Question 1

Consumption spending in any one period that is determined by income in that period is explained by the

Accepted Answer

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

Question 2

Personal saving is

Accepted Answer

A) total income not spent on consumption. 
B) disposable personal income not spent on consumption. 
C) found by subtracting consumption from disposable personal income. 
D) disposable income spent on investment. 
A) total income not spent on consumption. 
B) disposable personal income not spent on consumption. 
C) found by subtracting consumption from disposable personal income. 
D) disposable income spent on investment.

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.Which of the following statements is true?

Accepted Answer

A) The multiplier = 0.5 
B) The multiplier = (1 − 0.5)/1 = 0.5 
C) The multiplier = 2 
D) The multiplier = ∆AE ÷ ∆Y 
A) The multiplier = 0.5 
B) The multiplier = (1 − 0.5)/1 = 0.5 
C) The multiplier = 2 
D) The multiplier = ∆AE ÷ ∆Y

Question 4

Figure 13-1
  
-Refer to Figure 13-1.Assuming that the relationship between consumption and disposable personal income remains linear throughout its entire range, what would the level of consumption be if disposable personal income were zero?

Accepted Answer

A) −$200 billion 
B) $0 
C) $100 billion 
D) $200 billion 
A) −$200 billion 
B) $0 
C) $100 billion 
D) $200 billion

Question 5

The marginal propensity to save is given by

Accepted Answer

A) the change in saving divided by the change in consumption. 
B) saving divided by the change in disposable personal income. 
C) saving divided by disposable income. 
D) the change in saving divided by the change in disposable personal income. 
A) the change in saving divided by the change in consumption. 
B) saving divided by the change in disposable personal income. 
C) saving divided by disposable income. 
D) the change in saving divided by the change in disposable personal income.

Question 6

The marginal propensity to consume is the change in consumption divided by the change in
disposable personal income.

Accepted Answer

A) True 
 B)False

Question 7

Figure 13-1
  
-Refer to Figure 13-1.When disposable personal income is $1,200 billion, consumption is

Accepted Answer

A) $600 billion. 
B) $800 billion. 
C) $1,200 billion. 
D) $2,000 billion. 
A) $600 billion. 
B) $800 billion. 
C) $1,200 billion. 
D) $2,000 billion.

Question 8

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.The MPC is 0.6.If investment expenditures rise by $100 billion, the equilibrium level of real GDP of rises by

Accepted Answer

A) $250 billion. 
B) $300 billion. 
C) $500 billion. 
D) $1,500 billion. 
A) $250 billion. 
B) $300 billion. 
C) $500 billion. 
D) $1,500 billion.

Question 9

What is the international trade effect?

Accepted Answer

A) It is the tendency for exports to fall and imports to rise when the domestic price level falls relative to the foreign price level. 
B) It is the tendency for exports to rise and imports to fall when the domestic price level falls relative to the foreign price level. 
C) It is the tendency for domestic investments to fall when foreign interest rates rise relative to domestic interest rates. 
D) It is the tendency for exchange rates to fall when foreign interest rates rise relative to domestic interest rates. 
A) It is the tendency for exports to fall and imports to rise when the domestic price level falls relative to the foreign price level. 
B) It is the tendency for exports to rise and imports to fall when the domestic price level falls relative to the foreign price level. 
C) It is the tendency for domestic investments to fall when foreign interest rates rise relative to domestic interest rates. 
D) It is the tendency for exchange rates to fall when foreign interest rates rise relative to domestic interest rates.

Question 10

The multiplier is found by dividing the change in equilibrium real GDP by the change in autonomous aggregate expenditures.

Accepted Answer

A) True 
 B)False

Question 11

In graph that shows disposable income on the horizontal axis and consumption on the vertical axis, at every point on the 45-degree line,

Accepted Answer

A) the value of disposable income equals the sum of personal saving and consumption. 
B) the value of disposable income equals consumption. 
C) the value of disposable income equals personal saving. 
D) the value of disposable income and consumption equals 1. 
A) the value of disposable income equals the sum of personal saving and consumption. 
B) the value of disposable income equals consumption. 
C) the value of disposable income equals personal saving. 
D) the value of disposable income and consumption equals 1.

Question 12

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.If the consumption function is
C = $500 + 0.8Y, planned investment = $200, government purchases = $300,
Net exports = $100, and real GDP = $1,000, what is the amount of aggregate expenditures?

Accepted Answer

A) $800 
B) $1,000 
C) $1,100 
D) $1,900 
A) $800 
B) $1,000 
C) $1,100 
D) $1,900

Question 13

Autonomous aggregate expenditures are those that automatically vary with real GDP, whereas induced expenditures only change in response to a change in an external factor.

Accepted Answer

A) True 
 B)False

Question 14

The marginal propensity to consume is the

Accepted Answer

A) slope of the saving function. 
B) slope of the consumption function. 
C) proportion of disposable personal income used for consumption. 
D) change in consumption divided by the change in saving. 
A) slope of the saving function. 
B) slope of the consumption function. 
C) proportion of disposable personal income used for consumption. 
D) change in consumption divided by the change in saving.

Question 15

Figure 13-1
  
-Refer to Figure 13-1.When disposable personal income is $2,000 billion, consumption is

Accepted Answer

A) $400 billion. 
B) $1,000 billion. 
C) $1,200 billion. 
D) $1,600 billion. 
A) $400 billion. 
B) $1,000 billion. 
C) $1,200 billion. 
D) $1,600 billion.

Question 16

Suppose at each price level, autonomous aggregate expenditures increase by $50 billion.As a result, the aggregate expenditures curve shifts

Accepted Answer

A) downward at each price level and results in a leftward shift in aggregate demand. 
B) upward at each price level and results in a rightward shift in aggregate demand. 
C) downward at each price level and results in a movement down along a given aggregate demand. 
D) upward at each price level and results in a movement up along a given aggregate demand. 
A) downward at each price level and results in a leftward shift in aggregate demand. 
B) upward at each price level and results in a rightward shift in aggregate demand. 
C) downward at each price level and results in a movement down along a given aggregate demand. 
D) upward at each price level and results in a movement up along a given aggregate demand.

Question 17

Investment equals

Accepted Answer

A) planned investment plus unplanned investment. 
B) planned investment minus unplanned investment. 
C) unplanned investment minus planned investment. 
D) planned investment in a free market economy. 
A) planned investment plus unplanned investment. 
B) planned investment minus unplanned investment. 
C) unplanned investment minus planned investment. 
D) planned investment in a free market economy.

Question 18

Let Y = real GDP and Yd = disposable income.Suppose initially, Y = Yd and the marginal propensity to consume (MPC)is 0.8.All components of aggregate expenditures except consumption are autonomous.Now suppose the government imposes an income tax rate of 30% on real GDP.As a result, one additional dollar will increase consumption by

Accepted Answer

A) $0.24. 
B) $0.30. 
C) $0.56. 
D) $0.50. 
A) $0.24. 
B) $0.30. 
C) $0.56. 
D) $0.50.

Question 19

A decrease in the price level, all other things unchanged, shifts the aggregate expenditures curve upwards.

Accepted Answer

A) True 
 B)False

Question 20

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.All other things unchanged, an increase in the price level,

Accepted Answer

A) shifts the aggregate expenditures curve upwards and causes the aggregate demand curve to shift right. 
B) shifts the aggregate expenditures curve downwards and causes the aggregate demand curve to shift left. 
C) shifts the aggregate expenditures curve upwards and causes a movement up along a given aggregate demand curve. 
D) shifts the aggregate expenditures curve downwards and causes a movement down along a given aggregate demand curve. 
A) shifts the aggregate expenditures curve upwards and causes the aggregate demand curve to shift right. 
B) shifts the aggregate expenditures curve downwards and causes the aggregate demand curve to shift left. 
C) shifts the aggregate expenditures curve upwards and causes a movement up along a given aggregate demand curve. 
D) shifts the aggregate expenditures curve downwards and causes a movement down along a given aggregate demand curve.

Exam 28: Consumption and the Aggregate Expenditures Model

Consumption spending in any one period that is determined by income in that period is explained by the

Personal saving 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, and IP is autonomous.Which of the following statements is true?

Figure 13-1 -Refer to Figure 13-1.Assuming that the relationship between consumption and disposable personal income remains linear throughout its entire range, what would the level of consumption be if disposable personal income were zero?

The marginal propensity to save is given by

The marginal propensity to consume is the change in consumption divided by the change in disposable personal income.

Figure 13-1 -Refer to Figure 13-1.When disposable personal income is $1,200 billion, consumption is

What is the international trade effect?

The multiplier is found by dividing the change in equilibrium real GDP by the change in autonomous aggregate expenditures.

In graph that shows disposable income on the horizontal axis and consumption on the vertical axis, at every point on the 45-degree line,

Autonomous aggregate expenditures are those that automatically vary with real GDP, whereas induced expenditures only change in response to a change in an external factor.

The marginal propensity to consume is the

Figure 13-1 -Refer to Figure 13-1.When disposable personal income is $2,000 billion, consumption is

Suppose at each price level, autonomous aggregate expenditures increase by $50 billion.As a result, the aggregate expenditures curve shifts

Investment equals

A decrease in the price level, all other things unchanged, shifts the aggregate expenditures curve upwards.

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Inflation and Unemployment

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Macroeconomics: the Big Picture

Measuring Total Income and Output

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Investment and Economic Activity

Net Exports and International Finance

Macro Inflation and Unemployment

Macro a Brief History of Macroeconomic Thought and Policy

Economic Development

Socialist Economies in Transition

Filters

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.Which of the following statements is true?