Question 1

An increase in the economy's stock of physical productive capital is called:

Accepted Answer

A)  saving. 
B)  inventory adjustment. 
C)  investment. 
D)  crowding out. 
A)  saving. 
B)  inventory adjustment. 
C)  investment. 
D)  crowding out.

Question 2

Assume that a private-sector open economy is in equilibrium. Which of the following statements is false?

Accepted Answer

A)  If savings exceeds investment, it must mean that export is greater than import. 
B)  If savings exceeds investment, it must mean that export is less than import. 
C)  If savings exceeds investment, export can be greater than or less than import. 
D)  If investment exceeds savings, it must mean that export is more than import. 
A)  If savings exceeds investment, it must mean that export is greater than import. 
B)  If savings exceeds investment, it must mean that export is less than import. 
C)  If savings exceeds investment, export can be greater than or less than import. 
D)  If investment exceeds savings, it must mean that export is more than import.

Question 3

In a diagram illustrating the savings and investment functions for a closed economy with no government, an increase in saving at every level of income will:

Accepted Answer

A)  shift the investment function up and increase equilibrium income. 
B)  increase the slope of the savings function and lower equilibrium income. 
C)  leave the level of investment and saving unchanged but lower the equilibrium income. 
D)  change the slope of the investment function but leave equilibrium income unchanged. 
A)  shift the investment function up and increase equilibrium income. 
B)  increase the slope of the savings function and lower equilibrium income. 
C)  leave the level of investment and saving unchanged but lower the equilibrium income. 
D)  change the slope of the investment function but leave equilibrium income unchanged.

Question 4

According to short run macroeconomic analysis, once an economy attains equilibrium:

Accepted Answer

A)  there will be no unemployment in the economy. 
B)  investment must be zero. 
C)  consumption will be equal to or greater than income. 
D)  there may or may not be unemployment. 
A)  there will be no unemployment in the economy. 
B)  investment must be zero. 
C)  consumption will be equal to or greater than income. 
D)  there may or may not be unemployment.

Question 5

In the short run model of an aggregate economy, the investment function:

Accepted Answer

A)  is considered less stable than the consumption function. 
B)  varies with the level of savings. 
C)  contains expenditures on plant and equipment but not inventory. 
D)  is a component of aggregate supply. 
A)  is considered less stable than the consumption function. 
B)  varies with the level of savings. 
C)  contains expenditures on plant and equipment but not inventory. 
D)  is a component of aggregate supply.

Question 6

Where I is planned investment, S is saving, and Y is gross domestic product (GDP).
I = IS1U1B10S1U1B0 = 80 (6.3)
S = -80 + .4Y (6.4)
-Refer to equations (6.3) and (6.4). The equilibrium saving in a private sector closed economy will be:

Accepted Answer

A)  $40. 
B)  $120. 
C)  $60. 
D)  $80. 
A)  $40. 
B)  $120. 
C)  $60. 
D)  $80.

Question 7

C=60+.8Y
I=IS1U1B10S1U1B0=30
X=40
Z=10+0.2Y
-The equilibrium the level of saving is:

Accepted Answer

A)  30. 
B)  20. 
C)  10. 
D)  zero. 
A)  30. 
B)  20. 
C)  10. 
D)  zero.

Question 8

The relationship between household spending and the household income is given by the:

Accepted Answer

A)  consumption function. 
B)  savings function. 
C)  investment function. 
D)  aggregate expenditure function. 
A)  consumption function. 
B)  savings function. 
C)  investment function. 
D)  aggregate expenditure function.

Question 9

Which of the following statements is false?

Accepted Answer

A)  Disposable income is income plus transfers minus taxes. 
B)  Higher the disposable income, higher is the consumption, lower is the saving. 
C)  Higher the disposable income, higher is the consumption, higher is the saving. 
D)  Disposable income equals consumption plus saving. 
A)  Disposable income is income plus transfers minus taxes. 
B)  Higher the disposable income, higher is the consumption, lower is the saving. 
C)  Higher the disposable income, higher is the consumption, higher is the saving. 
D)  Disposable income equals consumption plus saving.

Question 10

According to the consumption function, as real disposable income increases:

Accepted Answer

A)  consumption will rise by the same amount as the increase in disposable income. 
B)  both consumption and saving will rise. 
C)  consumption falls but saving rises. 
D)  consumption rises but saving falls. 
A)  consumption will rise by the same amount as the increase in disposable income. 
B)  both consumption and saving will rise. 
C)  consumption falls but saving rises. 
D)  consumption rises but saving falls.

Question 11

Suppose that national income is initially at its equilibrium level when desired investment falls. We would expect:

Accepted Answer

A)  a fall in national income, but not by as much as the fall in desired investment. 
B)  no change in national income even though desired investment spending falls. 
C)  an increase in national income by an amount equal to the reduction in investment spending. 
D)  a fall in national income by some multiple of the fall in desired investment spending. 
A)  a fall in national income, but not by as much as the fall in desired investment. 
B)  no change in national income even though desired investment spending falls. 
C)  an increase in national income by an amount equal to the reduction in investment spending. 
D)  a fall in national income by some multiple of the fall in desired investment spending.

Question 12

If national income is $1500 billion and the level of planned spending by households and businesses is $1575 billion, then we can say that:

Accepted Answer

A)  there will be an accumulation of inventories and output will rise. 
B)  there will be an accumulation of inventories and output will fall. 
C)  there will be an unplanned reduction in inventories and output will fall. 
D)  there will be an unplanned reduction in inventories and output will rise. 
A)  there will be an accumulation of inventories and output will rise. 
B)  there will be an accumulation of inventories and output will fall. 
C)  there will be an unplanned reduction in inventories and output will fall. 
D)  there will be an unplanned reduction in inventories and output will rise.

Question 13

For a given fluctuation in autonomous expenditure, economies with steeper AE functions will:

Accepted Answer

A)  experience smaller business cycle fluctuations in real GDP. 
B)  experience the same business cycle fluctuations in real GDP. 
C)  experience larger business cycle fluctuations in real GDP. 
D)  experience stable real GDP with no business cycle fluctuations. 
A)  experience smaller business cycle fluctuations in real GDP. 
B)  experience the same business cycle fluctuations in real GDP. 
C)  experience larger business cycle fluctuations in real GDP. 
D)  experience stable real GDP with no business cycle fluctuations.

Question 14

Larger the multiplier, larger will be the leftward of the AD curve as a result of a reduction in autonomous expenditure.

Accepted Answer

A) True 
 B)False

Question 15

The marginal propensity to consume (MPC):

Accepted Answer

A)  shows how much income changes when consumption falls. 
B)  is always greater than one. 
C)  will be equal to one if the MPS is equal to one. 
D)  shows the fraction of an extra dollar of income that is spent on consumption. 
A)  shows how much income changes when consumption falls. 
B)  is always greater than one. 
C)  will be equal to one if the MPS is equal to one. 
D)  shows the fraction of an extra dollar of income that is spent on consumption.

Question 16

All of the following are components of investment except:

Accepted Answer

A)  increases in plant and equipment. 
B)  inventory expansion. 
C)  residential housing construction. 
D)  purchases of stocks and bonds. 
A)  increases in plant and equipment. 
B)  inventory expansion. 
C)  residential housing construction. 
D)  purchases of stocks and bonds.

Question 17

In a closed economy without government, the marginal propensity to consume is 0.75, consumption equals income at $120 billion and the level of investment is $40 billion. What is the equilibrium level of income?

Accepted Answer

A)  $280 billion. 
B)  $320 billion. 
C)  $262 billion. 
D)  $198 billion. 
A)  $280 billion. 
B)  $320 billion. 
C)  $262 billion. 
D)  $198 billion.

Question 18

Table 6.3
-Refer to Table 6.3. The equation representing the consumption schedule for the above economy is:

Accepted Answer

A)  C = 120 + 0.8Y. 
B)  C = 60 + 0.6Y. 
C)  C = 60 + 0.5Y. 
D)  C=60. 
A)  C = 120 + 0.8Y. 
B)  C = 60 + 0.6Y. 
C)  C = 60 + 0.5Y. 
D)  C=60.

Question 19

A decrease in the marginal propensity to save will cause the aggregate expenditure line to become flatter.

Accepted Answer

A) True 
 B)False

Question 20

As used in the income-expenditure diagram in macroeconomics, the 45 degree line:

Accepted Answer

A)  shows all the points at which spending and real income are equal. 
B)  contains only a consumption component. 
C)  represents consumption plus planned investment. 
D)  shows those income levels where the marginal propensity to save is 1. 
A)  shows all the points at which spending and real income are equal. 
B)  contains only a consumption component. 
C)  represents consumption plus planned investment. 
D)  shows those income levels where the marginal propensity to save is 1.

An increase in the economy's stock of physical productive capital is called:

Assume that a private-sector open economy is in equilibrium. Which of the following statements is false?

In a diagram illustrating the savings and investment functions for a closed economy with no government, an increase in saving at every level of income will:

According to short run macroeconomic analysis, once an economy attains equilibrium:

In the short run model of an aggregate economy, the investment function:

Where I is planned investment, S is saving, and Y is gross domestic product (GDP). I = I₀ = 80 (6.3) S = -80 + .4Y (6.4) -Refer to equations (6.3) and (6.4). The equilibrium saving in a private sector closed economy will be:

C=60+.8Y I=I₀=30 X=40 Z=10+0.2Y -The equilibrium the level of saving is:

The relationship between household spending and the household income is given by the:

Which of the following statements is false?

According to the consumption function, as real disposable income increases:

Suppose that national income is initially at its equilibrium level when desired investment falls. We would expect:

If national income is $1500 billion and the level of planned spending by households and businesses is $1575 billion, then we can say that:

For a given fluctuation in autonomous expenditure, economies with steeper AE functions will:

Larger the multiplier, larger will be the leftward of the AD curve as a result of a reduction in autonomous expenditure.

The marginal propensity to consume (MPC):

All of the following are components of investment except:

In a closed economy without government, the marginal propensity to consume is 0.75, consumption equals income at $120 billion and the level of investment is $40 billion. What is the equilibrium level of income?

Table 6.3 -Refer to Table 6.3. The equation representing the consumption schedule for the above economy is:

A decrease in the marginal propensity to save will cause the aggregate expenditure line to become flatter.

As used in the income-expenditure diagram in macroeconomics, the 45 degree line:

Introduction to Key Ideas

Theories, Models and Data

The Classical Marketplace Demand and Supply

Economic Activity and Performance

Output, Business Cycles, Growth Employment

The Government Sector

Money, Banking Money Supply

Financial Markets, Interest Rates, Foreign Exchange Rates & AD

Central Banking and Monetary Policy

A Traditional Ad As Model

An AD As Model of the Inflation Rate and Real GDP

Economic Growth

International Macroeconomics

International Trade

Filters

Exam 6: Aggregate Expenditure Aggregate Demand

An increase in the economy's stock of physical productive capital is called:

Assume that a private-sector open economy is in equilibrium. Which of the following statements is false?

In a diagram illustrating the savings and investment functions for a closed economy with no government, an increase in saving at every level of income will:

According to short run macroeconomic analysis, once an economy attains equilibrium:

In the short run model of an aggregate economy, the investment function:

Where I is planned investment, S is saving, and Y is gross domestic product (GDP). I = I0 = 80 (6.3) S = -80 + .4Y (6.4) -Refer to equations (6.3) and (6.4). The equilibrium saving in a private sector closed economy will be:

C=60+.8Y I=I0=30 X=40 Z=10+0.2Y -The equilibrium the level of saving is:

The relationship between household spending and the household income is given by the:

Which of the following statements is false?

According to the consumption function, as real disposable income increases:

Suppose that national income is initially at its equilibrium level when desired investment falls. We would expect:

If national income is $1500 billion and the level of planned spending by households and businesses is $1575 billion, then we can say that:

For a given fluctuation in autonomous expenditure, economies with steeper AE functions will:

Larger the multiplier, larger will be the leftward of the AD curve as a result of a reduction in autonomous expenditure.

The marginal propensity to consume (MPC):

All of the following are components of investment except:

In a closed economy without government, the marginal propensity to consume is 0.75, consumption equals income at $120 billion and the level of investment is $40 billion. What is the equilibrium level of income?

Table 6.3 -Refer to Table 6.3. The equation representing the consumption schedule for the above economy is:

A decrease in the marginal propensity to save will cause the aggregate expenditure line to become flatter.

As used in the income-expenditure diagram in macroeconomics, the 45 degree line:

Introduction to Key Ideas

Theories, Models and Data

The Classical Marketplace Demand and Supply

Economic Activity and Performance

Output, Business Cycles, Growth Employment

The Government Sector

Money, Banking Money Supply

Financial Markets, Interest Rates, Foreign Exchange Rates & AD

Central Banking and Monetary Policy

A Traditional Ad As Model

An AD As Model of the Inflation Rate and Real GDP

Economic Growth

International Macroeconomics

International Trade

Filters

Where I is planned investment, S is saving, and Y is gross domestic product (GDP). I = I₀ = 80 (6.3) S = -80 + .4Y (6.4) -Refer to equations (6.3) and (6.4). The equilibrium saving in a private sector closed economy will be:

C=60+.8Y I=I₀=30 X=40 Z=10+0.2Y -The equilibrium the level of saving is: