Question 1

Disposable income can be defined as national product

Accepted Answer

A) minus federal and state taxes. 
B) minus taxes plus transfers. 
C) minus indirect taxes. 
D) plus taxes plus transfers. 
A) minus federal and state taxes. 
B) minus taxes plus transfers. 
C) minus indirect taxes. 
D) plus taxes plus transfers. B

Question 2

If personal taxes are cut temporarily, the resulting

Accepted Answer

A) increase in personal saving would be larger than if they were cut permanently. 
B) decrease in personal saving would be larger than if they were cut permanently. 
C) decrease in personal saving would be smaller than if they were cut permanently. 
D) increase in personal saving would be smaller than if they were cut permanently. 
A) increase in personal saving would be larger than if they were cut permanently. 
B) decrease in personal saving would be larger than if they were cut permanently. 
C) decrease in personal saving would be smaller than if they were cut permanently. 
D) increase in personal saving would be smaller than if they were cut permanently. D

Question 3

Which factors will cause the consumption function to shift? Which factors do not cause the function to shift?

Accepted Answer

The principal factors that will cause the consumption function to shift are changes in wealth, changes in the price level, and changes in consumer expectations.If wealth increases, then more consumption is possible at the same level of income.If the price level changes, fixed money assets change in value.When prices rise, fixed money assets decrease in value and consumption will decrease.As consumers become more optimistic, they will tend to spend more even if their current income is not changing.The only factor that will not shift the consumption function is disposable income.When disposable income changes, you move up or down a consumption function depending on the direction of change.If disposable income increases, then one moves up along the consumption function.

Question 4

A movement from one point to another point on the same consumption function could be caused due to

Accepted Answer

A) changes in wealth. 
B) an increase in the general price level. 
C) decrease in the real interest rates. 
D) changes in disposable income. 
A) changes in wealth. 
B) an increase in the general price level. 
C) decrease in the real interest rates. 
D) changes in disposable income.

Question 5

Do economists know the value of the MPC for most economies?

Accepted Answer

A) Yes, with a high level of precision. 
B) Yes, with a certainty level of four decimal places. 
C) No, it is impossible to determine a national MPC. 
D) Yes, but with some level of uncertainty. 
A) Yes, with a high level of precision. 
B) Yes, with a certainty level of four decimal places. 
C) No, it is impossible to determine a national MPC. 
D) Yes, but with some level of uncertainty.

Question 6

A change in the value of consumer's stock market holdings will cause a shift in the consumption function.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Imports are a leakage in the sense that

Accepted Answer

A) the international financial system is unstable. 
B) consumers buy foreign output of goods and services. 
C) foreigners earn less than U.S.workers. 
D) a trade deficit increases aggregate demand. 
A) the international financial system is unstable. 
B) consumers buy foreign output of goods and services. 
C) foreigners earn less than U.S.workers. 
D) a trade deficit increases aggregate demand.

Question 9

The numerical value of the MPC is typically

Accepted Answer

A) less than 1. 
B) equal to 1. 
C) greater than 1. 
D) unpredictable. 
A) less than 1. 
B) equal to 1. 
C) greater than 1. 
D) unpredictable.

Question 10

The slope of the consumption function is equal to the marginal propensity to save.

Accepted Answer

A) True 
 B)False

Question 11

Most statistical studies on the relationship between real interest rates and saving conclude that higher real interest rates

Accepted Answer

A) increase saving. 
B) tend to decrease saving. 
C) tend to decrease both consumption and saving. 
D) have no effect on saving. 
A) increase saving. 
B) tend to decrease saving. 
C) tend to decrease both consumption and saving. 
D) have no effect on saving.

Question 12

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 13

Assume that consumption in the United States is $9,000 billion in 2009.If the MPC is 0.8 and disposable income increases by $1,000 billion in 2010, then the level of consumption in 2010 will be

Accepted Answer

A) $10,000 billion. 
B) $9,800 billion. 
C) $9,000 billion. 
D) $7,200 billion. 
A) $10,000 billion. 
B) $9,800 billion. 
C) $9,000 billion. 
D) $7,200 billion.

Question 14

The marginal propensity to consume is

Accepted Answer

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

Question 15

Taxes are not considered a leakage because they become transfers in the circular flow of income and spending model.

Accepted Answer

A) True 
 B)False

Question 16

The main reason that the 1975, 2008, and 2009 tax cuts did not have a large effect on GDP is that they were

Accepted Answer

A) temporary surcharges rather than permanent surcharges. 
B) permanent surcharges rather than temporary surcharges. 
C) temporary tax cuts rather than a permanent tax cuts. 
D) permanent tax cuts rather than a temporary tax cuts. 
A) temporary surcharges rather than permanent surcharges. 
B) permanent surcharges rather than temporary surcharges. 
C) temporary tax cuts rather than a permanent tax cuts. 
D) permanent tax cuts rather than a temporary tax cuts.

Question 17

The difference between Gross National Product and Net National Product is the

Accepted Answer

A) rate of inflation. 
B) statistical discrepancy encountered in calculating GDP. 
C) difference between real versus nominal GDP. 
D) depreciation of the economy's capital stock. 
A) rate of inflation. 
B) statistical discrepancy encountered in calculating GDP. 
C) difference between real versus nominal GDP. 
D) depreciation of the economy's capital stock.

Question 18

Suppose the stock market rises, causing a rapid increase in consumers' wealth.This would lead to

Accepted Answer

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

Question 19

If a U.S.citizen buys a car produced in Germany, this transaction will add to

Accepted Answer

A) U.S.aggregate demand. 
B) U.S.aggregate supply. 
C) German aggregate demand. 
D) German imports. 
A) U.S.aggregate demand. 
B) U.S.aggregate supply. 
C) German aggregate demand. 
D) German imports.

Question 20

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

Exam 24: Aggregate Demand and the Powerful Consumer

Disposable income can be defined as national product

If personal taxes are cut temporarily, the resulting

Which factors will cause the consumption function to shift? Which factors do not cause the function to shift?

A movement from one point to another point on the same consumption function could be caused due to

Do economists know the value of the MPC for most economies?

A change in the value of consumer's stock market holdings will cause a shift in the consumption function.

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

Imports are a leakage in the sense that

The numerical value of the MPC is typically

The slope of the consumption function is equal to the marginal propensity to save.

Most statistical studies on the relationship between real interest rates and saving conclude that higher real interest rates

The book that is the basis for modern macroeconomic theory is

Assume that consumption in the United States is $9,000 billion in 2009.If the MPC is 0.8 and disposable income increases by $1,000 billion in 2010, then the level of consumption in 2010 will be

The marginal propensity to consume is

Taxes are not considered a leakage because they become transfers in the circular flow of income and spending model.

The main reason that the 1975, 2008, and 2009 tax cuts did not have a large effect on GDP is that they were

The difference between Gross National Product and Net National Product is the

Suppose the stock market rises, causing a rapid increase in consumers' wealth.This would lead to

If a U.S.citizen buys a car produced in Germany, this transaction will add 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?

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

Filters

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?