Question 1

Figure 13-1
  
-Refer to Figure 13-1.The marginal propensity to save is

Accepted Answer

A) 0.25. 
B) 0.50. 
C) 0.60. 
D) cannot be determined without a savings function. 
A) 0.25. 
B) 0.50. 
C) 0.60. 
D) cannot be determined without a savings function.

Question 2

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 IP = $2,000 billion, what is the equilibrium level of real GDP?

Accepted Answer

A) $4,500 billion 
B) $6,000 billion 
C) $7,500 billion 
D) $9,000 billion 
A) $4,500 billion 
B) $6,000 billion 
C) $7,500 billion 
D) $9,000 billion

Question 3

Figure 13-4
  
-Refer to Figure 13-4.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment.Suppose AE = C + IP, and IP is autonomous.What is the value of AE when Y = $12,000 billion?

Accepted Answer

A) $6,000 billion 
B) $9,000 billion 
C) $12,000 billion 
D) $15,000 billion 
A) $6,000 billion 
B) $9,000 billion 
C) $12,000 billion 
D) $15,000 billion

Question 4

The current income theory assumes that current consumption is based on the average
income people expect to receive for the remainder of their lives.

Accepted Answer

A) True 
 B)False

Question 5

The slope of the aggregate expenditures curve is given by

Accepted Answer

A) aggregate expenditures ÷ ∆real GDP where ∆= change in. 
B) aggregate expenditures ÷ real GDP. 
C) ∆aggregate expenditures ÷ real GDP. 
D) ∆aggregate expenditures ÷ ∆real GDP. 
A) aggregate expenditures ÷ ∆real GDP where ∆= change in. 
B) aggregate expenditures ÷ real GDP. 
C) ∆aggregate expenditures ÷ real GDP. 
D) ∆aggregate expenditures ÷ ∆real GDP.

Question 6

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.What is the amount of consumption when real GDP is $6,000 billion?

Accepted Answer

A) 1,000 billion 
B) 2,000 billion 
C) 3,000 billion 
D) 4,000 billion 
A) 1,000 billion 
B) 2,000 billion 
C) 3,000 billion 
D) 4,000 billion

Question 7

Suppose the consumption function is C = $500 + 0.8Y.If Y = $1,000, then induced consumption is

Accepted Answer

A) $500. 
B) $800. 
C) $1,000. 
D) $1,300. 
A) $500. 
B) $800. 
C) $1,000. 
D) $1,300.

Question 8

Expenditures that vary with the level of real GDP are called

Accepted Answer

A) aggregate expenditures. 
B) induced aggregate expenditures. 
C) marginal expenditures. 
D) autonomous aggregate expenditures. 
A) aggregate expenditures. 
B) induced aggregate expenditures. 
C) marginal expenditures. 
D) autonomous aggregate expenditures.

Question 9

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.

Question 10

The ratio of the change in equilibrium real GDP to the change in autonomous aggregate expenditures that produced it is the:

Accepted Answer

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

Question 11

In the aggregate expenditures model, if real GDP equals $700 billion and aggregate expenditures equal $400 billion,

Accepted Answer

A) consumption plus investment equals $300 billion. 
B) planned investment equals $300 billion. 
C) investment plus saving equals $300 billion. 
D) unplanned inventory accumulation equals $300 billion. 
A) consumption plus investment equals $300 billion. 
B) planned investment equals $300 billion. 
C) investment plus saving equals $300 billion. 
D) unplanned inventory accumulation equals $300 billion.

Question 12

Figure 13-5
  
-Refer to Figure 13-5.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment.Consider a simple economy where AE = C + IP, IP is autonomous
And the consumption function is given by C = $1,000 billion + 0.75Y.If potential real GDP is $9,000 billion, by how much must planned investment change to reach potential real GDP?

Accepted Answer

A) IP must increase by $250 billion. 
B) IP must decrease by $250 billion. 
C) IP must increase by $1,000 billion. 
D) IP must decrease by $1,000 billion. 
A) IP must increase by $250 billion. 
B) IP must decrease by $250 billion. 
C) IP must increase by $1,000 billion. 
D) IP must decrease by $1,000 billion.

Question 13

The bulk of aggregate demand in the United States consists of

Accepted Answer

A) consumption. 
B) investment. 
C) government spending. 
D) net exports. 
A) consumption. 
B) investment. 
C) government spending. 
D) net exports.

Question 14

An increase in the wealth of households, all other things unchanged, will

Accepted Answer

A) not affect the consumption function. 
B) shift the consumption function upward. 
C) shift the consumption function downward. 
D) cause a movement to the right along the consumption function. 
A) not affect the consumption function. 
B) shift the consumption function upward. 
C) shift the consumption function downward. 
D) cause a movement to the right along the consumption function.

Question 15

During an economic downturn, households respond to a decline in income by

Accepted Answer

A) reducing taxes. 
B) reducing consumption. 
C) increasing the quantity of labor supplied. 
D) negotiating higher wages. 
A) reducing taxes. 
B) reducing consumption. 
C) increasing the quantity of labor supplied. 
D) negotiating higher wages.

Question 16

The consumption function shows

Accepted Answer

A) the amount of consumption at each level of aggregate demand, holding all other determinants constant. 
B) the amount of consumption at each price level, holding all other determinants constant. 
C) the amount of consumption at each level of disposable income, holding all other determinants constant. 
D) the amount of consumption at each wage rate holding all other determinants constant. 
A) the amount of consumption at each level of aggregate demand, holding all other determinants constant. 
B) the amount of consumption at each price level, holding all other determinants constant. 
C) the amount of consumption at each level of disposable income, holding all other determinants constant. 
D) the amount of consumption at each wage rate holding all other determinants constant.

Question 17

Figure 13-4
  
-Refer to Figure 13-4.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 + 0.5Y.If firms produced a real GDP greater 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 less than IP. 
D) there would be an excess demand for real GDP. 
A) AE would be greater than real GDP. 
B) AE would fall short of real GDP. 
C) actual investment would be less than IP. 
D) there would be an excess demand for real GDP.

Question 18

A change in autonomous aggregate expenditures will shift aggregate demand by an amount equal to the change in autonomous aggregate expenditures times the multiplier.

Accepted Answer

A) True 
 B)False

Question 19

Figure 13-4
  
-Refer to Figure 13-4.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
IP = Planned Investment.Suppose AE = C + IP, and IP is autonomous.If potential real GDP is $7,000 billion, what must happen to planned investment for the economy to reach its potential real GDP?

Accepted Answer

A) IP must be decreased by $1,000 billion 
B) IP must be increased by $1,000 billion 
C) IP must be decreased by $500 billion 
D) IP must be increased by $500 billion 
A) IP must be decreased by $1,000 billion 
B) IP must be increased by $1,000 billion 
C) IP must be decreased by $500 billion 
D) IP must be increased by $500 billion

Question 20

The saving function expresses the relationship between

Accepted Answer

A) personal saving and consumption. 
B) gross domestic income and saving. 
C) disposable personal income and saving. 
D) wage income and personal saving. 
A) personal saving and consumption. 
B) gross domestic income and saving. 
C) disposable personal income and saving. 
D) wage income and personal saving.

Exam 28: Consumption and the Aggregate Expenditures Model

Figure 13-1 -Refer to Figure 13-1.The marginal propensity to save is

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 IP = $2,000 billion, what is the equilibrium level of real GDP?

Figure 13-4 -Refer to Figure 13-4.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment.Suppose AE = C + IP, and IP is autonomous.What is the value of AE when Y = $12,000 billion?

The current income theory assumes that current consumption is based on the average income people expect to receive for the remainder of their lives.

The slope of the aggregate expenditures curve is given by

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.What is the amount of consumption when real GDP is $6,000 billion?

Suppose the consumption function is C = $500 + 0.8Y.If Y = $1,000, then induced consumption is

Expenditures that vary with the level of real GDP are called

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

The ratio of the change in equilibrium real GDP to the change in autonomous aggregate expenditures that produced it is the:

In the aggregate expenditures model, if real GDP equals $700 billion and aggregate expenditures equal $400 billion,

The bulk of aggregate demand in the United States consists of

An increase in the wealth of households, all other things unchanged, will

During an economic downturn, households respond to a decline in income by

The consumption function shows

Figure 13-4 -Refer to Figure 13-4.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 + 0.5Y.If firms produced a real GDP greater than the Y*,

A change in autonomous aggregate expenditures will shift aggregate demand by an amount equal to the change in autonomous aggregate expenditures times the multiplier.

Figure 13-4 -Refer to Figure 13-4.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment.Suppose AE = C + IP, and IP is autonomous.If potential real GDP is $7,000 billion, what must happen to planned investment for the economy to reach its potential real GDP?

The saving function expresses the relationship between

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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 I_P = $2,000 billion, what is the equilibrium level of real GDP?

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, and I_P is autonomous.What is the value of AE when Y = $12,000 billion?

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.What is the amount of consumption when real GDP is $6,000 billion?

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, and I_P is autonomous.If potential real GDP is $7,000 billion, what must happen to planned investment for the economy to reach its potential real GDP?