Question 1

The difference between disposable income and consumption is savings.

Accepted Answer

A) True 
 B)False  True

Question 2

The balanced budget multiplier equals 1.

Accepted Answer

A) True 
 B)False  True

Question 3

If income increases from $3,000 per month to $3,500 per month and consumption rises from $2,800 per month to $3,200 per month, what is the marginal propensity to consume?

Accepted Answer

A)  1.25 
B)  0.8 
C)  1.09 
D)  0.91 
A)  1.25 
B)  0.8 
C)  1.09 
D)  0.91 B

Question 4

What does the "paradox of thrift" say?

Accepted Answer

A)  People who consume too much will go broke. 
B)  Businesses that are greedy will make the most profit. 
C)  An economy that saves too much can end up with lower total savings. 
D)  People who save too little are harming the economy. 
A)  People who consume too much will go broke. 
B)  Businesses that are greedy will make the most profit. 
C)  An economy that saves too much can end up with lower total savings. 
D)  People who save too little are harming the economy.

Question 5

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

Accepted Answer

A)  $11,000 
B)  $1,000 
C)  $900 
D)  $100 
A)  $11,000 
B)  $1,000 
C)  $900 
D)  $100

Question 6

If income is $3,000 and savings is $300, the average propensity to save is 0.01.

Accepted Answer

A) True 
 B)False

Question 7

If your income is $35,000 and the average propensity to save is 0.46, what is consumption?

Accepted Answer

A)  $16,100 
B)  $18,900 
C)  $15,500 
D)  $19,500 
A)  $16,100 
B)  $18,900 
C)  $15,500 
D)  $19,500

Question 8

(Figure: Savings, Investment, and Aggregate Expenditures) Income and output are in equilibrium at point:

Accepted Answer

A)  b. 
B)  c. 
C)  d. 
D)  e. 
A)  b. 
B)  c. 
C)  d. 
D)  e.

Question 9

Spending by federal, state, and local governments has grown from _____ of GDP in the 1930s to more than _____ today.

Accepted Answer

A)  5%; 50%. 
B)  10%; 30%. 
C)  30%; 70% 
D)  5%; 10%. 
A)  5%; 50%. 
B)  10%; 30%. 
C)  30%; 70% 
D)  5%; 10%.

Question 10

Which of the following are considered withdrawals from an economy?

Accepted Answer

A)  imports; taxes; investment 
B)  imports; taxes; savings 
C)  exports; government spending; investment 
D)  exports; government spending; savings 
A)  imports; taxes; investment 
B)  imports; taxes; savings 
C)  exports; government spending; investment 
D)  exports; government spending; savings

Question 11

Which of the following marginal propensities to consume results in the flattest consumption line in an aggregate expenditures model?

Accepted Answer

A)  0.4 
B)  0.5 
C)  0.8 
D)  1.0 
A)  0.4 
B)  0.5 
C)  0.8 
D)  1.0

Question 12

Which of the following is NOT a determinant of investment?

Accepted Answer

A)  business expectations 
B)  past stock and bond prices 
C)  technological innovations 
D)  the amount of existing capital goods 
A)  business expectations 
B)  past stock and bond prices 
C)  technological innovations 
D)  the amount of existing capital goods

Question 13

In the simple Keynesian model, the only two things you can do with your income are:

Accepted Answer

A)  pay taxes and spend it. 
B)  spend it and save it. 
C)  spend it and invest it. 
D)  save it and give it away. 
A)  pay taxes and spend it. 
B)  spend it and save it. 
C)  spend it and invest it. 
D)  save it and give it away.

Question 14

In the simple Keynesian model, the economy is in equilibrium when:

Accepted Answer

A)  Y = C + I and S  I. 
C)  Y = C + I and S = I. 
D)  Y = C and S = 0. 
A)  Y = C + I and S  I. 
C)  Y = C + I and S = I. 
D)  Y = C and S = 0.

Question 15

If the government spends $1 billion to create a wetlands preserve, taxes increase $1 billion to pay for it, and the marginal propensity to consume is 0.75, GDP:

Accepted Answer

A)  remains unchanged. 
B)  increases by $1 billion. 
C)  increases by $4 billion. 
D)  decreases by $1 billion. 
A)  remains unchanged. 
B)  increases by $1 billion. 
C)  increases by $4 billion. 
D)  decreases by $1 billion.

Question 16

If the marginal propensity to save is 0.25 and income increases by $7,540, what is the increase in consumption?

Accepted Answer

A)  $5,655 
B)  $1,885 
C)  $10,053 
D)  $30,160 
A)  $5,655 
B)  $1,885 
C)  $10,053 
D)  $30,160

Question 17

Along the 45-degree line in the graph of consumption and disposable income:

Accepted Answer

A)  consumption is equal to disposable income. 
B)  consumption is equal to total saving. 
C)  consumption is equal to marginal saving. 
D)  the interest rate is zero. 
A)  consumption is equal to disposable income. 
B)  consumption is equal to total saving. 
C)  consumption is equal to marginal saving. 
D)  the interest rate is zero.

Question 18

To understand the paradox of thrift, we must assume that investment is unrelated to income.

Accepted Answer

A) True 
 B)False

Question 19

(Table) When disposable income is $1,200, what is the value of the average propensity to save? $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Disposable } \
\text { Income }
\end{array} & \text { Consumption } \
\hline \$ 1,000 & \$ 1,200 \
\hline \$ 1,200 & \$ 1,300 \
\hline \$ 1,400 & \$ 1,400 \
\hline \$ 1,600 & \$ 1,500 \
\hline \$ 1,800 & \$ 1,600 \
\hline
\end{array}$$

Accepted Answer

A)  -0.5 
B)  -1.5 
C)  -1.083 
D)  -0.083 
A)  -0.5 
B)  -1.5 
C)  -1.083 
D)  -0.083

Question 20

If the marginal propensity to consume (MPC) rises, the multiplier:

Accepted Answer

A)  also rises. 
B)  falls. 
C)  stays the same. 
D)  rises or falls, depending on the size of the increase in the MPC. 
A)  also rises. 
B)  falls. 
C)  stays the same. 
D)  rises or falls, depending on the size of the increase in the MPC.

The difference between disposable income and consumption is savings.

The balanced budget multiplier equals 1.

If income increases from $3,000 per month to $3,500 per month and consumption rises from $2,800 per month to $3,200 per month, what is the marginal propensity to consume?

What does the "paradox of thrift" say?

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

If income is $3,000 and savings is $300, the average propensity to save is 0.01.

If your income is $35,000 and the average propensity to save is 0.46, what is consumption?

(Figure: Savings, Investment, and Aggregate Expenditures) Income and output are in equilibrium at point:

Spending by federal, state, and local governments has grown from _ of GDP in the 1930s to more than _ today.

Which of the following are considered withdrawals from an economy?

Which of the following marginal propensities to consume results in the flattest consumption line in an aggregate expenditures model?

Which of the following is NOT a determinant of investment?

In the simple Keynesian model, the only two things you can do with your income are:

In the simple Keynesian model, the economy is in equilibrium when:

If the government spends $1 billion to create a wetlands preserve, taxes increase $1 billion to pay for it, and the marginal propensity to consume is 0.75, GDP:

If the marginal propensity to save is 0.25 and income increases by $7,540, what is the increase in consumption?

Along the 45-degree line in the graph of consumption and disposable income:

To understand the paradox of thrift, we must assume that investment is unrelated to income.

(Table) When disposable income is $1,200, what is the value of the average propensity to save? Disposable Income Consumption \ 1,000 \ 1,200 \ 1,200 \ 1,300 \ 1,400 \ 1,400 \ 1,600 \ 1,500 \ 1,800 \ 1,600

If the marginal propensity to consume (MPC) rises, the multiplier:

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomics

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Exam 8: Aggregate Expenditures

The difference between disposable income and consumption is savings.

The balanced budget multiplier equals 1.

If income increases from $3,000 per month to $3,500 per month and consumption rises from $2,800 per month to $3,200 per month, what is the marginal propensity to consume?

What does the "paradox of thrift" say?

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

If income is $3,000 and savings is $300, the average propensity to save is 0.01.

If your income is $35,000 and the average propensity to save is 0.46, what is consumption?

(Figure: Savings, Investment, and Aggregate Expenditures) Income and output are in equilibrium at point:

Spending by federal, state, and local governments has grown from _____ of GDP in the 1930s to more than _____ today.

Which of the following are considered withdrawals from an economy?

Which of the following marginal propensities to consume results in the flattest consumption line in an aggregate expenditures model?

Which of the following is NOT a determinant of investment?

In the simple Keynesian model, the only two things you can do with your income are:

In the simple Keynesian model, the economy is in equilibrium when:

If the government spends $1 billion to create a wetlands preserve, taxes increase $1 billion to pay for it, and the marginal propensity to consume is 0.75, GDP:

If the marginal propensity to save is 0.25 and income increases by $7,540, what is the increase in consumption?

Along the 45-degree line in the graph of consumption and disposable income:

To understand the paradox of thrift, we must assume that investment is unrelated to income.

(Table) When disposable income is $1,200, what is the value of the average propensity to save? Disposable Income Consumption \ 1,000 \ 1,200 \ 1,200 \ 1,300 \ 1,400 \ 1,400 \ 1,600 \ 1,500 \ 1,800 \ 1,600

If the marginal propensity to consume (MPC) rises, the multiplier:

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomics

Filters

Spending by federal, state, and local governments has grown from _ of GDP in the 1930s to more than _ today.