Question 1

An example of investment is the purchase of machinery by a manufacturing company.

Accepted Answer

A) True 
 B)False

Question 2

If real interest rates decrease, we generally expect

Accepted Answer

A)  saving to increase. 
B)  saving to decrease. 
C)  consumption spending to decrease. 
D)  no significant change in saving. 
A)  saving to increase. 
B)  saving to decrease. 
C)  consumption spending to decrease. 
D)  no significant change in saving.

Question 3

Which of the following would lead you to predict an upward shift in the consumption function?

Accepted Answer

A)  a decrease in the value of real wealth 
B)  a decrease in disposable income 
C)  an increase in the value of real wealth 
D)  an increase in the price level 
A)  a decrease in the value of real wealth 
B)  a decrease in disposable income 
C)  an increase in the value of real wealth 
D)  an increase in the price level

Question 4

The tax cuts of 2008 and 2009 were effective because consumers believed that they were temporary.

Accepted Answer

A) True 
 B)False

Question 5

Consumer spending represents about what fraction of total spending in the economy?

Accepted Answer

A)  one-fifth 
B)  two-thirds 
C)  one-third 
D)  two-fifths 
E)  three-fourths 
A)  one-fifth 
B)  two-thirds 
C)  one-third 
D)  two-fifths 
E)  three-fourths

Question 6

For each of the following, how would they be included in the national income accounts?
a.The University of California buys a new computer.
b.Charles buys a new MP₃ player.
c.Marian buys a new mountain cabin.
d.Vikki buys an old mansion with hopes of restoring it.
e.Farmer Brown buys a used combine harvester.

Accepted Answer

a.Government purchases.Purchased by a st

Question 7

Consumers increased consumption by a relatively small amount in 2008 and 2009 because they believed the tax cuts were temporary.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following observations concerning GDP calculations is true?

Accepted Answer

A)  Goods and services produced by governments are valued at market price. 
B)  Inventories are treated as if they are yet to be sold. 
C)  Goods produced but not sold during the year are counted in that year's GDP. 
D)  Goods that firms add to their inventories do not count in the GDP. 
A)  Goods and services produced by governments are valued at market price. 
B)  Inventories are treated as if they are yet to be sold. 
C)  Goods produced but not sold during the year are counted in that year's GDP. 
D)  Goods that firms add to their inventories do not count in the GDP.

Question 9

Investment goods are counted in GDP because they are

Accepted Answer

A)  intermediate goods. 
B)  purchased in their final form. 
C)  usually exported as foreign investment. 
D)  deductible business expenses. 
A)  intermediate goods. 
B)  purchased in their final form. 
C)  usually exported as foreign investment. 
D)  deductible business expenses.

Question 10

Figure 8-2
  
-In Figure 8-2, which of the following moves can be explained by a decrease in the prices of stock on the NASDAQ?

Accepted Answer

A)  A to B 
B)  A to C 
C)  A to D 
D)  A to E 
A)  A to B 
B)  A to C 
C)  A to D 
D)  A to E

Question 11

The marginal propensity to consume (MPC) is calculated by which formula?

Accepted Answer

A)  MPC = change in DI divided by change in C 
B)  MPC = change in GDP divided by change in DI 
C)  MPC = change in C divided by change in DI 
D)  MPC = change in C divided by change in GDP 
A)  MPC = change in DI divided by change in C 
B)  MPC = change in GDP divided by change in DI 
C)  MPC = change in C divided by change in DI 
D)  MPC = change in C divided by change in GDP

Question 12

Financial investments, such as mutual fund purchases, are included in the national income component.

Accepted Answer

A) True 
 B)False

Question 13

The value of both exports and imports are added to the value of national product.

Accepted Answer

A) True 
 B)False

Question 14

If inflation rises more quickly in the United States than in France, U.S.exports to France should rise.

Accepted Answer

A) True 
 B)False

Question 15

A decrease in the price level will most likely have what effect on the consumption function?

Accepted Answer

A)  It will shift upward. 
B)  It will shift downward. 
C)  It will cause movement downward along the function. 
D)  It will cause movement upward along the function. 
A)  It will shift upward. 
B)  It will shift downward. 
C)  It will cause movement downward along the function. 
D)  It will cause movement upward along the function.

Question 16

The U.S.experience with tax cuts and tax increases since 1975 suggests that

Accepted Answer

A)  tax cuts always stimulate consumption spending. 
B)  tax changes have a stable and predictable effect on consumption spending. 
C)  temporary tax changes are less effective than permanent changes. 
D)  tax changes have no effect on consumption spending. 
A)  tax cuts always stimulate consumption spending. 
B)  tax changes have a stable and predictable effect on consumption spending. 
C)  temporary tax changes are less effective than permanent changes. 
D)  tax changes have no effect on consumption spending.

Question 17

The "investment" component of aggregate demand will include all of the following except

Accepted Answer

A)  expenditures of business firms on new plants. 
B)  expenditures of business firms on new equipment. 
C)  resales of existing physical assets. 
D)  household spending on new homes. 
A)  expenditures of business firms on new plants. 
B)  expenditures of business firms on new equipment. 
C)  resales of existing physical assets. 
D)  household spending on new homes.

Question 18

Gross private domestic investment in the United States consists of three components:

Accepted Answer

A)  stocks, bonds, and mutual funds. 
B)  automobiles, trucks, and houses. 
C)  plant, equipment, & software, houses, and inventories. 
D)  plant, equipment, & software, houses, and net exports. 
A)  stocks, bonds, and mutual funds. 
B)  automobiles, trucks, and houses. 
C)  plant, equipment, & software, houses, and inventories. 
D)  plant, equipment, & software, houses, and net exports.

Question 19

Figure 8-1
  
-Given the scatter diagram in Figure 8-1, what is the MPC (your best estimate)?

Accepted Answer

A)  1/2 
B)  1/3 
C)  2/3 
D)  1 
A)  1/2 
B)  1/3 
C)  2/3 
D)  1

Question 20

The one category of goods that are not sold but are, nevertheless, included in GDP is

Accepted Answer

A)  inventories. 
B)  imports. 
C)  consumer services. 
D)  exports. 
A)  inventories. 
B)  imports. 
C)  consumer services. 
D)  exports.

Exam 25: Aggregate Demand and the Powerful Consumer

An example of investment is the purchase of machinery by a manufacturing company.

If real interest rates decrease, we generally expect

Which of the following would lead you to predict an upward shift in the consumption function?

The tax cuts of 2008 and 2009 were effective because consumers believed that they were temporary.

Consumer spending represents about what fraction of total spending in the economy?

Consumers increased consumption by a relatively small amount in 2008 and 2009 because they believed the tax cuts were temporary.

Which of the following observations concerning GDP calculations is true?

Investment goods are counted in GDP because they are

Figure 8-2 -In Figure 8-2, which of the following moves can be explained by a decrease in the prices of stock on the NASDAQ?

The marginal propensity to consume (MPC) is calculated by which formula?

Financial investments, such as mutual fund purchases, are included in the national income component.

The value of both exports and imports are added to the value of national product.

If inflation rises more quickly in the United States than in France, U.S.exports to France should rise.

A decrease in the price level will most likely have what effect on the consumption function?

The U.S.experience with tax cuts and tax increases since 1975 suggests that

The "investment" component of aggregate demand will include all of the following except

Gross private domestic investment in the United States consists of three components:

Figure 8-1 -Given the scatter diagram in Figure 8-1, what is the MPC (your best estimate)?

The one category of goods that are not sold but are, nevertheless, included in GDP is

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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