Question 1

An increase in the interest rate, other things constant, decreases the amount of investment spending.

Accepted Answer

A) True 
 B)False  True

Question 2

The larger the marginal propensity to save, other things constant, _____.

Accepted Answer

A)  the larger the marginal propensity to consume 
B)  the larger the multiplier 
C)  the flatter the consumption function 
D)  the flatter the saving function 
E)  the steeper the consumption function 
A)  the larger the marginal propensity to consume 
B)  the larger the multiplier 
C)  the flatter the consumption function 
D)  the flatter the saving function 
E)  the steeper the consumption function C

Question 3

The consumption function relates consumption spending to _____.

Accepted Answer

A)  the price level 
B)  interest rates 
C)  disposable income 
D)  expectations about the price level 
E)  household wealth 
A)  the price level 
B)  interest rates 
C)  disposable income 
D)  expectations about the price level 
E)  household wealth C

Question 4

A change in consumers' expectations about the future will shift both the aggregate expenditure curve and the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 5

Suppose at a particular level of real gross domestic product (GDP), there are no unintended inventory adjustments. In this context, which of the following is true?

Accepted Answer

A)  Real GDP is less than the equilibrium level of real GDP demanded. 
B)  Real GDP is greater than the equilibrium level of real GDP demanded. 
C)  Real GDP equals the equilibrium level of real GDP demanded. 
D)  At equilibrium real GDP, there is no inflation. 
E)  At equilibrium real GDP, there is no saving. 
A)  Real GDP is less than the equilibrium level of real GDP demanded. 
B)  Real GDP is greater than the equilibrium level of real GDP demanded. 
C)  Real GDP equals the equilibrium level of real GDP demanded. 
D)  At equilibrium real GDP, there is no inflation. 
E)  At equilibrium real GDP, there is no saving.

Question 6

An economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate, other things held constant.

Accepted Answer

A) True 
 B)False

Question 7

An increase in the interest rate will increase consumption spending.

Accepted Answer

A) True 
 B)False

Question 8

If planned spending exceeds planned output in an economy, the result is a(n) _____.

Accepted Answer

A)  increase in inventories 
B)  decrease in gross domestic product 
C)  decrease in imports 
D)  increase in government purchases 
E)  unintended decrease in inventories 
A)  increase in inventories 
B)  decrease in gross domestic product 
C)  decrease in imports 
D)  increase in government purchases 
E)  unintended decrease in inventories

Question 9

An increase in income in other countries, other things equal, would cause U.S. _____.

Accepted Answer

A)  exports to decrease and imports to increase 
B)  exports to increase and imports to increase 
C)  imports to decrease and exports to decrease 
D)  imports to increase and exports to remain unchanged 
E)  imports to remain unchanged and exports to increase 
A)  exports to decrease and imports to increase 
B)  exports to increase and imports to increase 
C)  imports to decrease and exports to decrease 
D)  imports to increase and exports to remain unchanged 
E)  imports to remain unchanged and exports to increase

Question 10

In the income-expenditure framework, if planned aggregate expenditures are greater than real gross domestic product (GDP), _____.

Accepted Answer

A)  the price level will fall 
B)  consumption will fall 
C)  inventories will increase 
D)  inventories will decrease 
E)  consumption will decrease 
A)  the price level will fall 
B)  consumption will fall 
C)  inventories will increase 
D)  inventories will decrease 
E)  consumption will decrease

Question 11

The figure given below shows the income-expenditure model. Which of the following best describes the situation at point B?

Accepted Answer

A)  Consumption expenditure exceeds disposable income 
B)  Real GDP exceeds aggregate expenditure 
C)  Aggregate expenditure is exactly equal to real GDP 
D)  Aggregate expenditure exceeds real GDP 
E)  Producers experience an unexpected accumulation of inventory 
A)  Consumption expenditure exceeds disposable income 
B)  Real GDP exceeds aggregate expenditure 
C)  Aggregate expenditure is exactly equal to real GDP 
D)  Aggregate expenditure exceeds real GDP 
E)  Producers experience an unexpected accumulation of inventory

Question 12

Which of the following is true of the relationship between disposable income and consumption?

Accepted Answer

A)  Disposable income and consumption are both dependent variables. 
B)  Disposable income and consumption are both independent variables. 
C)  Disposable income is the dependent variable and consumption is the independent variable. 
D)  Consumption is the dependent variable and disposable income is the independent variable. 
E)  Disposable income and consumption are negatively related to each other. 
A)  Disposable income and consumption are both dependent variables. 
B)  Disposable income and consumption are both independent variables. 
C)  Disposable income is the dependent variable and consumption is the independent variable. 
D)  Consumption is the dependent variable and disposable income is the independent variable. 
E)  Disposable income and consumption are negatively related to each other.

Question 13

The difference between consumption spending and disposable income _____.

Accepted Answer

A)  decreases as income increases 
B)  stays proportionally the same as income increases 
C)  decreases if the interest rate increases 
D)  equals the amount of taxes paid 
E)  equals saving 
A)  decreases as income increases 
B)  stays proportionally the same as income increases 
C)  decreases if the interest rate increases 
D)  equals the amount of taxes paid 
E)  equals saving

Question 14

An increase in the price level will:

Accepted Answer

A)  make the consumption function flatter. 
B)  make the consumption function steeper. 
C)  increase consumption because wages will increase. 
D)  decrease consumption because falling interest rates make it cheaper to borrow. 
E)  decrease consumption because the value of net wealth will decrease. 
A)  make the consumption function flatter. 
B)  make the consumption function steeper. 
C)  increase consumption because wages will increase. 
D)  decrease consumption because falling interest rates make it cheaper to borrow. 
E)  decrease consumption because the value of net wealth will decrease.

Question 15

If the market interest rate equals 8 percent, the opportunity cost of the last new investment project undertaken would approximately be equal to _____.

Accepted Answer

A)  zero percent 
B)  4 percent 
C)  infinity 
D)  8 percent 
E)  16 percent 
A)  zero percent 
B)  4 percent 
C)  infinity 
D)  8 percent 
E)  16 percent

Question 16

Aggregate expenditure means total or combined spending.

Accepted Answer

A) True 
 B)False

Question 17

If a household's income falls from $26,000 to $24,000 and its saving falls from $1,000 to $500, then its _____.

Accepted Answer

A)  marginal propensity to consume is 0.98 
B)  marginal propensity to consume is 1.33 
C)  marginal propensity to consume is 0.25 
D)  marginal propensity to save is 0.02 
E)  marginal propensity to save is 0.25 
A)  marginal propensity to consume is 0.98 
B)  marginal propensity to consume is 1.33 
C)  marginal propensity to consume is 0.25 
D)  marginal propensity to save is 0.02 
E)  marginal propensity to save is 0.25

Question 18

A firm's level of investment depends on the market interest rate:

Accepted Answer

A)  only when the firm has to borrow funds to invest in new equipment. 
B)  only when the firm has to borrow funds to buy stocks and bonds. 
C)  only when the firm already has sufficient funds and could lend them. 
D)  because the interest rate represents the opportunity cost of investing in capital. 
E)  because investments are always made with borrowed funds. 
A)  only when the firm has to borrow funds to invest in new equipment. 
B)  only when the firm has to borrow funds to buy stocks and bonds. 
C)  only when the firm already has sufficient funds and could lend them. 
D)  because the interest rate represents the opportunity cost of investing in capital. 
E)  because investments are always made with borrowed funds.

Question 19

If households save $40 billion less at each level of income and the marginal propensity to consume (MPC) is 0.8, the aggregate expenditure line will _____.

Accepted Answer

A)  intersect the 45-degree line at a real GDP of $40 billion 
B)  shift upward by $40 billion 
C)  shift downward by $40 billion 
D)  shift upward by $200 billion because of the multiplier mechanism 
E)  shift downward by $200 billion because of the multiplier mechanism 
A)  intersect the 45-degree line at a real GDP of $40 billion 
B)  shift upward by $40 billion 
C)  shift downward by $40 billion 
D)  shift upward by $200 billion because of the multiplier mechanism 
E)  shift downward by $200 billion because of the multiplier mechanism

Question 20

On a graph showing investment along the vertical axis and income along the horizontal axis, _____.

Accepted Answer

A)  the investment line will be downward sloping 
B)  the investment line will be upward sloping 
C)  the investment line will be horizontal 
D)  the investment line will be vertical 
E)  the investment line will be U-shaped 
A)  the investment line will be downward sloping 
B)  the investment line will be upward sloping 
C)  the investment line will be horizontal 
D)  the investment line will be vertical 
E)  the investment line will be U-shaped

An increase in the interest rate, other things constant, decreases the amount of investment spending.

The larger the marginal propensity to save, other things constant, _____.

The consumption function relates consumption spending to _____.

A change in consumers' expectations about the future will shift both the aggregate expenditure curve and the aggregate demand curve.

Suppose at a particular level of real gross domestic product (GDP), there are no unintended inventory adjustments. In this context, which of the following is true?

An economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate, other things held constant.

An increase in the interest rate will increase consumption spending.

If planned spending exceeds planned output in an economy, the result is a(n) _____.

An increase in income in other countries, other things equal, would cause U.S. _____.

In the income-expenditure framework, if planned aggregate expenditures are greater than real gross domestic product (GDP), _____.

The figure given below shows the income-expenditure model. Which of the following best describes the situation at point B?

Which of the following is true of the relationship between disposable income and consumption?

The difference between consumption spending and disposable income _____.

An increase in the price level will:

If the market interest rate equals 8 percent, the opportunity cost of the last new investment project undertaken would approximately be equal to _____.

Aggregate expenditure means total or combined spending.

If a household's income falls from $26,000 to $24,000 and its saving falls from $1,000 to $500, then its _____.

A firm's level of investment depends on the market interest rate:

If households save $40 billion less at each level of income and the marginal propensity to consume (MPC) is 0.8, the aggregate expenditure line will _____.

On a graph showing investment along the vertical axis and income along the horizontal axis, _____.

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters

Exam 9: Aggregate Demand

An increase in the interest rate, other things constant, decreases the amount of investment spending.

The larger the marginal propensity to save, other things constant, _____.

The consumption function relates consumption spending to _____.

A change in consumers' expectations about the future will shift both the aggregate expenditure curve and the aggregate demand curve.

Suppose at a particular level of real gross domestic product (GDP), there are no unintended inventory adjustments. In this context, which of the following is true?

An economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate, other things held constant.

An increase in the interest rate will increase consumption spending.

If planned spending exceeds planned output in an economy, the result is a(n) _____.

An increase in income in other countries, other things equal, would cause U.S. _____.

In the income-expenditure framework, if planned aggregate expenditures are greater than real gross domestic product (GDP), _____.

The figure given below shows the income-expenditure model. Which of the following best describes the situation at point B?

Which of the following is true of the relationship between disposable income and consumption?

The difference between consumption spending and disposable income _____.

An increase in the price level will:

If the market interest rate equals 8 percent, the opportunity cost of the last new investment project undertaken would approximately be equal to _____.

Aggregate expenditure means total or combined spending.

If a household's income falls from $26,000 to $24,000 and its saving falls from $1,000 to $500, then its _____.

A firm's level of investment depends on the market interest rate:

If households save $40 billion less at each level of income and the marginal propensity to consume (MPC) is 0.8, the aggregate expenditure line will _____.

On a graph showing investment along the vertical axis and income along the horizontal axis, _____.

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters