Question 1

Which of the following would be counted as investment in the national income accounts?

Accepted Answer

A)  the purchase of a newly issued stock 
B)  the purchase of a newly built apartment house 
C)  the purchase of a newly minted coin 
D)  the payment of tuition at a private college 
A)  the purchase of a newly issued stock 
B)  the purchase of a newly built apartment house 
C)  the purchase of a newly minted coin 
D)  the payment of tuition at a private college

Question 2

A $500 government bond is a money-fixed asset.

Accepted Answer

A) True 
 B)False

Question 3

Why does an increase in the price level tend to cause the consumption function to shift downward?

Accepted Answer

A)  An increase in the price level decreases disposable income. 
B)  An increase in the price level increases the demand for fixed money assets. 
C)  An increase in the price level decreases the value of fixed money assets. 
D)  An increase in the price level decreases saving and increases debt. 
A)  An increase in the price level decreases disposable income. 
B)  An increase in the price level increases the demand for fixed money assets. 
C)  An increase in the price level decreases the value of fixed money assets. 
D)  An increase in the price level decreases saving and increases debt.

Question 4

Which of the following is the injection into the circular flow model?

Accepted Answer

A)  Money deposited in a savings account. 
B)  Income earned through exports. 
C)  Goods imported from abroad. 
D)  Taxes paid by the individuals. 
A)  Money deposited in a savings account. 
B)  Income earned through exports. 
C)  Goods imported from abroad. 
D)  Taxes paid by the individuals.

Question 5

If personal taxes are increased by $10 billion, we can expect that consumers will reduce

Accepted Answer

A)  spending by $10 billion. 
B)  spending by more than $10 billion. 
C)  spending by less than $10 billion. 
D)  saving by $10 billion. 
E)  saving by more than $10 billion. 
A)  spending by $10 billion. 
B)  spending by more than $10 billion. 
C)  spending by less than $10 billion. 
D)  saving by $10 billion. 
E)  saving by more than $10 billion.

Question 6

The slope of the scatter diagram representing the relationship between consumption and disposable income in the United States is approximately

Accepted Answer

A)  1.10. 
B)  0.30 
C)  0.50 
D)  0.90 
A)  1.10. 
B)  0.30 
C)  0.50 
D)  0.90

Question 7

Both President Bush and President Obama wanted tax cuts to stimulate consumer spending during the 2007-2009 recession.

Accepted Answer

A) True 
 B)False

Question 8

For each $1 of a tax cut, economists expect consumption to

Accepted Answer

A)  decrease by $1. 
B)  decrease by less than $1. 
C)  increase by less than $1. 
D)  increase by $1. 
A)  decrease by $1. 
B)  decrease by less than $1. 
C)  increase by less than $1. 
D)  increase by $1.

Question 9

Figure 8-1
  
-Based on the scatter diagram in Figure 8-1, approximately how much will consumption increase after a permanent tax cut of $400 billion?

Accepted Answer

A)  $100 billion 
B)  $150 billion 
C)  $250 billion 
D)  $350 billion 
A)  $100 billion 
B)  $150 billion 
C)  $250 billion 
D)  $350 billion

Question 10

The book that is the basis for modern macroeconomic theory is

Accepted Answer

A)  The Wealth of Nations. 
B)  Principles of Political Economy. 
C)  The General History of Money and Banking. 
D)  The General Theory of Employment, Interest, and Money. 
A)  The Wealth of Nations. 
B)  Principles of Political Economy. 
C)  The General History of Money and Banking. 
D)  The General Theory of Employment, Interest, and Money.

Question 11

Pat Robertson, a TV evangelist and former Republican Party candidate for president, once said that "debt is an affront to God," so good Christians should not spend beyond their incomes.Indeed, Robertson wants Christians to save more.If more Americans, Christians as well as others, took his message seriously, how would we represent the result using a Keynesian macroeconomic model?

Accepted Answer

A)  a downward movement along the consumption function 
B)  an upward movement along the consumption function 
C)  a downward shift of the consumption function 
D)  an upward shift of the consumption function 
A)  a downward movement along the consumption function 
B)  an upward movement along the consumption function 
C)  a downward shift of the consumption function 
D)  an upward shift of the consumption function

Question 12

Government purchases are included in national product.

Accepted Answer

A) True 
 B)False

Question 13

The tax cuts of 2008 and 2009 reduced the disposable income of U.S.consumers.

Accepted Answer

A) True 
 B)False

Question 14

A movement upward along the consumption function can be caused only by a(n)

Accepted Answer

A)  increase in disposable income. 
B)  decrease in disposable income. 
C)  decrease in the price level. 
D)  increase in the price level. 
A)  increase in disposable income. 
B)  decrease in disposable income. 
C)  decrease in the price level. 
D)  increase in the price level.

Question 15

According to the relationship represented by the consumption function, governments can indirectly decrease consumption spending by

Accepted Answer

A)  increasing taxes. 
B)  decreasing transfers. 
C)  decreasing taxes. 
D)  decreasing government spending. 
A)  increasing taxes. 
B)  decreasing transfers. 
C)  decreasing taxes. 
D)  decreasing government spending.

Question 16

The largest component of aggregate demand is

Accepted Answer

A)  investment spending. 
B)  consumer spending. 
C)  government spending. 
D)  total imports. 
A)  investment spending. 
B)  consumer spending. 
C)  government spending. 
D)  total imports.

Question 17

Why do permanent tax cuts have a greater impact on consumption than temporary tax cuts?

Accepted Answer

A)  Permanent tax cuts have a greater effect on expected long-run inflation. 
B)  Permanent tax cuts are perceived as minor while temporary tax cuts are larger and more effective. 
C)  Permanent tax cuts cause movement along the consumption function, while temporary tax cuts shift the consumption function. 
D)  Permanent tax cuts affect expectations of long-run income more than temporary tax cuts. 
A)  Permanent tax cuts have a greater effect on expected long-run inflation. 
B)  Permanent tax cuts are perceived as minor while temporary tax cuts are larger and more effective. 
C)  Permanent tax cuts cause movement along the consumption function, while temporary tax cuts shift the consumption function. 
D)  Permanent tax cuts affect expectations of long-run income more than temporary tax cuts.

Question 18

A scatter diagram could help a policy maker decide on the size of a tax cut necessary to increase consumer expenditures by a certain amount.

Accepted Answer

A) True 
 B)False

Question 19

If Kobe, an NBA star athlete, earns $10 million per year but has no money in the bank, he has a

Accepted Answer

A)  high income and high wealth. 
B)  low income and high wealth. 
C)  high income and low wealth. 
D)  low income and low wealth. 
A)  high income and high wealth. 
B)  low income and high wealth. 
C)  high income and low wealth. 
D)  low income and low wealth.

Question 20

A savings account is an example of consumer income.

Accepted Answer

A) True 
 B)False

Exam 25: Aggregate Demand and the Powerful Consumer

Which of the following would be counted as investment in the national income accounts?

A $500 government bond is a money-fixed asset.

Why does an increase in the price level tend to cause the consumption function to shift downward?

Which of the following is the injection into the circular flow model?

If personal taxes are increased by $10 billion, we can expect that consumers will reduce

The slope of the scatter diagram representing the relationship between consumption and disposable income in the United States is approximately

Both President Bush and President Obama wanted tax cuts to stimulate consumer spending during the 2007-2009 recession.

For each $1 of a tax cut, economists expect consumption to

Figure 8-1 -Based on the scatter diagram in Figure 8-1, approximately how much will consumption increase after a permanent tax cut of $400 billion?

The book that is the basis for modern macroeconomic theory is

Government purchases are included in national product.

The tax cuts of 2008 and 2009 reduced the disposable income of U.S.consumers.

A movement upward along the consumption function can be caused only by a(n)

According to the relationship represented by the consumption function, governments can indirectly decrease consumption spending by

The largest component of aggregate demand is

Why do permanent tax cuts have a greater impact on consumption than temporary tax cuts?

A scatter diagram could help a policy maker decide on the size of a tax cut necessary to increase consumer expenditures by a certain amount.

If Kobe, an NBA star athlete, earns $10 million per year but has no money in the bank, he has a

A savings account is an example of consumer income.

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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