Question 1

Consider the consumption function in a simple macro model with no taxes.At the level of national income where APC = 1,the nation's households are

Accepted Answer

A) consuming all of their disposable income. 
B) allocating their income equally between saving and consumption. 
C) saving a portion of their income,but saving is less than consumption. 
D) spending more than their current income. 
E) saving all of their disposable income. 
A) consuming all of their disposable income. 
B) allocating their income equally between saving and consumption. 
C) saving a portion of their income,but saving is less than consumption. 
D) spending more than their current income. 
E) saving all of their disposable income.

Question 2

FIGURE 21-3 Refer to Figure 21-3.What does each point along the 45-degree line represent?

Accepted Answer

A) combinations of desired aggregate expenditure and actual national income where consumption expenditure equals saving 
B) the equilibrium condition that desired aggregate expenditure equals actual national income 
C) levels of actual national income where desired AE is equal to the sum of desired consumption and desired investment 
D) levels of actual national income that occur when autonomous expenditure is increasing at a constant (linear)rate 
E) levels of actual national income where desired saving is equal to zero 
A) combinations of desired aggregate expenditure and actual national income where consumption expenditure equals saving 
B) the equilibrium condition that desired aggregate expenditure equals actual national income 
C) levels of actual national income where desired AE is equal to the sum of desired consumption and desired investment 
D) levels of actual national income that occur when autonomous expenditure is increasing at a constant (linear)rate 
E) levels of actual national income where desired saving is equal to zero

Question 3

Consider the following information describing a closed economy with no government.Aggregate output is demand determined and the price level is constant.   TABLE 21-6 Refer to Table 21-6.This economy's equilibrium level of national income is

Accepted Answer

A) 500. 
B) 600. 
C) 750. 
D) 1000. 
E) 1500. 
A) 500. 
B) 600. 
C) 750. 
D) 1000. 
E) 1500.

Question 4

The Smith family's disposable income rose from $40 000 per year to $42 000 and his desired consumption expenditure rose from $38 000 to $39 600.It can be concluded that their

Accepted Answer

A) average propensity to consume decreased from 0.950 to 0.943. 
B) average propensity to save decreased from 0.950 to 0.943. 
C) marginal propensity to consume is 0.050. 
D) marginal propensity to consume increased from 0.050 to 0.058. 
E) marginal propensity to save is 0.80. 
A) average propensity to consume decreased from 0.950 to 0.943. 
B) average propensity to save decreased from 0.950 to 0.943. 
C) marginal propensity to consume is 0.050. 
D) marginal propensity to consume increased from 0.050 to 0.058. 
E) marginal propensity to save is 0.80.

Question 5

Investment expenditure is the ________ volatile component of GDP,and changes in investment are ________ associated with business-cycle fluctuations.

Accepted Answer

A) most; strongly 
B) most; weakly 
C) least; strongly 
D) least; weakly 
E) least; not 
A) most; strongly 
B) most; weakly 
C) least; strongly 
D) least; weakly 
E) least; not

Question 6

Consider a simple macro model with demand-determined output.In such a model,the larger the marginal propensity to spend,the

Accepted Answer

A) larger the MPC. 
B) smaller the MPS. 
C) smaller the simple multiplier. 
D) larger the simple multiplier. 
E) greater is investment. 
A) larger the MPC. 
B) smaller the MPS. 
C) smaller the simple multiplier. 
D) larger the simple multiplier. 
E) greater is investment.

Question 7

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.   TABLE 21-3 Refer to Table 21-3.The correct expression for the aggregate expenditure function for this economy is

Accepted Answer

A) AE = $760 billion. 
B) AE = $300 billion + 0.9Y. 
C) AE = $400 billion + 0.9Y. 
D) AE = $400 billion + 0.1   . 
E) AE = $200 billion + 0.1   . 
A) AE = $760 billion. 
B) AE = $300 billion + 0.9Y. 
C) AE = $400 billion + 0.9Y. 
D) AE = $400 billion + 0.1   . 
E) AE = $200 billion + 0.1   .

Question 8

FIGURE 21-1 Refer to Figure 21-1.Desired consumption expenditures will equal disposable income at an income level of

Accepted Answer

A) zero. 
B) Y1. 
C) Y2. 
D) Y3. 
E) more than Y3. 
A) zero. 
B) Y1. 
C) Y2. 
D) Y3. 
E) more than Y3.

Question 9

What is the definition of "marginal propensity to consume"?

Accepted Answer

A) the change in desired consumption divided by the change in saving that brought it about 
B) the change in desired consumption divided by total disposable income 
C) the change in desired consumption divided by the change in disposable income that brought it about 
D) total desired consumption divided by total disposable income 
E) total desired consumption divided by the change in disposable income that brought it about 
A) the change in desired consumption divided by the change in saving that brought it about 
B) the change in desired consumption divided by total disposable income 
C) the change in desired consumption divided by the change in disposable income that brought it about 
D) total desired consumption divided by total disposable income 
E) total desired consumption divided by the change in disposable income that brought it about

Question 10

Suppose aggregate output is demand-determined.Suppose a decrease in autonomous investment expenditure of $20 million reduces equilibrium national income by $50 million.The simple multiplier is equal to

Accepted Answer

A) -2.5. 
B) -0.6. 
C) 0.4. 
D) 0.6. 
E) 2.5. 
A) -2.5. 
B) -0.6. 
C) 0.4. 
D) 0.6. 
E) 2.5.

Question 11

Consider the simplest macro model with a constant price level and demand-determined output.If desired aggregate expenditure is less than actual national income,then

Accepted Answer

A) inventories begin to fall,causing firms to increase production. 
B) actual national income is below the equilibrium level. 
C) actual national income must be above the equilibrium level. 
D) actual national income must be at equilibrium. 
E) inventories begin to fall,causing national income to fall. 
A) inventories begin to fall,causing firms to increase production. 
B) actual national income is below the equilibrium level. 
C) actual national income must be above the equilibrium level. 
D) actual national income must be at equilibrium. 
E) inventories begin to fall,causing national income to fall.

Question 12

The increase in aggregate planned expenditures divided by the change in national income that brought it about is called the

Accepted Answer

A) average propensity to consume. 
B) average propensity to save. 
C) marginal propensity to spend. 
D) marginal propensity to save. 
E) marginal propensity to consume. 
A) average propensity to consume. 
B) average propensity to save. 
C) marginal propensity to spend. 
D) marginal propensity to save. 
E) marginal propensity to consume.

Question 13

FIGURE 21-3 Refer to Figure 21-3.In this demand-determined model of the macro economy,the price level is

Accepted Answer

A) measured by Y2/0B. 
B) measured by Y1Y2/AB. 
C) increasing as the economy moves from E0 to E1. 
D) assumed to be constant. 
E) derived from the slope of the AE function. 
A) measured by Y2/0B. 
B) measured by Y1Y2/AB. 
C) increasing as the economy moves from E0 to E1. 
D) assumed to be constant. 
E) derived from the slope of the AE function.

Question 14

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.   TABLE 21-3 Refer to Table 21-3.At the equilibrium level of national income,desired saving ($billions)is

Accepted Answer

A) $100. 
B) $300. 
C) $4000. 
D) $3900. 
E) $1000. 
A) $100. 
B) $300. 
C) $4000. 
D) $3900. 
E) $1000.

Question 15

Consider the simplest macro model with a constant price level and demand-determined output.If national income is less than its equilibrium level,it is likely that firms' inventories are ________,and so national income tends to ________.

Accepted Answer

A) accumulating; rise 
B) accumulating; fall 
C) being depleted; rise 
D) being depleted; fall 
E) constant; fall 
A) accumulating; rise 
B) accumulating; fall 
C) being depleted; rise 
D) being depleted; fall 
E) constant; fall

Question 16

Consider the simplest macro model with demand-determined output.Suppose an increase in business confidence leads firms to increase investment in new equipment by $100 million.The marginal propensity to spend in this economy is 0.75.What is the eventual total new expenditure in this economy due to the increase in investment?

Accepted Answer

A) $75 million 
B) $100 million 
C) $25 million 
D) $500 million 
E) $400 million 
A) $75 million 
B) $100 million 
C) $25 million 
D) $500 million 
E) $400 million

Question 17

Desired consumption divided by disposable income is called the

Accepted Answer

A) average propensity to consume. 
B) average propensity to save. 
C) average propensity to spend. 
D) marginal propensity to save. 
E) total propensity to save. 
A) average propensity to consume. 
B) average propensity to save. 
C) average propensity to spend. 
D) marginal propensity to save. 
E) total propensity to save.

Question 18

Consider a consumption function that is upward sloping but flatter than the 45-degree line.When real disposable income rises,

Accepted Answer

A) desired consumption will fall and saving will rise. 
B) desired consumption will rise and saving will fall. 
C) desired consumption and saving will both rise. 
D) desired consumption remains constant. 
E) saving remains constant. 
A) desired consumption will fall and saving will rise. 
B) desired consumption will rise and saving will fall. 
C) desired consumption and saving will both rise. 
D) desired consumption remains constant. 
E) saving remains constant.

Question 19

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.   TABLE 21-3 Refer to Table 21-3.Suppose this economy is in equilibrium.There is then a significant decline in house prices across the country.The likely effect is

Accepted Answer

A) autonomous consumption will rise above $300 billion and equilibrium national income will therefore rise. 
B) autonomous saving will fall and equilibrium national income will therefore fall. 
C) autonomous saving will rise and equilibrium national income will therefore rise. 
D) autonomous investment will rise and equilibrium national income will therefore rise. 
E) autonomous consumption will fall below $300 billion and equilibrium national income will therefore fall. 
A) autonomous consumption will rise above $300 billion and equilibrium national income will therefore rise. 
B) autonomous saving will fall and equilibrium national income will therefore fall. 
C) autonomous saving will rise and equilibrium national income will therefore rise. 
D) autonomous investment will rise and equilibrium national income will therefore rise. 
E) autonomous consumption will fall below $300 billion and equilibrium national income will therefore fall.

Question 20

Consider the following information describing an economy with demand-determined output.There is no government or foreign trade.All dollar figures are in billions. 1.equilibrium condition is Y = C + I
2.marginal propensity to save = 0.20
3.the autonomous part of C is $50
4.investment is autonomous and equals $25
TABLE 21-5
Refer to Table 21-5.The equilibrium level of national income is

Accepted Answer

A) $375. 
B) $249. 
C) $155. 
D) $75. 
E) $93.75. 
A) $375. 
B) $249. 
C) $155. 
D) $75. 
E) $93.75.

Consider the consumption function in a simple macro model with no taxes.At the level of national income where APC = 1,the nation's households are

FIGURE 21-3 Refer to Figure 21-3.What does each point along the 45-degree line represent?

Consider the following information describing a closed economy with no government.Aggregate output is demand determined and the price level is constant. TABLE 21-6 Refer to Table 21-6.This economy's equilibrium level of national income is

The Smith family's disposable income rose from $40 000 per year to $42 000 and his desired consumption expenditure rose from $38 000 to $39 600.It can be concluded that their

Investment expenditure is the volatile component of GDP,and changes in investment are associated with business-cycle fluctuations.

Consider a simple macro model with demand-determined output.In such a model,the larger the marginal propensity to spend,the

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 Refer to Table 21-3.The correct expression for the aggregate expenditure function for this economy is

FIGURE 21-1 Refer to Figure 21-1.Desired consumption expenditures will equal disposable income at an income level of

What is the definition of "marginal propensity to consume"?

Suppose aggregate output is demand-determined.Suppose a decrease in autonomous investment expenditure of $20 million reduces equilibrium national income by $50 million.The simple multiplier is equal to

Consider the simplest macro model with a constant price level and demand-determined output.If desired aggregate expenditure is less than actual national income,then

The increase in aggregate planned expenditures divided by the change in national income that brought it about is called the

FIGURE 21-3 Refer to Figure 21-3.In this demand-determined model of the macro economy,the price level is

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 Refer to Table 21-3.At the equilibrium level of national income,desired saving ($billions)is

Consider the simplest macro model with a constant price level and demand-determined output.If national income is less than its equilibrium level,it is likely that firms' inventories are ,and so national income tends to .

Desired consumption divided by disposable income is called the

Consider a consumption function that is upward sloping but flatter than the 45-degree line.When real disposable income rises,

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

Exam 21: The Simplest Short-Run Macro Model

Consider the consumption function in a simple macro model with no taxes.At the level of national income where APC = 1,the nation's households are

FIGURE 21-3 Refer to Figure 21-3.What does each point along the 45-degree line represent?

Consider the following information describing a closed economy with no government.Aggregate output is demand determined and the price level is constant. TABLE 21-6 Refer to Table 21-6.This economy's equilibrium level of national income is

The Smith family's disposable income rose from $40 000 per year to $42 000 and his desired consumption expenditure rose from $38 000 to $39 600.It can be concluded that their

Investment expenditure is the ________ volatile component of GDP,and changes in investment are ________ associated with business-cycle fluctuations.

Consider a simple macro model with demand-determined output.In such a model,the larger the marginal propensity to spend,the

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 Refer to Table 21-3.The correct expression for the aggregate expenditure function for this economy is

FIGURE 21-1 Refer to Figure 21-1.Desired consumption expenditures will equal disposable income at an income level of

What is the definition of "marginal propensity to consume"?

Suppose aggregate output is demand-determined.Suppose a decrease in autonomous investment expenditure of $20 million reduces equilibrium national income by $50 million.The simple multiplier is equal to

Consider the simplest macro model with a constant price level and demand-determined output.If desired aggregate expenditure is less than actual national income,then

The increase in aggregate planned expenditures divided by the change in national income that brought it about is called the

FIGURE 21-3 Refer to Figure 21-3.In this demand-determined model of the macro economy,the price level is

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 Refer to Table 21-3.At the equilibrium level of national income,desired saving ($billions)is

Consider the simplest macro model with a constant price level and demand-determined output.If national income is less than its equilibrium level,it is likely that firms' inventories are ________,and so national income tends to ________.

Desired consumption divided by disposable income is called the

Consider a consumption function that is upward sloping but flatter than the 45-degree line.When real disposable income rises,

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

Investment expenditure is the volatile component of GDP,and changes in investment are associated with business-cycle fluctuations.

Consider the simplest macro model with a constant price level and demand-determined output.If national income is less than its equilibrium level,it is likely that firms' inventories are ,and so national income tends to .