Question 1

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 2

Consider the simplest macro model with demand-determined output, where
AE = C + I. Suppose that actual national income is $900 billion and desired consumption plus desired investment is $890 billion. We can expect that

Accepted Answer

A)  firms will see a decrease in inventories, and they will respond by increasing output, thereby increasing actual national income. 
B)  firms will decrease autonomous investment by $10 billion until equilibrium national income is reached at $890 billion. 
C)  firms will increase autonomous investment by $10 billion until equilibrium national income is reached at $900 billion. 
D)  actual national income will increase until equilibrium national income is reached at $900 billion. 
E)  firms will see an increase in inventories, and they will respond by decreasing output, thereby decreasing actual national income. 
A)  firms will see a decrease in inventories, and they will respond by increasing output, thereby increasing actual national income. 
B)  firms will decrease autonomous investment by $10 billion until equilibrium national income is reached at $890 billion. 
C)  firms will increase autonomous investment by $10 billion until equilibrium national income is reached at $900 billion. 
D)  actual national income will increase until equilibrium national income is reached at $900 billion. 
E)  firms will see an increase in inventories, and they will respond by decreasing output, thereby decreasing actual national income.

Question 3

Consider the consumption function in a simple macro model with no taxes. At the level of national income where APC = 1, the nationʹs 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 4

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 5

Desired consumption divided by disposable income is called the

Accepted Answer

A)  consumption function. 
B)  marginal propensity to consume. 
C)  average propensity to consume. 
D)  average propensity to save. 
E)  relative consumption ratio. 
A)  consumption function. 
B)  marginal propensity to consume. 
C)  average propensity to consume. 
D)  average propensity to save. 
E)  relative consumption ratio.

Question 6

Consider a simple macro model with demand-determined output. If z is the marginal propensity to spend out of national income, Y is national income and A is autonomous expenditure, then the simple multiplier is equal to

Accepted Answer

A)  z. 
B)  1 - z. 
C)  1/z. 
D)  1/1 - z). 
E)  Y/1 - z). 
A)  z. 
B)  1 - z. 
C)  1/z. 
D)  1/1 - z). 
E)  Y/1 - z).

Question 7

FIGURE 21-3
-Refer to Figure 21-3. If national income is Y3 and the aggregate expenditure function is AE1,

Accepted Answer

A)  the economy is in equilibrium. 
B)  there is unintended inventory accumulation and income will rise. 
C)  there is unintended inventory accumulation and income will fall. 
D)  there is unintended inventory decumulation and income will rise. 
E)  there is unintended inventory decumulation and income will fall. 
A)  the economy is in equilibrium. 
B)  there is unintended inventory accumulation and income will rise. 
C)  there is unintended inventory accumulation and income will fall. 
D)  there is unintended inventory decumulation and income will rise. 
E)  there is unintended inventory decumulation and income will fall.

Question 8

Consider a simple macro model with demand-determined output. At the equilibrium level of national income,

Accepted Answer

A)  consumersʹ purchases of goods and services equal firmsʹ purchases of investment goods. 
B)  firms will hold no inventories of raw materials or final goods. 
C)  desired aggregate expenditures will equal total output. 
D)  desired aggregate expenditures will equal total output minus inventory holdings. 
E)  consumersʹ purchases of goods and services equals their saving. 
A)  consumersʹ purchases of goods and services equal firmsʹ purchases of investment goods. 
B)  firms will hold no inventories of raw materials or final goods. 
C)  desired aggregate expenditures will equal total output. 
D)  desired aggregate expenditures will equal total output minus inventory holdings. 
E)  consumersʹ purchases of goods and services equals their saving.

Question 9

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

Accepted Answer

A)  average propensity to consume is 0.8. 
B)  average propensity to save is 0.8. 
C)  marginal propensity to consume is $800. 
D)  marginal propensity to consume is 0.8. 
E)  marginal propensity to save is 0.8. 
A)  average propensity to consume is 0.8. 
B)  average propensity to save is 0.8. 
C)  marginal propensity to consume is $800. 
D)  marginal propensity to consume is 0.8. 
E)  marginal propensity to save is 0.8.

Question 10

FIGURE 21-1
-Refer to Figure 21-1. If disposable income is Y3, the level of desired saving is

Accepted Answer

A)  DE. 
B)  FD. 
C)  Y3F. 
D)  Y3D. 
E)  Y2Y3. 
A)  DE. 
B)  FD. 
C)  Y3F. 
D)  Y3D. 
E)  Y2Y3.

Question 11

Consider the following information describing a closed economy with no government and where aggregate output is demand determined. All dollar figures are in billions.
1. the equilibrium condition is Y = C + I
2. the marginal propensity to save = 0.25
3. the autonomous part of C is $30
4. investment is autonomous and is $40
TABLE 21-4
-Refer to Table 21-4. At the equilibrium level of national income, desired consumption expenditure $billions) will be

Accepted Answer

A)  $30. 
B)  $70. 
C)  $210. 
D)  $240. 
E)  $280. 
A)  $30. 
B)  $70. 
C)  $210. 
D)  $240. 
E)  $280.

Question 12

Other things being equal, higher real interest rates tend to

Accepted Answer

A)  increase every component of desired investment expenditure. 
B)  reduce every component of desired investment expenditure. 
C)  reduce every component of desired investment expenditure except residential housing. 
D)  reduce every component of desired investment expenditure except inventories. 
E)  reduce every component of desired investment expenditure except plant and equipment. 
A)  increase every component of desired investment expenditure. 
B)  reduce every component of desired investment expenditure. 
C)  reduce every component of desired investment expenditure except residential housing. 
D)  reduce every component of desired investment expenditure except inventories. 
E)  reduce every component of desired investment expenditure except plant and equipment.

Question 13

Consider the following information describing a closed economy with no government and where aggregate output is demand determined. All dollar figures are in billions.
1. the equilibrium condition is Y = C + I
2. the marginal propensity to consume is 0.90
3. the autonomous part of C is $300
4. investment is autonomous and is $100
TABLE 21-3
-Refer to Table 21-3. The equilibrium level of national income $billions) will be

Accepted Answer

A)  $3000. 
B)  $3600. 
C)  $3900. 
D)  $4000. 
E)  $4400. 
A)  $3000. 
B)  $3600. 
C)  $3900. 
D)  $4000. 
E)  $4400.

Question 14

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 zero, the simple multiplier is

Accepted Answer

A)  zero. 
B)  a positive number between zero and one. 
C)  one. 
D)  a positive number greater than one but less than infinity. 
E)  infinitely large. 
A)  zero. 
B)  a positive number between zero and one. 
C)  one. 
D)  a positive number greater than one but less than infinity. 
E)  infinitely large.

Question 15

FIGURE 21-2
-Refer to Figure 21-2. Which of the following is the correct equation for the consumption function depicted in the figure?

Accepted Answer

A)  C = 500 + 2/3)YD 
B)  C = 0.5)YD 
C)  C = 1000 + 2/3)YD 
D)  C = 500 + 0.5)YD 
E)  C = 2000 + 2/3)YD 
A)  C = 500 + 2/3)YD 
B)  C = 0.5)YD 
C)  C = 1000 + 2/3)YD 
D)  C = 500 + 0.5)YD 
E)  C = 2000 + 2/3)YD

Question 16

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 0.6, the simple multiplier is

Accepted Answer

A)  0. 
B)  0.6. 
C)  1.67. 
D)  2.5. 
E)  6.0 
A)  0. 
B)  0.6. 
C)  1.67. 
D)  2.5. 
E)  6.0

Exam 21: The Simplest Short-Run Macro Model

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

Consider the simplest macro model with demand-determined output, where AE = C + I. Suppose that actual national income is $900 billion and desired consumption plus desired investment is $890 billion. We can expect that

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

Desired consumption divided by disposable income is called the

Desired consumption divided by disposable income is called the

Consider a simple macro model with demand-determined output. If z is the marginal propensity to spend out of national income, Y is national income and A is autonomous expenditure, then the simple multiplier is equal to

FIGURE 21-3 -Refer to Figure 21-3. If national income is Y3 and the aggregate expenditure function is AE1,

Consider a simple macro model with demand-determined output. At the equilibrium level of national income,

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

FIGURE 21-1 -Refer to Figure 21-1. If disposable income is Y3, the level of desired saving is

Other things being equal, higher real interest rates tend to

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 zero, the simple multiplier is

FIGURE 21-2 -Refer to Figure 21-2. Which of the following is the correct equation for the consumption function depicted in the figure?

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 0.6, the simple multiplier is

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