Question 1

Consider a simple macro model with demand-determined output. In such a model, the multiplier is larger, the

Accepted Answer

A)  higher the level of autonomous expenditures. 
B)  steeper is the AE function. 
C)  flatter is the AE function. 
D)  lower the APC. 
E)  lower the level of autonomous expenditures. 
A)  higher the level of autonomous expenditures. 
B)  steeper is the AE function. 
C)  flatter is the AE function. 
D)  lower the APC. 
E)  lower the level of autonomous expenditures.

Question 2

Desired investment expenditure will generally fall as a result of which of the following changes?

Accepted Answer

A)  a decrease in business confidence 
B)  a decrease in interest rates 
C)  an increase in government purchases 
D)  an increase in sales volume 
E)  an increase in business confidence 
A)  a decrease in business confidence 
B)  a decrease in interest rates 
C)  an increase in government purchases 
D)  an increase in sales volume 
E)  an increase in business confidence

Question 3

The table below shows disposable income and desired consumption for a closed economy with no government.   TABLE 21-1
-Refer to Table 21-1. The marginal propensity to save 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 4

In each of the four expenditure categories, national income accounts measure expenditures, while the theoretical model of the economy deals with expenditures.

Accepted Answer

A)  actual; autonomous 
B)  desired; actual 
C)  induced; exogenous 
D)  endogenous; exogenous 
E)  actual; desired 
A)  actual; autonomous 
B)  desired; actual 
C)  induced; exogenous 
D)  endogenous; exogenous 
E)  actual; desired

Question 5

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 6

In the simplest macroeconomic model, with a closed economy and no government, the aggregate expenditure AE) function is the sum of

Accepted Answer

A)  saving and desired investment. 
B)  consumption and disposable income. 
C)  desired consumption and desired investment. 
D)  consumption and saving. 
E)  actual consumption and actual investment. 
A)  saving and desired investment. 
B)  consumption and disposable income. 
C)  desired consumption and desired investment. 
D)  consumption and saving. 
E)  actual consumption and actual investment.

Question 7

The marginal propensity to consume is defined to be

Accepted Answer

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

Question 8

FIGURE 21-3
-Refer to Figure 21-3. A shift in the aggregate expenditure function downward from AE1 to AE0 could be caused by

Accepted Answer

A)  a rise in the multiplier. 
B)  a fall in the marginal propensity to consume. 
C)  a rise in the marginal propensity to consume. 
D)  an increase in autonomous desired saving. 
E)  a decrease in autonomous desired saving. 
A)  a rise in the multiplier. 
B)  a fall in the marginal propensity to consume. 
C)  a rise in the marginal propensity to consume. 
D)  an increase in autonomous desired saving. 
E)  a decrease in autonomous desired saving.

Question 9

The slope of the aggregate expenditure AE) function is always equal to the marginal propensity to

Accepted Answer

A)  save. 
B)  invest. 
C)  import. 
D)  spend. 
E)  tax. 
A)  save. 
B)  invest. 
C)  import. 
D)  spend. 
E)  tax.

Question 10

Consider the following information for an economy with demand-determined output and a constant price level. There is no government or foreign trade.
1. Y = C + I
2. C = 100 + 0.8Y
3. I = 200
TABLE 21-8
-Refer to Table 21-8. The simple multiplier in this economy is

Accepted Answer

A)  2.0. 
B)  2.5. 
C)  3.0. 
D)  4.0. 
E)  5.0. 
A)  2.0. 
B)  2.5. 
C)  3.0. 
D)  4.0. 
E)  5.0.

Question 11

The ʺmarginal propensity to consumeʺ refers to the additional

Accepted Answer

A)  desired saving that occurs out of an additional dollar of disposable income. 
B)  desired consumption that occurs out of an additional dollar of disposable income. 
C)  desired consumption that occurs out of an additional dollar of investment. 
D)  desired consumption caused by a change in tastes. 
E)  desired consumption that occurs over time. 
A)  desired saving that occurs out of an additional dollar of disposable income. 
B)  desired consumption that occurs out of an additional dollar of disposable income. 
C)  desired consumption that occurs out of an additional dollar of investment. 
D)  desired consumption caused by a change in tastes. 
E)  desired consumption that occurs over time.

Question 12

Consider a simple macro model with a constant price level and demand-determined output. If the marginal propensity to spend is 0.9, the simple multiplier is

Accepted Answer

A)  0.1. 
B)  0.9. 
C)  1.0. 
D)  1.1. 
E)  10.0. 
A)  0.1. 
B)  0.9. 
C)  1.0. 
D)  1.1. 
E)  10.0.

Question 13

In Canada, as in many other countries, the largest component of domestic investment expenditure is

Accepted Answer

A)  plant and equipment. 
B)  residential housing. 
C)  inventories. 
D)  financial assets. 
E)  savings. 
A)  plant and equipment. 
B)  residential housing. 
C)  inventories. 
D)  financial assets. 
E)  savings.

Question 14

Consider the consumption function in our macro model. The key factors that influence desired consumption are assumed to be

Accepted Answer

A)  expectations about the future. 
B)  wealth. 
C)  interest rates. 
D)  disposable income. 
E)  all of the above 
A)  expectations about the future. 
B)  wealth. 
C)  interest rates. 
D)  disposable income. 
E)  all of the above

Question 15

The percentage of disposable income that is saved by Canadian households has been changing over time. In 2014, it was estimated to be about percent.

Accepted Answer

A)  0 
B)  4 
C)  15 
D)  20 
E)  25 
A)  0 
B)  4 
C)  15 
D)  20 
E)  25

Question 16

In a simple macro model with demand-determined output, the simple multiplier is equal to 1/1-z), where z
Equals the

Accepted Answer

A)  average propensity to spend. 
B)  average propensity not to spend. 
C)  level of autonomous expenditure. 
D)  marginal propensity to spend. 
E)  marginal propensity not to spend. 
A)  average propensity to spend. 
B)  average propensity not to spend. 
C)  level of autonomous expenditure. 
D)  marginal propensity to spend. 
E)  marginal propensity not to spend.

Question 17

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 18

Consider a simple macro model with a constant price level and demand-determined output. In such a model, a downward shift of the saving function causes equilibrium national income to

Accepted Answer

A)  fall because the AE function shifts downward simultaneously. 
B)  rise because the AE function shifts upward simultaneously. 
C)  remain constant but consist of more consumption and less investment. 
D)  remain constant but consist of less consumption and more investment. 
E)  remain constant because it does not affect desired aggregate expenditure. 
A)  fall because the AE function shifts downward simultaneously. 
B)  rise because the AE function shifts upward simultaneously. 
C)  remain constant but consist of more consumption and less investment. 
D)  remain constant but consist of less consumption and more investment. 
E)  remain constant because it does not affect desired aggregate expenditure.

Question 19

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
-Consider a simple macro model with a constant price level and demand-determined output. Suppose desired aggregate expenditures are less than the current level of national income. The vertical distance between the AE curve and the 45-degree line represents

Accepted Answer

A)  desired accumulation of inventories. 
B)  desired decumulation of inventories. 
C)  the amount by which output exceeds desired expenditures. 
D)  the output gap. 
E)  the amount by which desired expenditures exceeds output. 
A)  desired accumulation of inventories. 
B)  desired decumulation of inventories. 
C)  the amount by which output exceeds desired expenditures. 
D)  the output gap. 
E)  the amount by which desired expenditures exceeds output.

Question 20

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.

Exam 21: The Simplest Short-Run Macro Model

Consider a simple macro model with demand-determined output. In such a model, the multiplier is larger, the

Desired investment expenditure will generally fall as a result of which of the following changes?

The table below shows disposable income and desired consumption for a closed economy with no government. TABLE 21-1 -Refer to Table 21-1. The marginal propensity to save is equal to

In each of the four expenditure categories, national income accounts measure expenditures, while the theoretical model of the economy deals with expenditures.

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

In the simplest macroeconomic model, with a closed economy and no government, the aggregate expenditure AE) function is the sum of

The marginal propensity to consume is defined to be

FIGURE 21-3 -Refer to Figure 21-3. A shift in the aggregate expenditure function downward from AE1 to AE0 could be caused by

The slope of the aggregate expenditure AE) function is always equal to the marginal propensity to

Consider the following information for an economy with demand-determined output and a constant price level. There is no government or foreign trade. 1. Y = C + I 2. C = 100 + 0.8Y 3. I = 200 TABLE 21-8 -Refer to Table 21-8. The simple multiplier in this economy is

The ʺmarginal propensity to consumeʺ refers to the additional

Consider a simple macro model with a constant price level and demand-determined output. If the marginal propensity to spend is 0.9, the simple multiplier is

In Canada, as in many other countries, the largest component of domestic investment expenditure is

Consider the consumption function in our macro model. The key factors that influence desired consumption are assumed to be

The percentage of disposable income that is saved by Canadian households has been changing over time. In 2014, it was estimated to be about percent.

In a simple macro model with demand-determined output, the simple multiplier is equal to 1/1-z), where z Equals the

Consider a simple macro model with a constant price level and demand-determined output. In such a model, a downward shift of the saving function causes equilibrium national income to

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

Economic Issues and Concepts

Economic Theories, Data, and Graphs

Demand, Supply, and Price

Elasticity

Price Controls and Market Efficiency

Consumer Behaviour

Producers in the Short Run

Producers in the Long Run

Competitive Markets

Monopoly, Cartels, and Price Discrimination

Imperfect Competition and Strategic Behaviour

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets and Income Inequality

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

What Macroeconomics Is All About

The Measurement of National Income

Adding Government and Trade to the Simple Macro Model

Output and Prices 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