Question 1

The saving function shows

Accepted Answer

A)  the amount of saving at each level of aggregate demand, holding all other determinants of saving constant. 
B)  the amount of saving on at each level of disposable income, holding all other determinants of saving constant. 
C)  the amount of saving at each price level, holding all other determinants of saving constant. 
D)  the amount of saving at each wage rate, holding all other determinants of saving constant. 
A)  the amount of saving at each level of aggregate demand, holding all other determinants of saving constant. 
B)  the amount of saving on at each level of disposable income, holding all other determinants of saving constant. 
C)  the amount of saving at each price level, holding all other determinants of saving constant. 
D)  the amount of saving at each wage rate, holding all other determinants of saving constant.

Question 2

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift downwards?

Accepted Answer

A)  a decrease in taxes 
B)  an increase in imports 
C)  an increase in government spending 
D)  an increase in investment 
A)  a decrease in taxes 
B)  an increase in imports 
C)  an increase in government spending 
D)  an increase in investment

Question 3

Let AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment,
G = Government Purchases. Consider a simple aggregate expenditures model, where
AE = C + IP + G and all components of aggregate expenditures except consumption are autonomous. The MPC is 0.6. If investment expenditures rise by $100 billion, the equilibrium level of real GDP of rises by

Accepted Answer

A)  $250 billion. 
B)  $300 billion. 
C)  $500 billion. 
D)  $1,500 billion. 
A)  $250 billion. 
B)  $300 billion. 
C)  $500 billion. 
D)  $1,500 billion.

Question 4

Let Y = real GDP and Yd = disposable income. Suppose initially, Y = Yd and the marginal propensity to consume (MPC) is 0.9. All components of aggregate expenditures except consumption are autonomous. Now suppose the government imposes an income tax rate of 20% on real GDP. What is the marginal propensity to consume following the imposition of an income tax?

Accepted Answer

A)  0.7 
B)  0.72 
C)  0.18 
D)  1.1 
A)  0.7 
B)  0.72 
C)  0.18 
D)  1.1

Question 5

According to the permanent income hypothesis,

Accepted Answer

A)  consumption in any period depends on the stable annual income that people expect to earn in their jobs. 
B)  the amount of income that people require depends on the amount of consumption they need and want to undertake. 
C)  consumption in any period depends on the average annual income people expect to receive for the rest of their lives. 
D)  the amount of personal saving depends on the amount of consumption people plan to undertake when they retire. 
A)  consumption in any period depends on the stable annual income that people expect to earn in their jobs. 
B)  the amount of income that people require depends on the amount of consumption they need and want to undertake. 
C)  consumption in any period depends on the average annual income people expect to receive for the rest of their lives. 
D)  the amount of personal saving depends on the amount of consumption people plan to undertake when they retire.

Question 6

Let AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment,
G = Government Purchases. Consider a simple aggregate expenditures model, where
AE = C + IP + G and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is _____.

Accepted Answer

A)  1 ÷ (1 - MPS) where MPS = marginal propensity to save 
B)  1 ÷ MPC where MPC = marginal propensity to consume 
C)  1 ÷ MPS where MPS = marginal propensity to save 
D)  MPC ÷ MPS ÷ ∆Y 
A)  1 ÷ (1 - MPS) where MPS = marginal propensity to save 
B)  1 ÷ MPC where MPC = marginal propensity to consume 
C)  1 ÷ MPS where MPS = marginal propensity to save 
D)  MPC ÷ MPS ÷ ∆Y

Question 7

An increase in aggregate demand causes an increase in

Accepted Answer

A)  income, which in turn induces an increase in consumption. 
B)  investment, which in turn induces an increase in consumption. 
C)  government, which in turn induces an increase in net exports. 
D)  consumption, which in turn induces an increase in price. 
A)  income, which in turn induces an increase in consumption. 
B)  investment, which in turn induces an increase in consumption. 
C)  government, which in turn induces an increase in net exports. 
D)  consumption, which in turn induces an increase in price.

Question 8

Aggregate expenditures are the

Accepted Answer

A)  sum of planned levels of consumption, investment, government purchases, and net exports, at a given price level, as they relate to real GDP. 
B)  sum of consumption, saving, investment, government purchases, and net exports, at a given price level, as they relate to real GDP. 
C)  total of all spending, and equal to the value of real GDP at all price levels. 
D)  value of GDP, in nominal values, for all price levels, all other things unchanged. 
A)  sum of planned levels of consumption, investment, government purchases, and net exports, at a given price level, as they relate to real GDP. 
B)  sum of consumption, saving, investment, government purchases, and net exports, at a given price level, as they relate to real GDP. 
C)  total of all spending, and equal to the value of real GDP at all price levels. 
D)  value of GDP, in nominal values, for all price levels, all other things unchanged.

Question 9

An increase in the price level, all other things unchanged, will

Accepted Answer

A)  not affect the consumption function. 
B)  shift the consumption function upward. 
C)  shift the consumption function downward. 
D)  cause a movement to the right along the consumption function. 
A)  not affect the consumption function. 
B)  shift the consumption function upward. 
C)  shift the consumption function downward. 
D)  cause a movement to the right along the consumption function.

Question 10

Use the following to answer questions .
Exhibit: Aggregate Expenditures Curve
Figure 13-6  
-(Exhibit: Aggregate Expenditures Curve) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases. Further, IP and G are autonomous. Suppose government purchases rise by $100. As a result,

Accepted Answer

A)  the aggregate expenditures curve shifts upward by $100. 
B)  there is a movement along the aggregate expenditures curve from $1,600 to $1,700. 
C)  the aggregate expenditures curve shifts upward by $100 * the multiplier. 
D)  there is a movement along the aggregate expenditures curve from $1,600 to an amount equal to [$1,600 + ($100 * the multiplier)]. 
A)  the aggregate expenditures curve shifts upward by $100. 
B)  there is a movement along the aggregate expenditures curve from $1,600 to $1,700. 
C)  the aggregate expenditures curve shifts upward by $100 * the multiplier. 
D)  there is a movement along the aggregate expenditures curve from $1,600 to an amount equal to [$1,600 + ($100 * the multiplier)].

Question 11

Investment equals

Accepted Answer

A)  planned investment plus unplanned investment. 
B)  planned investment minus unplanned investment. 
C)  unplanned investment minus planned investment. 
D)  planned investment in a free market economy. 
A)  planned investment plus unplanned investment. 
B)  planned investment minus unplanned investment. 
C)  unplanned investment minus planned investment. 
D)  planned investment in a free market economy.

Question 12

Use the following to answer questions .
Exhibit: Aggregate Expenditures Curve
Figure 13-6  
-(Exhibit: Aggregate Expenditures Curve) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases. Further, IP and G are autonomous. If real GDP produced is $4,000,

Accepted Answer

A)  consumers and firms would demand more than was produced. 
B)  the economy experiences an inflationary gap. 
C)  firms will experience unplanned inventories accumulation. 
D)  the price level must rise to reduce aggregate expenditures and restore equilibrium. 
A)  consumers and firms would demand more than was produced. 
B)  the economy experiences an inflationary gap. 
C)  firms will experience unplanned inventories accumulation. 
D)  the price level must rise to reduce aggregate expenditures and restore equilibrium.

Question 13

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $13,000. What is the marginal propensity to consume?

Accepted Answer

A)  0.2 
B)  0.4 
C)  0.6 
D)  0.8 
A)  0.2 
B)  0.4 
C)  0.6 
D)  0.8

Question 14

An increase in the wealth of households, all other things unchanged, will

Accepted Answer

A)  not affect the consumption function. 
B)  shift the consumption function upward. 
C)  shift the consumption function downward. 
D)  cause a movement to the right along the consumption function. 
A)  not affect the consumption function. 
B)  shift the consumption function upward. 
C)  shift the consumption function downward. 
D)  cause a movement to the right along the consumption function.

Question 15

Use the following to answer questions .
Exhibit: Consumption and Disposable Personal Income  
-(Exhibit: Consumption and Disposable Personal Income) The marginal propensity to save is

Accepted Answer

A)  0.25. 
B)  0.50. 
C)  0.60. 
D)  cannot be determined without a savings function. 
A)  0.25. 
B)  0.50. 
C)  0.60. 
D)  cannot be determined without a savings function.

Question 16

The saving function expresses the relationship between

Accepted Answer

A)  personal saving and consumption. 
B)  gross domestic income and saving. 
C)  disposable personal income and saving. 
D)  wage income and personal saving. 
A)  personal saving and consumption. 
B)  gross domestic income and saving. 
C)  disposable personal income and saving. 
D)  wage income and personal saving.

Question 17

Use the following to answer questions .
Exhibit: Aggregate Expenditures and Real GDP 2  
-(Exhibit: Aggregate Expenditures and Real GDP 2) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment. Consider a simple economy where AE = C + IP, IP is autonomous and the consumption function is given by C = $1,000 billion + 0.75Y. What is the value of consumption when real GDP is $6,000 billion?

Accepted Answer

A)  $1,000 billion 
B)  $2,500 billion 
C)  $4,500 billion 
D)  $5,500 billion 
A)  $1,000 billion 
B)  $2,500 billion 
C)  $4,500 billion 
D)  $5,500 billion

Question 18

Use the following to answer questions .
Exhibit: Aggregate Expenditures and Real GDP 1  
-(Exhibit: Aggregate Expenditures and Real GDP 1) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment. Suppose AE = C + IP, and IP is autonomous. At a real GDP of $7,000 billion

Accepted Answer

A)  planned investment is greater than actual investment. 
B)  planned investment equals actual investment. 
C)  planned investment is less than actual investment. 
D)  there will be no unplanned investment. 
A)  planned investment is greater than actual investment. 
B)  planned investment equals actual investment. 
C)  planned investment is less than actual investment. 
D)  there will be no unplanned investment.

Question 19

The marginal propensity to consume is given by

Accepted Answer

A)  the change in consumption divided by the change in saving. 
B)  the change in consumption divided by the change in disposable personal income. 
C)  consumption divided by the change in disposable personal income. 
D)  consumption divided by disposable income. 
A)  the change in consumption divided by the change in saving. 
B)  the change in consumption divided by the change in disposable personal income. 
C)  consumption divided by the change in disposable personal income. 
D)  consumption divided by disposable income.

Question 20

Use the following to answer questions .
Exhibit: Aggregate Expenditures Curve
Figure 13-6  
-(Exhibit: Aggregate Expenditures Curve) Suppose government purchases rise by $100. In the aggregate demand/aggregate supply model,

Accepted Answer

A)  the aggregate demand curve shifts to the right by $100 at any given price level. 
B)  the aggregate demand curve shifts to the right by ($100 * the multiplier) at any given price level. 
C)  there is a downward movement along the aggregate demand curve such that real GDP demanded increases by $100. 
D)  there is a downward movement along the aggregate demand curve such that real GDP demanded increases by ($100 * the multiplier). 
A)  the aggregate demand curve shifts to the right by $100 at any given price level. 
B)  the aggregate demand curve shifts to the right by ($100 * the multiplier) at any given price level. 
C)  there is a downward movement along the aggregate demand curve such that real GDP demanded increases by $100. 
D)  there is a downward movement along the aggregate demand curve such that real GDP demanded increases by ($100 * the multiplier).

The saving function shows

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift downwards?

According to the permanent income hypothesis,

Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases. Consider a simple aggregate expenditures model, where AE = C + I_P + G and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is _____.

An increase in aggregate demand causes an increase in

Aggregate expenditures are the

An increase in the price level, all other things unchanged, will

Investment equals

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $13,000. What is the marginal propensity to consume?

An increase in the wealth of households, all other things unchanged, will

Use the following to answer questions . Exhibit: Consumption and Disposable Personal Income -(Exhibit: Consumption and Disposable Personal Income) The marginal propensity to save is

The saving function expresses the relationship between

The marginal propensity to consume is given by

Use the following to answer questions . Exhibit: Aggregate Expenditures Curve Figure 13-6 -(Exhibit: Aggregate Expenditures Curve) Suppose government purchases rise by $100. In the aggregate demand/aggregate supply model,

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Exam 13: Consumption and the Aggregate Expenditures Model

The saving function shows

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift downwards?

According to the permanent income hypothesis,

Let AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases. Consider a simple aggregate expenditures model, where AE = C + IP + G and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is _____.

An increase in aggregate demand causes an increase in

Aggregate expenditures are the

An increase in the price level, all other things unchanged, will

Investment equals

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $13,000. What is the marginal propensity to consume?

An increase in the wealth of households, all other things unchanged, will

Use the following to answer questions . Exhibit: Consumption and Disposable Personal Income -(Exhibit: Consumption and Disposable Personal Income) The marginal propensity to save is

The saving function expresses the relationship between

The marginal propensity to consume is given by

Use the following to answer questions . Exhibit: Aggregate Expenditures Curve Figure 13-6 -(Exhibit: Aggregate Expenditures Curve) Suppose government purchases rise by $100. In the aggregate demand/aggregate supply model,

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases. Consider a simple aggregate expenditures model, where AE = C + I_P + G and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is _____.