Question 1

If the marginal propensity to consume (MPC)is equal to 0.9,an increase in household income causes desired consumption expenditure to

Accepted Answer

A) rise by more than the increase in income. 
B) rise by the full increase in income. 
C) rise by less than the full increase in income. 
D) fall,as an increase in income will increase saving. 
E) remain constant,because the MPC is also constant. 
A) rise by more than the increase in income. 
B) rise by the full increase in income. 
C) rise by less than the full increase in income. 
D) fall,as an increase in income will increase saving. 
E) remain constant,because the MPC is also constant.

Question 2

FIGURE 21-1 Refer to Figure 21-1.If disposable income is equal to Y3,desired consumption expenditure is equal to the vertical distance

Accepted Answer

A) Y3E. 
B) Y3D. 
C) Y3F. 
D) Y3. 
E) DE. 
A) Y3E. 
B) Y3D. 
C) Y3F. 
D) Y3. 
E) DE.

Question 3

The table below shows disposable income and desired consumption for a closed economy with no government.   TABLE 21-2 Refer to Table 21-2.The marginal propensity to save is equal to

Accepted Answer

A) 0.8. 
B) 0.67. 
C) 0.6. 
D) 0.4. 
E) 0.2. 
A) 0.8. 
B) 0.67. 
C) 0.6. 
D) 0.4. 
E) 0.2.

Question 4

Suppose aggregate output is demand-determined.If the business community decreases its planned investment expenditures by $4 billion,causing equilibrium national income to fall by $8 billion,the marginal propensity to spend must be

Accepted Answer

A) 2/5. 
B) 1/2. 
C) 2/3. 
D) 4/5. 
E) 2. 
A) 2/5. 
B) 1/2. 
C) 2/3. 
D) 4/5. 
E) 2.

Question 5

The table below shows disposable income and desired consumption for a closed economy with no government.   TABLE 21-2 Refer to Table 21-2.The marginal propensity to consume is equal to

Accepted Answer

A) 0.2. 
B) 0.4. 
C) 0.6. 
D) 0.67. 
E) 0.8. 
A) 0.2. 
B) 0.4. 
C) 0.6. 
D) 0.67. 
E) 0.8.

Question 6

In a simple macro model with no government and no foreign trade,the equilibrium level of national income is the level of income at which

Accepted Answer

A) aggregate desired expenditure is greater than actual national income. 
B) aggregate desired expenditure equals actual national income. 
C) aggregate desired expenditure equals consumer spending. 
D) saving equals income. 
E) saving equals consumer spending. 
A) aggregate desired expenditure is greater than actual national income. 
B) aggregate desired expenditure equals actual national income. 
C) aggregate desired expenditure equals consumer spending. 
D) saving equals income. 
E) saving equals consumer spending.

Question 7

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 increase in expenditure in this economy during the second round of spending?

Accepted Answer

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

Question 8

FIGURE 21-1 Refer to Figure 21-1.The marginal propensity to save can be expressed as

Accepted Answer

A) DE/Y1Y3. 
B) DE/Y2Y3. 
C) DF/Y2Y3. 
D) FE/Y1Y3. 
E) FE/Y2Y3. 
A) DE/Y1Y3. 
B) DE/Y2Y3. 
C) DF/Y2Y3. 
D) FE/Y1Y3. 
E) FE/Y2Y3.

Question 9

FIGURE 21-3 Refer to Figure 21-3.If national income is Y1 and the aggregate expenditure function is AE1,then desired aggregate expenditure

Accepted Answer

A) exceeds income and income will rise. 
B) exceeds income and income will fall. 
C) is less than income and income will rise. 
D) is equal to income and income will not change. 
E) is less than income and income will fall. 
A) exceeds income and income will rise. 
B) exceeds income and income will fall. 
C) is less than income and income will rise. 
D) is equal to income and income will not change. 
E) is less than income and income will fall.

Question 10

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is 0.8,the simple multiplier is

Accepted Answer

A) 0. 
B) 0.8. 
C) 1.25. 
D) 5.0. 
E) 8.0. 
A) 0. 
B) 0.8. 
C) 1.25. 
D) 5.0. 
E) 8.0.

Question 11

A rise in the real rate of interest ________ the opportunity cost of holding an inventory of a given size,and therefore ________ desired investment expenditure.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; leaves unaffected 
E) decreases; decreases 
A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; leaves unaffected 
E) decreases; decreases

Question 12

The consumption function is based on the assumption that as real disposable income rises,aggregate desired consumption

Accepted Answer

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

Question 13

FIGURE 21-1 Refer to Figure 21-1.If disposable income is zero,then

Accepted Answer

A) autonomous desired consumption is 0A. 
B) autonomous desired consumption is 0Y1. 
C) desired consumption must also be zero. 
D) the level of desired saving will be 0A. 
E) autonomous desired saving will be 0A. 
A) autonomous desired consumption is 0A. 
B) autonomous desired consumption is 0Y1. 
C) desired consumption must also be zero. 
D) the level of desired saving will be 0A. 
E) autonomous desired saving will be 0A.

Question 14

Consider the simplest macro model with demand-determined output.Suppose an increase in business confidence leads firms to increase investment in new equipment by $3.5 billion.The marginal propensity to spend in this economy is 0.6.What is the eventual total new expenditure in this economy due to the increase in investment?

Accepted Answer

A) $2.1 billion. 
B) $5.8 billion. 
C) $3.5 billion. 
D) $7.0 billion. 
E) $8.75 billion. 
A) $2.1 billion. 
B) $5.8 billion. 
C) $3.5 billion. 
D) $7.0 billion. 
E) $8.75 billion.

Question 15

If the consumption function coincides with the 45-degree line,then we know that

Accepted Answer

A) desired consumption is constant at all levels of disposable income. 
B) the marginal propensity to consume is less than one. 
C) the marginal propensity to consume is greater than one. 
D) desired consumption equals desired saving at all levels of disposable income. 
E) desired saving is zero at all levels of disposable income. 
A) desired consumption is constant at all levels of disposable income. 
B) the marginal propensity to consume is less than one. 
C) the marginal propensity to consume is greater than one. 
D) desired consumption equals desired saving at all levels of disposable income. 
E) desired saving is zero at all levels of disposable income.

Question 16

In the simple macroeconomic model,what are "autonomous expenditures"?

Accepted Answer

A) expenditures that are dependent on national income 
B) expenditures that are not dependent on national income 
C) induced expenditures 
D) expenditures that are constant 
E) non-domestic expenditures 
A) expenditures that are dependent on national income 
B) expenditures that are not dependent on national income 
C) induced expenditures 
D) expenditures that are constant 
E) non-domestic expenditures

Question 17

Consider a simple macro model with a constant price level and demand-determined output.Suppose the level of actual national income is less than desired aggregate expenditure.In this case,

Accepted Answer

A) inventories will build up,causing national income to rise. 
B) national income will fall,because desired expenditures are less than actual expenditures. 
C) shortages of goods and reductions in inventories will cause producers to increase output and national income to rise. 
D) national income may increase or decrease,depending on the relative sizes of the average propensity to consume and the average propensity to save. 
E) there will be no change in national income because only actual expenditure is relevant. 
A) inventories will build up,causing national income to rise. 
B) national income will fall,because desired expenditures are less than actual expenditures. 
C) shortages of goods and reductions in inventories will cause producers to increase output and national income to rise. 
D) national income may increase or decrease,depending on the relative sizes of the average propensity to consume and the average propensity to save. 
E) there will be no change in national income because only actual expenditure is relevant.

Question 18

The simple multiplier,which applies to short-run situations in which the price level is constant,describes changes in

Accepted Answer

A) investment induced by changes in equilibrium income. 
B) saving caused by changes in desired investment. 
C) the equilibrium level of national income caused by changes in autonomous expenditure. 
D) the equilibrium rate of interest caused by changes in the demand for credit. 
E) employment induced by changes in equilibrium income. 
A) investment induced by changes in equilibrium income. 
B) saving caused by changes in desired investment. 
C) the equilibrium level of national income caused by changes in autonomous expenditure. 
D) the equilibrium rate of interest caused by changes in the demand for credit. 
E) employment induced by changes in equilibrium income.

Question 19

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is 0.4,the simple multiplier is

Accepted Answer

A) 0. 
B) 0.4. 
C) 1.67. 
D) 2.5. 
E) 4.0. 
A) 0. 
B) 0.4. 
C) 1.67. 
D) 2.5. 
E) 4.0.

Question 20

In a simple model of the economy,without government or taxes,a shock that causes an upward shift of the aggregate consumption function also causes ________ shift of the saving function.

Accepted Answer

A) an equal upward 
B) a less-than-equal upward 
C) an equal downward 
D) a less-than-equal downward 
E) no 
A) an equal upward 
B) a less-than-equal upward 
C) an equal downward 
D) a less-than-equal downward 
E) no

If the marginal propensity to consume (MPC)is equal to 0.9,an increase in household income causes desired consumption expenditure to

FIGURE 21-1 Refer to Figure 21-1.If disposable income is equal to Y₃,desired consumption expenditure is equal to the vertical distance

The table below shows disposable income and desired consumption for a closed economy with no government. TABLE 21-2 Refer to Table 21-2.The marginal propensity to save is equal to

Suppose aggregate output is demand-determined.If the business community decreases its planned investment expenditures by $4 billion,causing equilibrium national income to fall by $8 billion,the marginal propensity to spend must be

The table below shows disposable income and desired consumption for a closed economy with no government. TABLE 21-2 Refer to Table 21-2.The marginal propensity to consume is equal to

In a simple macro model with no government and no foreign trade,the equilibrium level of national income is the level of income at which

FIGURE 21-1 Refer to Figure 21-1.The marginal propensity to save can be expressed as

FIGURE 21-3 Refer to Figure 21-3.If national income is Y₁ and the aggregate expenditure function is AE₁,then desired aggregate expenditure

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is 0.8,the simple multiplier is

A rise in the real rate of interest the opportunity cost of holding an inventory of a given size,and therefore desired investment expenditure.

The consumption function is based on the assumption that as real disposable income rises,aggregate desired consumption

FIGURE 21-1 Refer to Figure 21-1.If disposable income is zero,then

If the consumption function coincides with the 45-degree line,then we know that

In the simple macroeconomic model,what are "autonomous expenditures"?

Consider a simple macro model with a constant price level and demand-determined output.Suppose the level of actual national income is less than desired aggregate expenditure.In this case,

The simple multiplier,which applies to short-run situations in which the price level is constant,describes changes in

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is 0.4,the simple multiplier is

In a simple model of the economy,without government or taxes,a shock that causes an upward shift of the aggregate consumption function also causes ________ shift of the saving function.

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

If the marginal propensity to consume (MPC)is equal to 0.9,an increase in household income causes desired consumption expenditure to

FIGURE 21-1 Refer to Figure 21-1.If disposable income is equal to Y3,desired consumption expenditure is equal to the vertical distance

The table below shows disposable income and desired consumption for a closed economy with no government. TABLE 21-2 Refer to Table 21-2.The marginal propensity to save is equal to

Suppose aggregate output is demand-determined.If the business community decreases its planned investment expenditures by $4 billion,causing equilibrium national income to fall by $8 billion,the marginal propensity to spend must be

The table below shows disposable income and desired consumption for a closed economy with no government. TABLE 21-2 Refer to Table 21-2.The marginal propensity to consume is equal to

In a simple macro model with no government and no foreign trade,the equilibrium level of national income is the level of income at which

FIGURE 21-1 Refer to Figure 21-1.The marginal propensity to save can be expressed as

FIGURE 21-3 Refer to Figure 21-3.If national income is Y1 and the aggregate expenditure function is AE1,then desired aggregate expenditure

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is 0.8,the simple multiplier is

A rise in the real rate of interest ________ the opportunity cost of holding an inventory of a given size,and therefore ________ desired investment expenditure.

The consumption function is based on the assumption that as real disposable income rises,aggregate desired consumption

FIGURE 21-1 Refer to Figure 21-1.If disposable income is zero,then

If the consumption function coincides with the 45-degree line,then we know that

In the simple macroeconomic model,what are "autonomous expenditures"?

Consider a simple macro model with a constant price level and demand-determined output.Suppose the level of actual national income is less than desired aggregate expenditure.In this case,

The simple multiplier,which applies to short-run situations in which the price level is constant,describes changes in

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is 0.4,the simple multiplier is

In a simple model of the economy,without government or taxes,a shock that causes an upward shift of the aggregate consumption function also causes ________ shift of the saving function.

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

FIGURE 21-1 Refer to Figure 21-1.If disposable income is equal to Y₃,desired consumption expenditure is equal to the vertical distance

FIGURE 21-3 Refer to Figure 21-3.If national income is Y₁ and the aggregate expenditure function is AE₁,then desired aggregate expenditure

A rise in the real rate of interest the opportunity cost of holding an inventory of a given size,and therefore desired investment expenditure.