
B) It falls from 5 to 3.
C) It rises from 1.25 to 1.49.
D) It falls from 1.49 to 1.25.

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 42. In a simple economy in which prices are constant and with no income taxes or imports,
the marginal propensity to save is 0.2. If exports increase $50, what impact will that have
on aggregate expenditure?
A) increase by $250
B) increase by $100
C) decrease by $250
D) decrease by $100

43. The data in the above table indicate that autonomous expenditure is
A) $0.3 trillion.
B) $3.0 trillion.
C) $4.8 trillion.
D) None of the above answers is correct.

44. In the above table, equilibrium expenditure is

A) $0.3 trillion.
B) $3.0 trillion.
C) $4.8 trillion.
D) None of the above answers are correct.

45. The data in the above table indicate that the slope of the AE curve is
A) 0.30.
B) 0.50.
C) 0.90.
D) None of the above answers are correct.

46. In the above table, suppose investment decreases by $0.1 trillion. The multiplier equals
A) 5.0.
B) 9.0.
C) 10.0.
D) None of the above answers are correct.

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Question 2:

1. The above table gives information for a nation. There are no imports or exports.
a) Find aggregate planned expenditure for each level of real GDP.
b) What is the equilibrium level of real GDP?

2. The above figure shows the AE curve and 45° line for an economy.
a) If real GDP equals $8 trillion, how do firmsʹ inventories compare to their planned
inventories?
b) If real GDP equals $16 trillion, how do firmsʹ inventories compare to their planned
inventories?
c) What is the equilibrium level of expenditure? Why is this amount the equilibrium?

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 3. The slope of the AE curve is 0.80. What is the multiplier? Everything else the same, by
how much does equilibrium aggregate expenditure increase if
a) exports increase from $1.75 trillion to $2.25 trillion.
b) government expenditure on goods and services decreases from $2.0 trillion to $1.8
trillion.
c) investment increases from $1.2 trillion to $2.3 trillion.

4. In the country of Midland, autonomous consumption expenditure is $60 million, and the
marginal propensity to consume is 0.6. Investment is $110 million, government
expenditure is $70 million, and there are no income taxes. Investment and government
expenditure are constant – they do not vary with income. The nation does not trade with
the rest of the world.
a) Draw the aggregate expenditure curve.
b) What is the autonomous aggregate expenditure?
c) What is the size of the multiplier in Midlandʹs economy?
d) What is aggregate planned expenditure and what is happening to inventories when real
GDP is $800 million?
e) What is the economyʹs equilibrium aggregate expenditure?

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Question 3: Short Answer Questions:

1. Explain the relationship between consumption, disposable income and saving.

2. What does the marginal propensity to consume measure and how is it related to the
consumption function?

3. What is the difference between induced and autonomous expenditure? Which

components of aggregate expenditure fall under which category?

4. How does the economy adjust so that aggregate planned expenditure equals real GDP?

5. Explain why the multiplier is greater than 1.

6. What is the relationship between the aggregate expenditure curve and the aggregate
demand curve? Explain the relationship.

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