Question 1

Investment spending

Accepted Answer

A)  tends to be volatile. 
B)  is the largest component of total spending. 
C)  is not sensitive to interest rates. 
D)  is limited to the stock and bond markets. 
A)  tends to be volatile. 
B)  is the largest component of total spending. 
C)  is not sensitive to interest rates. 
D)  is limited to the stock and bond markets.

Question 2

According to Keynes, it does not matter whether injections into the economy come from investment alone or from investment and government spending together. The key is spending.

Accepted Answer

A) True 
 B)False

Question 3

The _____ is the change in saving associated with a change in income.

Accepted Answer

A)  average propensity to consume 
B)  marginal propensity to consume 
C)  average propensity to save 
D)  marginal propensity to save 
A)  average propensity to consume 
B)  marginal propensity to consume 
C)  average propensity to save 
D)  marginal propensity to save

Question 4

Assume that the economy is at equilibrium at $12 trillion, with a marginal propensity to consume of 0.75. If exports rise by $0.1 trillion and imports increase by $0.1 trillion, equilibrium income will

Accepted Answer

A)  fall by $0.1 trillion. 
B)  rise by $0.1 trillion. 
C)  fall by $0.4 trillion. 
D)  not change. 
A)  fall by $0.1 trillion. 
B)  rise by $0.1 trillion. 
C)  fall by $0.4 trillion. 
D)  not change.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Exports are _____ of spending into (from) the economy, and imports are _____ of spending into (from) the economy.

Accepted Answer

A)  injections; withdrawals 
B)  withdrawals; injections 
C)  injections; also injections 
D)  withdrawals; also withdrawals 
A)  injections; withdrawals 
B)  withdrawals; injections 
C)  injections; also injections 
D)  withdrawals; also withdrawals

Question 7

If the marginal propensity to save is 0.2, the value of the spending multiplier will be

Accepted Answer

A)  0.8. 
B)  1.25. 
C)  5. 
D)  8. 
A)  0.8. 
B)  1.25. 
C)  5. 
D)  8.

Question 8

Consumption spending is

Accepted Answer

A)  spending by households, businesses, and governments on all goods consumed within one year. 
B)  spending by individuals and households on only nondurable goods, since they are consumed quickly. 
C)  spending on goods and services by heads of households. 
D)  spending by individuals and households on both durable and nondurable goods. 
A)  spending by households, businesses, and governments on all goods consumed within one year. 
B)  spending by individuals and households on only nondurable goods, since they are consumed quickly. 
C)  spending on goods and services by heads of households. 
D)  spending by individuals and households on both durable and nondurable goods.

Question 9

In the Keynesian aggregate expenditures model, which variable is assumed to be fixed?

Accepted Answer

A)  GDP 
B)  consumption 
C)  unemployment 
D)  price level 
A)  GDP 
B)  consumption 
C)  unemployment 
D)  price level

Question 10

In the simple Keynesian model, equilibrium exists when

Accepted Answer

A)  investment spending equals saving. 
B)  quantity supplied equals quantity demanded. 
C)  consumption equals investment. 
D)  the price accepted by demanders equals the price offered by suppliers. 
A)  investment spending equals saving. 
B)  quantity supplied equals quantity demanded. 
C)  consumption equals investment. 
D)  the price accepted by demanders equals the price offered by suppliers.

Question 11

Suppose the marginal propensity to consume is 0.9. Jim decides to spend $1,000 on a small boat. How much of the new income in the first three rounds is new spending?

Accepted Answer

The table that follows shows t

Question 12

Firms decide how much to invest by comparing the rate of return on their projects with the

Accepted Answer

A)  total profit. 
B)  productivity of the workers assigned to the projects. 
C)  interest rate. 
D)  before-tax rate of return. 
A)  total profit. 
B)  productivity of the workers assigned to the projects. 
C)  interest rate. 
D)  before-tax rate of return.

Question 13

In the nation of Economia, the economy is overheating and there is danger of inflation. The chief economist estimates that current income is $50 billion, the optimal level is $40 billion, and the multiplier is 4. If government wants to close the inflationary gap, it should reduce government spending by

Accepted Answer

A)  $2.5 billion. 
B)  $7.5 billion. 
C)  $10 billion. 
D)  $40 billion. 
A)  $2.5 billion. 
B)  $7.5 billion. 
C)  $10 billion. 
D)  $40 billion.

Question 14

Expectations of large increases in income lead to lower levels of consumption.

Accepted Answer

A) True 
 B)False

Question 15

Injections in the simple Keynesian model are made up of business investments in the economy.

Accepted Answer

A) True 
 B)False

Question 16

Personal consumption expenditures

Accepted Answer

A)  constitute 30% of GDP. 
B)  can be found by subtracting saving from disposable income. 
C)  primarily depend on interest rates. 
D)  are very unstable as a percentage of GDP over time. 
A)  constitute 30% of GDP. 
B)  can be found by subtracting saving from disposable income. 
C)  primarily depend on interest rates. 
D)  are very unstable as a percentage of GDP over time.

Question 17

The largest component of aggregate expenditures is

Accepted Answer

A)  investment spending. 
B)  saving. 
C)  government spending. 
D)  consumption spending. 
A)  investment spending. 
B)  saving. 
C)  government spending. 
D)  consumption spending.

Question 18

(Table) The table shows data on consumption at various levels of income. Assume there is no private investment. The value of the APS at equilibrium is

Accepted Answer

A)  -0.25. 
B)  0.00. 
C)  0.083. 
D)  0.125. 
A)  -0.25. 
B)  0.00. 
C)  0.083. 
D)  0.125.

Question 19

If there is no government and no foreign sector in the economy

Accepted Answer

A)  personal income and disposable personal income are unequal. 
B)  international trade is an important component of total spending. 
C)  gross domestic product equals consumption plus investment. 
D)  budget and trade deficits are important parts of the model of the economy. 
A)  personal income and disposable personal income are unequal. 
B)  international trade is an important component of total spending. 
C)  gross domestic product equals consumption plus investment. 
D)  budget and trade deficits are important parts of the model of the economy.

Question 20

In the Keynesian aggregate expenditures model, prices are assumed to be fixed because resources are underutilized.

Accepted Answer

A) True 
 B)False

Investment spending

According to Keynes, it does not matter whether injections into the economy come from investment alone or from investment and government spending together. The key is spending.

The _____ is the change in saving associated with a change in income.

Assume that the economy is at equilibrium at $12 trillion, with a marginal propensity to consume of 0.75. If exports rise by $0.1 trillion and imports increase by $0.1 trillion, equilibrium income will

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

Exports are _ of spending into (from) the economy, and imports are _ of spending into (from) the economy.

If the marginal propensity to save is 0.2, the value of the spending multiplier will be

Consumption spending is

In the Keynesian aggregate expenditures model, which variable is assumed to be fixed?

In the simple Keynesian model, equilibrium exists when

Suppose the marginal propensity to consume is 0.9. Jim decides to spend $1,000 on a small boat. How much of the new income in the first three rounds is new spending?

Firms decide how much to invest by comparing the rate of return on their projects with the

Expectations of large increases in income lead to lower levels of consumption.

Injections in the simple Keynesian model are made up of business investments in the economy.

Personal consumption expenditures

The largest component of aggregate expenditures is

(Table) The table shows data on consumption at various levels of income. Assume there is no private investment. The value of the APS at equilibrium is

If there is no government and no foreign sector in the economy

In the Keynesian aggregate expenditures model, prices are assumed to be fixed because resources are underutilized.

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

Exam 8: Aggregate Expenditures

Investment spending

According to Keynes, it does not matter whether injections into the economy come from investment alone or from investment and government spending together. The key is spending.

The _____ is the change in saving associated with a change in income.

Assume that the economy is at equilibrium at $12 trillion, with a marginal propensity to consume of 0.75. If exports rise by $0.1 trillion and imports increase by $0.1 trillion, equilibrium income will

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

Exports are _____ of spending into (from) the economy, and imports are _____ of spending into (from) the economy.

If the marginal propensity to save is 0.2, the value of the spending multiplier will be

Consumption spending is

In the Keynesian aggregate expenditures model, which variable is assumed to be fixed?

In the simple Keynesian model, equilibrium exists when

Suppose the marginal propensity to consume is 0.9. Jim decides to spend $1,000 on a small boat. How much of the new income in the first three rounds is new spending?

Firms decide how much to invest by comparing the rate of return on their projects with the

Expectations of large increases in income lead to lower levels of consumption.

Injections in the simple Keynesian model are made up of business investments in the economy.

Personal consumption expenditures

The largest component of aggregate expenditures is

(Table) The table shows data on consumption at various levels of income. Assume there is no private investment. The value of the APS at equilibrium is

If there is no government and no foreign sector in the economy

In the Keynesian aggregate expenditures model, prices are assumed to be fixed because resources are underutilized.

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

Exports are _ of spending into (from) the economy, and imports are _ of spending into (from) the economy.