Question 1

Movement along the aggregate expenditure line is caused by a change in the level of income.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is most likely to cause a rightward shift of the investment demand curve?

Accepted Answer

A)  an increase in income 
B)  a decrease in the market interest rate 
C)  an improvement in business expectations 
D)  an increase in the market rate of interest 
E)  a decrease in income 
A)  an increase in income 
B)  a decrease in the market interest rate 
C)  an improvement in business expectations 
D)  an increase in the market rate of interest 
E)  a decrease in income

Question 3

If current aggregate expenditure equals current production, an economy is in equilibrium.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following best describes aggregate expenditure?

Accepted Answer

A)  C + I + G + (X − M) 
B)  C + S + G + (X − M) 
C)  C + I + G + (X + M) 
D)  C + I + T + (X − M) 
E)  C + I + T + (X + M) 
A)  C + I + G + (X − M) 
B)  C + S + G + (X − M) 
C)  C + I + G + (X + M) 
D)  C + I + T + (X − M) 
E)  C + I + T + (X + M)

Question 5

Net taxes are _____

Accepted Answer

A)  taxes plus transfer payments. 
B)  taxes minus transfer payments. 
C)  an injection into the economic system. 
D)  consumption after taxes. 
E)  government spending minus taxes. 
A)  taxes plus transfer payments. 
B)  taxes minus transfer payments. 
C)  an injection into the economic system. 
D)  consumption after taxes. 
E)  government spending minus taxes.

Question 6

If the level of autonomous spending in an economy increases at a given price level, _____

Accepted Answer

A)  the aggregate expenditure line shifts upward and the economy moves upward along the aggregate demand curve. 
B)  the aggregate expenditure line shifts downward and the economy moves upward along the aggregate demand curve. 
C)  the aggregate expenditure line shifts upward and the aggregate demand curve shifts to the right. 
D)  the aggregate expenditure line shifts downward and the aggregate demand curve shifts to the left. 
E)  the aggregate expenditure curve shifts upward and the aggregate demand curve shifts to the left. 
A)  the aggregate expenditure line shifts upward and the economy moves upward along the aggregate demand curve. 
B)  the aggregate expenditure line shifts downward and the economy moves upward along the aggregate demand curve. 
C)  the aggregate expenditure line shifts upward and the aggregate demand curve shifts to the right. 
D)  the aggregate expenditure line shifts downward and the aggregate demand curve shifts to the left. 
E)  the aggregate expenditure curve shifts upward and the aggregate demand curve shifts to the left.

Question 7

If there are no unintended changes in inventories, the economy is at its equilibrium level of real gross domestic product (GDP) demanded.

Accepted Answer

A) True 
 B)False

Question 8

If the price level in an economy increases, other things constant, consumption spending is likely to _____

Accepted Answer

A)  increase because real income increases. 
B)  decrease because real income increases. 
C)  increase because the real value of wealth increases. 
D)  decrease because the real value of wealth decreases. 
E)  increase because nominal income increases. 
A)  increase because real income increases. 
B)  decrease because real income increases. 
C)  increase because the real value of wealth increases. 
D)  decrease because the real value of wealth decreases. 
E)  increase because nominal income increases.

Question 9

The market interest rate is important to the investment decisions of firms _____

Accepted Answer

A)  only when funds are borrowed from financial intermediaries. 
B)  only when firms have the money to invest in capital. 
C)  regardless of whether funds must be borrowed or firms have the funds on hand. 
D)  only when firms have funds on hand and are ready to lend them. 
E)  only when firms purchase new equipment rather than a new building. 
A)  only when funds are borrowed from financial intermediaries. 
B)  only when firms have the money to invest in capital. 
C)  regardless of whether funds must be borrowed or firms have the funds on hand. 
D)  only when firms have funds on hand and are ready to lend them. 
E)  only when firms purchase new equipment rather than a new building.

Question 10

Which of the following is an effect of an increase in the price level in an economy?

Accepted Answer

A)  The real value of dollar-denominated assets will fall. 
B)  The aggregate expenditure line will shift upward. 
C)  The equilibrium real gross domestic product will increase. 
D)  There will be a downward movement along the aggregate demand curve of the economy. 
E)  The aggregate demand curve of the economy will shift rightward. 
A)  The real value of dollar-denominated assets will fall. 
B)  The aggregate expenditure line will shift upward. 
C)  The equilibrium real gross domestic product will increase. 
D)  There will be a downward movement along the aggregate demand curve of the economy. 
E)  The aggregate demand curve of the economy will shift rightward.

Question 11

A decrease in the U.S. price level, other things constant, will _____

Accepted Answer

A)  stimulate U.S. exports, pushing the aggregate demand curve to the right. 
B)  stimulate U.S. imports, pushing the aggregate demand curve to the right. 
C)  stimulate U.S. exports but discourage imports, causing a downward movement along a given aggregate demand curve. 
D)  discourage U.S. exports but stimulate imports, causing an upward movement along a given aggregate demand curve. 
E)  not affect U.S. net exports, so the aggregate quantity demanded will remain constant. 
A)  stimulate U.S. exports, pushing the aggregate demand curve to the right. 
B)  stimulate U.S. imports, pushing the aggregate demand curve to the right. 
C)  stimulate U.S. exports but discourage imports, causing a downward movement along a given aggregate demand curve. 
D)  discourage U.S. exports but stimulate imports, causing an upward movement along a given aggregate demand curve. 
E)  not affect U.S. net exports, so the aggregate quantity demanded will remain constant.

Question 12

If the marginal propensity to save (MPS) is 1/8, the value of the simple spending multiplier is _____

Accepted Answer

A)  8. 
B)  1/8. 
C)  2. 
D)  1/2. 
E)  4. 
A)  8. 
B)  1/8. 
C)  2. 
D)  1/2. 
E)  4.

Question 13

Linda earned an income of $3,000 per month, which has now increased to $3,500 per month. She saves 10 percent and spends the remainder on food, lodging, and other expenses. So far, she has managed to save $20,000. What is her marginal propensity to consume?

Accepted Answer

A)  Her marginal propensity to consume is 0.99. 
B)  Her marginal propensity to consume is 0.90. 
C)  Her marginal propensity to consume is 0.86. 
D)  Her marginal propensity to consume is 0.10. 
E)  Her marginal propensity to consume is 0.01. 
A)  Her marginal propensity to consume is 0.99. 
B)  Her marginal propensity to consume is 0.90. 
C)  Her marginal propensity to consume is 0.86. 
D)  Her marginal propensity to consume is 0.10. 
E)  Her marginal propensity to consume is 0.01.

Question 14

If investment increases by $100 and, as a result, gross domestic product (GDP) ultimately increases by $200, the multiplier equals _____

Accepted Answer

A)  1. 
B)  2. 
C)  3. 
D)  4. 
E)  5. 
A)  1. 
B)  2. 
C)  3. 
D)  4. 
E)  5.

Question 15

During the most recent decade consumption averaged _____ of GDP and investment only _____ of GDP.

Accepted Answer

A)  10 percent; 23 percent 
B)  50 percent; 23 percent 
C)  54 percent; 16 percent 
D)  68 percent; 16 percent 
E)  75 percent; 25 percent 
A)  10 percent; 23 percent 
B)  50 percent; 23 percent 
C)  54 percent; 16 percent 
D)  68 percent; 16 percent 
E)  75 percent; 25 percent

Question 16

At the equilibrium level of real gross domestic product (GDP), unplanned inventory adjustment equals _____

Accepted Answer

A)  planned investment. 
B)  saving. 
C)  zero. 
D)  actual investment. 
E)  consumption. 
A)  planned investment. 
B)  saving. 
C)  zero. 
D)  actual investment. 
E)  consumption.

Question 17

The life-cycle model of consumption and saving indicates that _____

Accepted Answer

A)  young people pay off debt. 
B)  middle-agers draw down their saving. 
C)  older people dissave. 
D)  net savings over a lifetime are usually little or nothing. 
E)  net savings over a lifetime are usually substantial. 
A)  young people pay off debt. 
B)  middle-agers draw down their saving. 
C)  older people dissave. 
D)  net savings over a lifetime are usually little or nothing. 
E)  net savings over a lifetime are usually substantial.

Question 18

If the marginal propensity to consume (MPC) in your classmate's country is 3/5 and the marginal propensity to save (MPS) in your country is 1/10, which of the following must be true?

Accepted Answer

A)  The spending multiplier is larger in your classmate's country than in your country. 
B)  The spending multiplier is smaller in your classmate's country than in your country. 
C)  Autonomous consumption is higher in your classmate's country than in your country. 
D)  Autonomous consumption is lower in your classmate's country than in your country. 
E)  Total consumption is lower in your classmate's country than in your country. 
A)  The spending multiplier is larger in your classmate's country than in your country. 
B)  The spending multiplier is smaller in your classmate's country than in your country. 
C)  Autonomous consumption is higher in your classmate's country than in your country. 
D)  Autonomous consumption is lower in your classmate's country than in your country. 
E)  Total consumption is lower in your classmate's country than in your country.

Question 19

A decrease in planned investment will shift the _____

Accepted Answer

A)  aggregate demand curve rightward. 
B)  aggregate demand curve leftward. 
C)  aggregate supply curve rightward. 
D)  aggregate supply curve leftward. 
E)  consumption function upward. 
A)  aggregate demand curve rightward. 
B)  aggregate demand curve leftward. 
C)  aggregate supply curve rightward. 
D)  aggregate supply curve leftward. 
E)  consumption function upward.

Question 20

The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) equals _____

Accepted Answer

A)  0.5. 
B)  the multiplier. 
C)  the slope of the consumption function. 
D)  1.0. 
E)  the slope of the saving function. 
A)  0.5. 
B)  the multiplier. 
C)  the slope of the consumption function. 
D)  1.0. 
E)  the slope of the saving function.

Movement along the aggregate expenditure line is caused by a change in the level of income.

Which of the following is most likely to cause a rightward shift of the investment demand curve?

If current aggregate expenditure equals current production, an economy is in equilibrium.

Which of the following best describes aggregate expenditure?

Net taxes are _____

If the level of autonomous spending in an economy increases at a given price level, _____

If there are no unintended changes in inventories, the economy is at its equilibrium level of real gross domestic product (GDP) demanded.

If the price level in an economy increases, other things constant, consumption spending is likely to _____

The market interest rate is important to the investment decisions of firms _____

Which of the following is an effect of an increase in the price level in an economy?

A decrease in the U.S. price level, other things constant, will _____

If the marginal propensity to save (MPS) is 1/8, the value of the simple spending multiplier is _____

Linda earned an income of $3,000 per month, which has now increased to $3,500 per month. She saves 10 percent and spends the remainder on food, lodging, and other expenses. So far, she has managed to save $20,000. What is her marginal propensity to consume?

If investment increases by $100 and, as a result, gross domestic product (GDP) ultimately increases by $200, the multiplier equals _____

During the most recent decade consumption averaged _ of GDP and investment only _ of GDP.

At the equilibrium level of real gross domestic product (GDP), unplanned inventory adjustment equals _____

The life-cycle model of consumption and saving indicates that _____

If the marginal propensity to consume (MPC) in your classmate's country is 3/5 and the marginal propensity to save (MPS) in your country is 1/10, which of the following must be true?

A decrease in planned investment will shift the _____

The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) equals _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

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.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters

Exam 9: Aggregate Demand.

Movement along the aggregate expenditure line is caused by a change in the level of income.

Which of the following is most likely to cause a rightward shift of the investment demand curve?

If current aggregate expenditure equals current production, an economy is in equilibrium.

Which of the following best describes aggregate expenditure?

Net taxes are _____

If the level of autonomous spending in an economy increases at a given price level, _____

If there are no unintended changes in inventories, the economy is at its equilibrium level of real gross domestic product (GDP) demanded.

If the price level in an economy increases, other things constant, consumption spending is likely to _____

The market interest rate is important to the investment decisions of firms _____

Which of the following is an effect of an increase in the price level in an economy?

A decrease in the U.S. price level, other things constant, will _____

If the marginal propensity to save (MPS) is 1/8, the value of the simple spending multiplier is _____

Linda earned an income of $3,000 per month, which has now increased to $3,500 per month. She saves 10 percent and spends the remainder on food, lodging, and other expenses. So far, she has managed to save $20,000. What is her marginal propensity to consume?

If investment increases by $100 and, as a result, gross domestic product (GDP) ultimately increases by $200, the multiplier equals _____

During the most recent decade consumption averaged _____ of GDP and investment only _____ of GDP.

At the equilibrium level of real gross domestic product (GDP), unplanned inventory adjustment equals _____

The life-cycle model of consumption and saving indicates that _____

If the marginal propensity to consume (MPC) in your classmate's country is 3/5 and the marginal propensity to save (MPS) in your country is 1/10, which of the following must be true?

A decrease in planned investment will shift the _____

The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) equals _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

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.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters

During the most recent decade consumption averaged _ of GDP and investment only _ of GDP.