Question 1

The consumption function expresses the

Accepted Answer

A) purposes of consumption. 
B) relationship between consumption and prices. 
C) relationship between consumption and saving. 
D) relationship between consumption and disposable personal income. 
A) purposes of consumption. 
B) relationship between consumption and prices. 
C) relationship between consumption and saving. 
D) relationship between consumption and disposable personal income. D

Question 2

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. C

Question 3

Using the aggregate expenditures model, which of the following occurs if aggregate expenditures exceed real GDP?
I.The economy will expand causing an increase in employment.
II.The economy will experience an inflationary gap.
III.The price level will rise.
IV.Actual investment will be less than unplanned investment.

Accepted Answer

A) I, II, and IV 
B) I, III, and IV 
C) I and IV 
D) I, II, III, and IV 
A) I, II, and IV 
B) I, III, and IV 
C) I and IV 
D) I, II, III, and IV C

Question 4

Expenditures that do not vary with the level of real GDP are called

Accepted Answer

A) exogenous aggregate expenditures. 
B) induced aggregate expenditures. 
C) endogenous aggregate expenditures. 
D) autonomous aggregate expenditures. 
A) exogenous aggregate expenditures. 
B) induced aggregate expenditures. 
C) endogenous aggregate expenditures. 
D) autonomous aggregate expenditures.

Question 5

Figure 13-6
  
-Refer to Figure 13-6.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 6

Disposable personal income is

Accepted Answer

A) the income households receive after paying personal taxes and personal debt. 
B) the income households receive after paying personal taxes and saving. 
C) the income households receive after paying personal taxes and purchasing necessities. 
D) the income households receive that is available for consumption and saving. 
A) the income households receive after paying personal taxes and personal debt. 
B) the income households receive after paying personal taxes and saving. 
C) the income households receive after paying personal taxes and purchasing necessities. 
D) the income households receive that is available for consumption and saving.

Question 7

The smaller the marginal propensity to consume,

Accepted Answer

A) the greater of the multiplier. 
B) the lower the value of the multiplier. 
C) the greater the initial change in real GDP. 
D) the greater the initial change in aggregate expenditures. 
A) the greater of the multiplier. 
B) the lower the value of the multiplier. 
C) the greater the initial change in real GDP. 
D) the greater the initial change in aggregate expenditures.

Question 8

The multiplier effect indicates that

Accepted Answer

A) the aggregate demand curve is downward sloping. 
B) a change in any autonomous component of aggregate expenditure is buffered by the multiplier effect 
C) a change in income causes a magnified change in investment. 
D) a change in any autonomous component of aggregate expenditure brings about a magnified change in income. 
A) the aggregate demand curve is downward sloping. 
B) a change in any autonomous component of aggregate expenditure is buffered by the multiplier effect 
C) a change in income causes a magnified change in investment. 
D) a change in any autonomous component of aggregate expenditure brings about a magnified change in income.

Question 9

Suppose that your annual income has averaged $20,000 for the past 10 years and that you expect it will average $20,000 over the next 10 years.If your income this year increases to $30,000 and you increase your consumption expenditures by $10,000, then you are most likely acting according to the

Accepted Answer

A) transitory income theory of consumption. 
B) current income hypothesis. 
C) permanent income hypothesis. 
D) disposable personal income theory of consumption. 
A) transitory income theory of consumption. 
B) current income hypothesis. 
C) permanent income hypothesis. 
D) disposable personal income theory of consumption.

Question 10

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve decreases, the multiplier

Accepted Answer

A) increases. 
B) decreases. 
C) remains constant. 
D) is undefined. 
A) increases. 
B) decreases. 
C) remains constant. 
D) is undefined.

Question 11

In the aggregate expenditures model, in equilibrium,

Accepted Answer

A) consumption equals investment. 
B) unplanned inventory changes equal zero. 
C) inventory changes equal investment. 
D) aggregate expenditures equal consumption. 
A) consumption equals investment. 
B) unplanned inventory changes equal zero. 
C) inventory changes equal investment. 
D) aggregate expenditures equal consumption.

Question 12

The notion that a change in autonomous aggregate expenditures produces a larger change in equilibrium real GDP in the aggregate expenditures model is called the

Accepted Answer

A) permanent income effect. 
B) current income effect. 
C) multiplier effect. 
D) marginal propensity to consume. 
A) permanent income effect. 
B) current income effect. 
C) multiplier effect. 
D) marginal propensity to consume.

Question 13

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 14

An increase in wealth is likely to shift the consumption function curve upward.

Accepted Answer

A) True 
 B)False

Question 15

Figure 13-4
  
-Refer to Figure 13-4.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment.Suppose AE = C + IP.IP is autonomous and the consumption function is C = $1,000 billion + 0.5Y.If real GDP = $5,000 billion, what is the amount of aggregate expenditures?

Accepted Answer

A) $4,500 billion 
B) $5,000 billion 
C) $5,500 billion 
D) $6,000 billion 
A) $4,500 billion 
B) $5,000 billion 
C) $5,500 billion 
D) $6,000 billion

Question 16

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to save is 0.1?

Accepted Answer

A) 1 
B) 4 
C) 5 
D) 10 
A) 1 
B) 4 
C) 5 
D) 10

Question 17

Figure 13-6
  
-Refer to Figure 13-6.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment, G = Government Purchases.Further, IP and G are autonomous.The equilibrium level of real GDP is

Accepted Answer

A) $800 billion. 
B) $1,000 billion. 
C) $1,600 billion. 
D) $3,200 billion. 
A) $800 billion. 
B) $1,000 billion. 
C) $1,600 billion. 
D) $3,200 billion.

Question 18

Figure 13-5
  
-Refer to Figure 13-5.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment and Y* = equilibrium real GDP.Suppose AE = C + IP, IP is autonomous and the consumption function is C = $1,000 billion + 0.75Y.If firms produced a real GDP less than the Y*,

Accepted Answer

A) AE would be greater than real GDP. 
B) AE would fall short of real GDP. 
C) actual investment would be greater than IP. 
D) there would be an excess supply real GDP. 
A) AE would be greater than real GDP. 
B) AE would fall short of real GDP. 
C) actual investment would be greater than IP. 
D) there would be an excess supply real GDP.

Question 19

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 20

The amount of consumption at each level of disposable personal income, all other determinants of consumption unchanged, is shown by the

Accepted Answer

A) aggregate demand curve. 
B) consumption function. 
C) price-consumption curve. 
D) income curve. 
A) aggregate demand curve. 
B) consumption function. 
C) price-consumption curve. 
D) income curve.

Exam 28: Consumption and the Aggregate Expenditures Model

The consumption function expresses the

A downward shift in the consumption function can be caused by

Expenditures that do not vary with the level of real GDP are called

Figure 13-6 -Refer to Figure 13-6.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,

Disposable personal income is

The smaller the marginal propensity to consume,

The multiplier effect indicates that

Suppose that your annual income has averaged $20,000 for the past 10 years and that you expect it will average $20,000 over the next 10 years.If your income this year increases to $30,000 and you increase your consumption expenditures by $10,000, then you are most likely acting according to the

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, if the slope of the aggregate expenditures curve decreases, the multiplier

In the aggregate expenditures model, in equilibrium,

The notion that a change in autonomous aggregate expenditures produces a larger change in equilibrium real GDP in the aggregate expenditures model is called the

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

An increase in wealth is likely to shift the consumption function curve upward.

Figure 13-4 -Refer to Figure 13-4.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment.Suppose AE = C + IP.IP is autonomous and the consumption function is C = $1,000 billion + 0.5Y.If real GDP = $5,000 billion, what is the amount of aggregate expenditures?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to save is 0.1?

Figure 13-6 -Refer to Figure 13-6.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases.Further, IP and G are autonomous.The equilibrium level of real GDP is

Figure 13-5 -Refer to Figure 13-5.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment and Y* = equilibrium real GDP.Suppose AE = C + IP, IP is autonomous and the consumption function is C = $1,000 billion + 0.75Y.If firms produced a real GDP less than the Y*,

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 _____.

The amount of consumption at each level of disposable personal income, all other determinants of consumption unchanged, is shown by the

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Figure 13-6 -Refer to Figure 13-6.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases.Further, I_P and G are autonomous.If real GDP produced is $4,000,

Figure 13-4 -Refer to Figure 13-4.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment.Suppose AE = C + I_P.I_P is autonomous and the consumption function is C = $1,000 billion + 0.5Y.If real GDP = $5,000 billion, what is the amount of aggregate expenditures?

Figure 13-6 -Refer to Figure 13-6.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases.Further, I_P and G are autonomous.The equilibrium level of real GDP is

Figure 13-5 -Refer to Figure 13-5.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment and Y* = equilibrium real GDP.Suppose AE = C + I_P, I_P is autonomous and the consumption function is C = $1,000 billion + 0.75Y.If firms produced a real GDP less than the Y*,

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 _____.