Question 1

A sudden increase in confidence by the business community could best be represented by

Accepted Answer

A) The consumption curve shifting downward. 
B) The AS curve shifting downward. 
C) An aggregate expenditure curve shifting upward. 
D) An aggregate expenditure curve shifting downward. 
A) The consumption curve shifting downward. 
B) The AS curve shifting downward. 
C) An aggregate expenditure curve shifting upward. 
D) An aggregate expenditure curve shifting downward. C

Question 2

If consumption and investment spending decline,then state and local government spending is likely to

Accepted Answer

A) Decline,leading to more economic instability. 
B) Increase,leading to more economic instability. 
C) Decline,leading to less economic instability. 
D) Increase, leading to less economic instability. 
A) Decline,leading to more economic instability. 
B) Increase,leading to more economic instability. 
C) Decline,leading to less economic instability. 
D) Increase, leading to less economic instability. A

Question 3

Consumption expenditures

Accepted Answer

A) Account for approximately two-thirds of total spending. 
B) Include purchases of new and used goods by consumers. 
C) Are equal to disposable personal income plus personal saving. 
D) Are equal to consumer spending plus transfer payments. 
A) Account for approximately two-thirds of total spending. 
B) Include purchases of new and used goods by consumers. 
C) Are equal to disposable personal income plus personal saving. 
D) Are equal to consumer spending plus transfer payments. A

Question 4

Investment spending includes expenditures on all of the following except

Accepted Answer

A) Stocks and bonds. 
B) Equipment. 
C) Inventory. 
D) Plants or office buildings. 
A) Stocks and bonds. 
B) Equipment. 
C) Inventory. 
D) Plants or office buildings.

Question 5

The MPC + MPS must always equal

Accepted Answer

A) The slope of the consumption function. 
B) 1. 
C) The APC. 
D) 0. 
A) The slope of the consumption function. 
B) 1. 
C) The APC. 
D) 0.

Question 6

Total consumption consists entirely of two components: autonomous consumption and income-dependent consumption.

Accepted Answer

A) True 
 B)False

Question 7

If,in the aggregate,consumers spend 75 cents of every extra dollar received,then the

Accepted Answer

A) APC is 1.25. 
B) APC is 0.75. 
C) MPC is 0.75. 
D) MPS is 0.75. 
A) APC is 1.25. 
B) APC is 0.75. 
C) MPC is 0.75. 
D) MPS is 0.75.

Question 8

What must the value of the average propensity to save (APS)be if the average propensity to consume (APC)is greater than 1? Why?

Accepted Answer

The APS must be negative if the APC is g

Question 9

Full-employment income is the same as the potential GDP of the economy.

Accepted Answer

A) True 
 B)False

Question 10

If the MPC is 0.60 and disposable income increases from $20,000 billion to $22,000 billion,consumption will increase by

Accepted Answer

A) $2,000 billion. 
B) $800 billion. 
C) $1,200 billion. 
D) It is always equal to or greater than 1. 
A) $2,000 billion. 
B) $800 billion. 
C) $1,200 billion. 
D) It is always equal to or greater than 1.

Question 11

Assume there is a decrease in government purchases and exports.Currently there is a recessionary gap,which implies that

Accepted Answer

A) Inventories are accumulating. 
B) Inventories are being depleted. 
C) Desired spending is greater than output. 
D) Investment is greater than saving. 
A) Inventories are accumulating. 
B) Inventories are being depleted. 
C) Desired spending is greater than output. 
D) Investment is greater than saving.

Question 12

Use the following table to answer the questions : Table9.2:
  
-Complete Table 9.2.(Data are expressed in billions of dollars. )  the full-employment level of income (YF)in Table 9.2 is $800 billion,

Accepted Answer

A) The economy is in equilibrium. 
B) There is a recessionary gap of $25 billion. 
C) There is an inflationary gap of $250 billion. 
D) There is a recessionary gap of $275 billion. 
A) The economy is in equilibrium. 
B) There is a recessionary gap of $25 billion. 
C) There is an inflationary gap of $250 billion. 
D) There is a recessionary gap of $275 billion.

Question 13

Unlike the classical economists,Keynes believed that the economy would automatically adjust to full employment.

Accepted Answer

A) True 
 B)False

Question 14

APC is equal to

Accepted Answer

A) The change in total consumption divided by the change in total disposable income. 
B) The change in total saving divided by the change in total disposable income. 
C) Total consumption divided by total disposable income. 
D) Total saving divided by total disposable income. 
A) The change in total consumption divided by the change in total disposable income. 
B) The change in total saving divided by the change in total disposable income. 
C) Total consumption divided by total disposable income. 
D) Total saving divided by total disposable income.

Question 15

Using the disposable income level at which the consumption function intersects the 45-degree line,we can identify

Accepted Answer

A) Full employment at the intersection point. 
B) An inflationary gap to the right of the intersection point. 
C) Dissaving to the left of the intersection point. 
D) Dissaving to the right of the intersection point. 
A) Full employment at the intersection point. 
B) An inflationary gap to the right of the intersection point. 
C) Dissaving to the left of the intersection point. 
D) Dissaving to the right of the intersection point.

Question 16

Given a consumption function of C = $25 + 0.75YD,the average propensity to consume equals 1 when disposable income equals

Accepted Answer

A) $25. 
B) $75. 
C) $100. 
D) -$300. 
A) $25. 
B) $75. 
C) $100. 
D) -$300.

Question 17

Use the following figure to answer the questions : Figure9.3:
  
-the MPC in the economy depicted in Figure 9.3

Accepted Answer

A) Is constant. 
B) Increases steadily as disposable income increases. 
C) Decreases steadily as disposable income increases. 
D) Equals 1.0. 
A) Is constant. 
B) Increases steadily as disposable income increases. 
C) Decreases steadily as disposable income increases. 
D) Equals 1.0.

Question 18

The change in total spending from additional income is

Accepted Answer

A) MPC. 
B) MPS. 
C) APC. 
D) APS. 
A) MPC. 
B) MPS. 
C) APC. 
D) APS.

Question 19

Autonomous consumption depends on all of the following except

Accepted Answer

A) Innovation. 
B) Wealth. 
C) Credit. 
D) Expectations. 
A) Innovation. 
B) Wealth. 
C) Credit. 
D) Expectations.

Question 20

Which government sector has the ability to respond countercyclically to the economy?

Accepted Answer

A) State only. 
B) Federal only. 
C) Local only. 
D) Federal, state, and local. 
A) State only. 
B) Federal only. 
C) Local only. 
D) Federal, state, and local.

Exam 9: Aggregate Demand Appendix: the Keynesian Cross

A sudden increase in confidence by the business community could best be represented by

If consumption and investment spending decline,then state and local government spending is likely to

Consumption expenditures

Investment spending includes expenditures on all of the following except

The MPC + MPS must always equal

Total consumption consists entirely of two components: autonomous consumption and income-dependent consumption.

If,in the aggregate,consumers spend 75 cents of every extra dollar received,then the

What must the value of the average propensity to save (APS)be if the average propensity to consume (APC)is greater than 1? Why?

Full-employment income is the same as the potential GDP of the economy.

If the MPC is 0.60 and disposable income increases from $20,000 billion to $22,000 billion,consumption will increase by

Assume there is a decrease in government purchases and exports.Currently there is a recessionary gap,which implies that

Use the following table to answer the questions : Table9.2: -Complete Table 9.2.(Data are expressed in billions of dollars. ) the full-employment level of income (YF)in Table 9.2 is $800 billion,

Unlike the classical economists,Keynes believed that the economy would automatically adjust to full employment.

APC is equal to

Using the disposable income level at which the consumption function intersects the 45-degree line,we can identify

Given a consumption function of C = $25 + 0.75YD,the average propensity to consume equals 1 when disposable income equals

Use the following figure to answer the questions : Figure9.3: -the MPC in the economy depicted in Figure 9.3

The change in total spending from additional income is

Autonomous consumption depends on all of the following except

Which government sector has the ability to respond countercyclically to the economy?

Economics: the Core Issues Appendix: Using Graphs

The Us Economy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice Appendix: Indifference Curves

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty Glossary Index Reference Tables

Filters

Use the following table to answer the questions : Table9.2: -Complete Table 9.2.(Data are expressed in billions of dollars. ) the full-employment level of income (Y_F)in Table 9.2 is $800 billion,

Given a consumption function of C = $25 + 0.75Y_D,the average propensity to consume equals 1 when disposable income equals