Question 1

According to the current income hypothesis,

Accepted Answer

A)  a change in income regarded as temporary will not affect consumption much since it will have little effect on average lifetime income. 
B)  regardless of whether a change in disposable personal income is permanent or temporary; people will change consumption by moving along the consumption function. 
C)  a change in income regarded as permanent will have a greater impact on saving than on consumption. 
D)  a change in income regarded as temporary will have a greater impact on saving than on consumption. 
A)  a change in income regarded as temporary will not affect consumption much since it will have little effect on average lifetime income. 
B)  regardless of whether a change in disposable personal income is permanent or temporary; people will change consumption by moving along the consumption function. 
C)  a change in income regarded as permanent will have a greater impact on saving than on consumption. 
D)  a change in income regarded as temporary will have a greater impact on saving than on consumption.

Question 2

The aggregate demand traces

Accepted Answer

A)  the total spending by consumers, business firms, and government agencies at a given price level. 
B)  the locus of equilibrium real GDP associated with each price level in the aggregate expenditures model. 
C)  the locus of equilibrium aggregate expenditures-real GDP combinations in the aggregate expenditures model. 
D)  the locus of equilibrium real GDP associated with each income level in the aggregate expenditures model. 
A)  the total spending by consumers, business firms, and government agencies at a given price level. 
B)  the locus of equilibrium real GDP associated with each price level in the aggregate expenditures model. 
C)  the locus of equilibrium aggregate expenditures-real GDP combinations in the aggregate expenditures model. 
D)  the locus of equilibrium real GDP associated with each income level in the aggregate expenditures model.

Question 3

Use the following to answer questions .
Exhibit: Consumption and Disposable Personal Income  
-(Exhibit: Consumption and Disposable Personal Income) Assuming that the relationship between consumption and disposable personal income remains linear throughout its entire range, what would the level of consumption be if disposable personal income were zero?

Accepted Answer

A)  −$200 billion 
B)  $0 
C)  $100 billion 
D)  $200 billion 
A)  −$200 billion 
B)  $0 
C)  $100 billion 
D)  $200 billion

Question 4

Let real GDP =Y = Yd, and the consumption function is C = $1,000 + .06Y.
What is the value of autonomous consumption (A) and what is the marginal propensity to consume (MPC)?

Accepted Answer

A)  A = $600; MPC = 0.4 
B)  A = $1,000; MPC = 0.6 
C)  A = $1,600; MPC = 2.5 
D)  A = $2,500; MPC = 0.6 
A)  A = $600; MPC = 0.4 
B)  A = $1,000; MPC = 0.6 
C)  A = $1,600; MPC = 2.5 
D)  A = $2,500; MPC = 0.6

Question 5

A downward shift in the consumption function can be caused by

Accepted Answer

A)  expectations of product shortages. 
B)  expectations of more income in the future. 
C)  a decrease in consumer confidence. 
D)  rising property values that increases households' net worth. 
A)  expectations of product shortages. 
B)  expectations of more income in the future. 
C)  a decrease in consumer confidence. 
D)  rising property values that increases households' net worth.

Question 6

Use the following to answer questions .
Exhibit: Consumption and Disposable Personal Income  
-(Exhibit: Consumption and Disposable Personal Income) When disposable personal income goes up by $400 billion, personal saving increases by

Accepted Answer

A)  $0. 
B)  $100 billion. 
C)  $200 billion. 
D)  $400 billion. 
A)  $0. 
B)  $100 billion. 
C)  $200 billion. 
D)  $400 billion.

Question 7

Personal saving is real GDP not spent on consumption.

Accepted Answer

A) True 
 B)False

Question 8

If C = $500 billion + .6Y, then, if Y = $1,000 billion, induced consumption will be equal to $1,100 billion.

Accepted Answer

A) True 
 B)False

Question 9

Use the following to answer questions .
Exhibit: Income and Consumption
  
-(Exhibit: Income and Consumption) When disposable personal income is $300, what is the amount of personal saving?

Accepted Answer

A)  −$40 
B)  −$20 
C)  $0 
D)  $20 
A)  −$40 
B)  −$20 
C)  $0 
D)  $20

Question 10

In the aggregate expenditures model, if a $50 billion increase in investment leads to an increase in equilibrium real GDP of $250 billion at the initial price level, then the multiplier is 4.

Accepted Answer

A) True 
 B)False

Question 11

If real GDP increases from $2,000 to $2,500 and aggregate expenditures increase from $1,900 to $2,200, the slope of the aggregate expenditures curve is

Accepted Answer

A)  0.6. 
B)  0.7. 
C)  0.8. 
D)  0.9. 
A)  0.6. 
B)  0.7. 
C)  0.8. 
D)  0.9.

Question 12

Use the following to answer questions .
Exhibit: Consumption and Disposable Personal Income  
-(Exhibit: Consumption and Disposable Personal Income) Assuming that the relationship between consumption and disposable personal income remains linear throughout its entire range, if disposable personal income were zero, what would personal saving be?

Accepted Answer

A)  −$200 billion 
B)  $0 
C)  $200 billion 
D)  $400 billion 
A)  −$200 billion 
B)  $0 
C)  $200 billion 
D)  $400 billion

Question 13

What is the marginal propensity to consume? Explain why the sum of marginal propensity to consume and marginal propensity to save must equal 1.

Accepted Answer

The marginal propensity to consume (MPC)

Question 14

Use the following to answer questions .
Exhibit: Consumption and Disposable Personal Income  
-(Exhibit: Consumption and Disposable Personal Income) If disposable personal income is $400 billion, what is the amount of personal saving?

Accepted Answer

A)  −$200 billion 
B)  $0 
C)  $200 billion 
D)  $400 billion 
A)  −$200 billion 
B)  $0 
C)  $200 billion 
D)  $400 billion

Question 15

The interest rate effect suggests that

Accepted Answer

A)  domestic investments fall when foreign interest rates rise relative to domestic interest rates. 
B)  changes in the price level affect the real purchasing power of money and therefore the money supply. 
C)  changes in the price level affect the real quantity of money held by households and firms and therefore the interest rate. 
D)  changes in the price level affect the level of real income and therefore consumption. 
A)  domestic investments fall when foreign interest rates rise relative to domestic interest rates. 
B)  changes in the price level affect the real purchasing power of money and therefore the money supply. 
C)  changes in the price level affect the real quantity of money held by households and firms and therefore the interest rate. 
D)  changes in the price level affect the level of real income and therefore consumption.

Question 16

According to the permanent income hypothesis,

Accepted Answer

A)  a change in income regarded as permanent will have a greater impact on saving than on consumption. 
B)  a change in income regarded as temporary will have a greater impact on saving than on consumption. 
C)  regardless of whether a change in disposable personal income is permanent or temporary; people will change consumption by moving along the consumption function. 
D)  a change in income regarded as temporary will not affect consumption much since it will have little effect on average lifetime income. 
A)  a change in income regarded as permanent will have a greater impact on saving than on consumption. 
B)  a change in income regarded as temporary will have a greater impact on saving than on consumption. 
C)  regardless of whether a change in disposable personal income is permanent or temporary; people will change consumption by moving along the consumption function. 
D)  a change in income regarded as temporary will not affect consumption much since it will have little effect on average lifetime income.

Question 17

In the aggregate expenditures model, if aggregate expenditures are less than real GDP,

Accepted Answer

A)  actual real output is less than equilibrium real output. 
B)  employment increases. 
C)  aggregate output increases. 
D)  there will be unplanned increases in inventories. 
A)  actual real output is less than equilibrium real output. 
B)  employment increases. 
C)  aggregate output increases. 
D)  there will be unplanned increases in inventories.

Question 18

What is the multiplier effect, that is, why does income change by a multiple of the initial change in autonomous aggregate expenditures?

Accepted Answer

The multiplier effect refers to the phen

Question 19

Distinguish between planned and unplanned investment, and explain their relationship to the aggregate expenditures model and to equilibrium real GDP.

Accepted Answer

Planned investment refers to the investm

Question 20

In the summer of 2001, tax rebate checks of $300 per single taxpayer and $600 for married couples were distributed to 92 million people in the U.S. Economic researchers found that over a nine-month period spending increased to about 40% of the rebate. These findings support

Accepted Answer

A)  the permanent income hypothesis. 
B)  the current income hypothesis. 
C)  the transitory income hypothesis. 
D)  the consumption function. 
A)  the permanent income hypothesis. 
B)  the current income hypothesis. 
C)  the transitory income hypothesis. 
D)  the consumption function.

According to the current income hypothesis,

The aggregate demand traces

Let real GDP =Y = Y_d, and the consumption function is C = $1,000 + .06Y. What is the value of autonomous consumption (A) and what is the marginal propensity to consume (MPC)?

A downward shift in the consumption function can be caused by

Use the following to answer questions . Exhibit: Consumption and Disposable Personal Income -(Exhibit: Consumption and Disposable Personal Income) When disposable personal income goes up by $400 billion, personal saving increases by

Personal saving is real GDP not spent on consumption.

If C = $500 billion + .6Y, then, if Y = $1,000 billion, induced consumption will be equal to $1,100 billion.

Use the following to answer questions . Exhibit: Income and Consumption -(Exhibit: Income and Consumption) When disposable personal income is $300, what is the amount of personal saving?

In the aggregate expenditures model, if a $50 billion increase in investment leads to an increase in equilibrium real GDP of $250 billion at the initial price level, then the multiplier is 4.

If real GDP increases from $2,000 to $2,500 and aggregate expenditures increase from $1,900 to $2,200, the slope of the aggregate expenditures curve is

What is the marginal propensity to consume? Explain why the sum of marginal propensity to consume and marginal propensity to save must equal 1.

Use the following to answer questions . Exhibit: Consumption and Disposable Personal Income -(Exhibit: Consumption and Disposable Personal Income) If disposable personal income is $400 billion, what is the amount of personal saving?

The interest rate effect suggests that

According to the permanent income hypothesis,

In the aggregate expenditures model, if aggregate expenditures are less than real GDP,

What is the multiplier effect, that is, why does income change by a multiple of the initial change in autonomous aggregate expenditures?

Distinguish between planned and unplanned investment, and explain their relationship to the aggregate expenditures model and to equilibrium real GDP.

In the summer of 2001, tax rebate checks of $300 per single taxpayer and $600 for married couples were distributed to 92 million people in the U.S. Economic researchers found that over a nine-month period spending increased to about 40% of the rebate. These findings support

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

According to the current income hypothesis,

The aggregate demand traces

Let real GDP =Y = Yd, and the consumption function is C = $1,000 + .06Y. What is the value of autonomous consumption (A) and what is the marginal propensity to consume (MPC)?

A downward shift in the consumption function can be caused by

Use the following to answer questions . Exhibit: Consumption and Disposable Personal Income -(Exhibit: Consumption and Disposable Personal Income) When disposable personal income goes up by $400 billion, personal saving increases by

Personal saving is real GDP not spent on consumption.

If C = $500 billion + .6Y, then, if Y = $1,000 billion, induced consumption will be equal to $1,100 billion.

Use the following to answer questions . Exhibit: Income and Consumption -(Exhibit: Income and Consumption) When disposable personal income is $300, what is the amount of personal saving?

In the aggregate expenditures model, if a $50 billion increase in investment leads to an increase in equilibrium real GDP of $250 billion at the initial price level, then the multiplier is 4.

If real GDP increases from $2,000 to $2,500 and aggregate expenditures increase from $1,900 to $2,200, the slope of the aggregate expenditures curve is

What is the marginal propensity to consume? Explain why the sum of marginal propensity to consume and marginal propensity to save must equal 1.

Use the following to answer questions . Exhibit: Consumption and Disposable Personal Income -(Exhibit: Consumption and Disposable Personal Income) If disposable personal income is $400 billion, what is the amount of personal saving?

The interest rate effect suggests that

According to the permanent income hypothesis,

In the aggregate expenditures model, if aggregate expenditures are less than real GDP,

What is the multiplier effect, that is, why does income change by a multiple of the initial change in autonomous aggregate expenditures?

Distinguish between planned and unplanned investment, and explain their relationship to the aggregate expenditures model and to equilibrium real GDP.

In the summer of 2001, tax rebate checks of $300 per single taxpayer and $600 for married couples were distributed to 92 million people in the U.S. Economic researchers found that over a nine-month period spending increased to about 40% of the rebate. These findings support

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 real GDP =Y = Y_d, and the consumption function is C = $1,000 + .06Y. What is the value of autonomous consumption (A) and what is the marginal propensity to consume (MPC)?