Question 1

The investment spending component of GDP includes all of the following except:

Accepted Answer

A) business fixed investment. 
B) net foreign investment. 
C) residential investment. 
D) inventory investment. 
A) business fixed investment. 
B) net foreign investment. 
C) residential investment. 
D) inventory investment.

Question 2

According to Modigliani's life-cycle hypothesis, the consumption function shifts upward as _____ increases.

Accepted Answer

A) income 
B) wealth 
C) the marginal propensity to consume out of income 
D) the number of years until retirement 
A) income 
B) wealth 
C) the marginal propensity to consume out of income 
D) the number of years until retirement

Question 3

Exhibit: Rental Price of Capital   Based on the graph, if the capital market is initially in equilibrium at A with real rental price R3 / P and capital stock K2, then holding other factors constant, an increase in the quantity of labour employed will move the real rental price of capital to:

Accepted Answer

A) R1 / P. 
B) R2 / P. 
C) R4 / P. 
D) R5 / P. 
A) R1 / P. 
B) R2 / P. 
C) R4 / P. 
D) R5 / P.

Question 4

According to the permanent-income hypothesis, consumption depends primarily on _____ income.

Accepted Answer

A) current 
B) nominal 
C) permanent 
D) transitory 
A) current 
B) nominal 
C) permanent 
D) transitory

Question 5

A firm renting out capital does not bear as cost the:

Accepted Answer

A) lost interest it could have earned by depositing the purchase price of the capital in a bank. 
B) wear and tear on the capital. 
C) wages of the labour that works with the capital. 
D) capital loss or gain in the asset's value. 
A) lost interest it could have earned by depositing the purchase price of the capital in a bank. 
B) wear and tear on the capital. 
C) wages of the labour that works with the capital. 
D) capital loss or gain in the asset's value.

Question 6

How will a decrease in output during a recession affect business fixed investment?

Accepted Answer

Lower output reduces employmen

Question 7

If consumers have rational expectations and follow the permanent-income hypothesis, their current consumption will increase when:

Accepted Answer

A) previously announced tax reductions are implemented. 
B) they receive an anticipated raise. 
C) they receive an unexpected inheritance. 
D) they make the last payment on their automobile loan. 
A) previously announced tax reductions are implemented. 
B) they receive an anticipated raise. 
C) they receive an unexpected inheritance. 
D) they make the last payment on their automobile loan.

Question 8

Milton Friedman viewed current income as the sum of permanent income and:

Accepted Answer

A) bonus income. 
B) transitory income. 
C) temporary income. 
D) surprise income. 
A) bonus income. 
B) transitory income. 
C) temporary income. 
D) surprise income.

Question 9

According to Friedman's permanent-income hypothesis, the marginal propensity to consume out of permanent income is _____ the marginal propensity to consume out of transitory income.

Accepted Answer

A) greater than 
B) less than 
C) equal to 
D) one minus 
A) greater than 
B) less than 
C) equal to 
D) one minus

Question 10

According to the life-cycle model, when wealth and income increase together in the long run, the average propensity to consume:

Accepted Answer

A) increases. 
B) decreases. 
C) remains constant. 
D) can either increase or decrease. 
A) increases. 
B) decreases. 
C) remains constant. 
D) can either increase or decrease.

Question 11

Explain how tight credit markets (credit crunches) affect business fixed investment.

Accepted Answer

Firms that face financing constraints wi

Question 12

Which of the following conjectures that underlie the Keynesian consumption function is not consistent with aggregate Canadian and U.S. data?

Accepted Answer

A) The marginal propensity to consume is between 0 and 1. 
B) The average propensity to consume decreases as income increases. 
C) There is a high correlation between income and consumption. 
D) Current income is a determinant of consumption. 
A) The marginal propensity to consume is between 0 and 1. 
B) The average propensity to consume decreases as income increases. 
C) There is a high correlation between income and consumption. 
D) Current income is a determinant of consumption.

The investment spending component of GDP includes all of the following except:

According to Modigliani's life-cycle hypothesis, the consumption function shifts upward as _____ increases.

Exhibit: Rental Price of Capital Based on the graph, if the capital market is initially in equilibrium at A with real rental price R₃ / P and capital stock K₂, then holding other factors constant, an increase in the quantity of labour employed will move the real rental price of capital to:

According to the permanent-income hypothesis, consumption depends primarily on _____ income.

A firm renting out capital does not bear as cost the:

How will a decrease in output during a recession affect business fixed investment?

If consumers have rational expectations and follow the permanent-income hypothesis, their current consumption will increase when:

Milton Friedman viewed current income as the sum of permanent income and:

According to Friedman's permanent-income hypothesis, the marginal propensity to consume out of permanent income is _____ the marginal propensity to consume out of transitory income.

According to the life-cycle model, when wealth and income increase together in the long run, the average propensity to consume:

Explain how tight credit markets (credit crunches) affect business fixed investment.

Which of the following conjectures that underlie the Keynesian consumption function is not consistent with aggregate Canadian and U.S. data?

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

Exam 19: The Microfoundations of Consumption and Investment

The investment spending component of GDP includes all of the following except:

According to Modigliani's life-cycle hypothesis, the consumption function shifts upward as _____ increases.

Exhibit: Rental Price of Capital Based on the graph, if the capital market is initially in equilibrium at A with real rental price R3 / P and capital stock K2, then holding other factors constant, an increase in the quantity of labour employed will move the real rental price of capital to:

According to the permanent-income hypothesis, consumption depends primarily on _____ income.

A firm renting out capital does not bear as cost the:

How will a decrease in output during a recession affect business fixed investment?

If consumers have rational expectations and follow the permanent-income hypothesis, their current consumption will increase when:

Milton Friedman viewed current income as the sum of permanent income and:

According to Friedman's permanent-income hypothesis, the marginal propensity to consume out of permanent income is _____ the marginal propensity to consume out of transitory income.

According to the life-cycle model, when wealth and income increase together in the long run, the average propensity to consume:

Explain how tight credit markets (credit crunches) affect business fixed investment.

Which of the following conjectures that underlie the Keynesian consumption function is not consistent with aggregate Canadian and U.S. data?

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

Exhibit: Rental Price of Capital Based on the graph, if the capital market is initially in equilibrium at A with real rental price R₃ / P and capital stock K₂, then holding other factors constant, an increase in the quantity of labour employed will move the real rental price of capital to: