Question 1

If U.S.consumers become more optimistic about their future income and wealth, the consumption function will shift upward.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following will most likely have the greatest effect on an individual's consumption function?

Accepted Answer

A) winning a small amount in the lottery 
B) a one-time tuition grant 
C) a week of high overtime pay 
D) an inheritance paying a modest annual dividend 
A) winning a small amount in the lottery 
B) a one-time tuition grant 
C) a week of high overtime pay 
D) an inheritance paying a modest annual dividend

Question 3

Gross private domestic investment in the United States consists of three components:

Accepted Answer

A) stocks, bonds, and mutual funds. 
B) automobiles, trucks, and houses. 
C) plant, equipment, & software, houses, and inventories. 
D) plant, equipment, & software, houses, and net exports. 
A) stocks, bonds, and mutual funds. 
B) automobiles, trucks, and houses. 
C) plant, equipment, & software, houses, and inventories. 
D) plant, equipment, & software, houses, and net exports.

Question 4

Consumer spending is an injection in the circular flow of income and spending.

Accepted Answer

A) True 
 B)False

Question 5

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 6

In Macronesia, the MPC is approximately .80.If disposable income changes from 1,000 billion pukas to 1,500 billion pukas, then consumption will change by a(n)

Accepted Answer

A) decrease of 500 billion pukas. 
B) increase of 500 billion pukas. 
C) increase of 400 billion pukas. 
D) increase of 800 billion pukas. 
A) decrease of 500 billion pukas. 
B) increase of 500 billion pukas. 
C) increase of 400 billion pukas. 
D) increase of 800 billion pukas.

Question 7

If an economist wants to make a prediction about the effects of a change in disposable income on the change in consumption spending based on historical data, she must assume that

Accepted Answer

A) the future will closely resemble the past. 
B) consumption and disposable income will be negatively related. 
C) the consumption function will have a downward slope. 
D) as disposable income increases, consumer spending will remain constant. 
A) the future will closely resemble the past. 
B) consumption and disposable income will be negatively related. 
C) the consumption function will have a downward slope. 
D) as disposable income increases, consumer spending will remain constant.

Question 8

If real disposable income is $300 billion and real consumer expenditures are $250 billion, it can be assumed that

Accepted Answer

A) the government is spending the difference. 
B) the difference is being invested. 
C) households are saving the difference. 
D) transfer payments make up the difference. 
A) the government is spending the difference. 
B) the difference is being invested. 
C) households are saving the difference. 
D) transfer payments make up the difference.

Question 9

The purchase of a new house is included in government spending.

Accepted Answer

A) True 
 B)False

Question 10

The majority of payments made by the federal government are for

Accepted Answer

A) transfer payments. 
B) administrative expenses. 
C) foreign aid. 
D) defense purchases 
A) transfer payments. 
B) administrative expenses. 
C) foreign aid. 
D) defense purchases

Question 11

The most volatile part of wealth is:

Accepted Answer

A) ​transfer payments 
B) ​bonds 
C) ​the stockmarket 
D) ​savings accounts 
A) ​transfer payments 
B) ​bonds 
C) ​the stockmarket 
D) ​savings accounts

Question 12

Employee compensation accounts for about what percentage of national income?

Accepted Answer

A) 33 percent 
B) 42 percent 
C) 66 percent 
D) 90 percent 
A) 33 percent 
B) 42 percent 
C) 66 percent 
D) 90 percent

Question 13

Figure 8-1
  
-Given the scatter diagram in Figure 8-1, what is the MPC (your best estimate)?

Accepted Answer

A) 1/2 
B) 1/3 
C) 2/3 
D) 1 
A) 1/2 
B) 1/3 
C) 2/3 
D) 1

Question 14

Which of the following methods could be used to calculate GDP?

Accepted Answer

A) the sum of all spending on final goods and services 
B) the sum of all factor payments plus depreciation and indirect business taxes 
C) the sum of all values added at each stage of production 
D) All of the above could be used. 
A) the sum of all spending on final goods and services 
B) the sum of all factor payments plus depreciation and indirect business taxes 
C) the sum of all values added at each stage of production 
D) All of the above could be used.

Question 15

Among the following, which would not be considered part of the investment component of GDP?

Accepted Answer

A) manufacturers' equipment 
B) buying corporate stock 
C) new houses 
D) business structures 
A) manufacturers' equipment 
B) buying corporate stock 
C) new houses 
D) business structures

Question 16

If the consumption function shifts downward, which of the following is the most likely cause?

Accepted Answer

A) Consumers become more optimistic. 
B) The price level increased. 
C) Consumers' incomes increase. 
D) Real interest rates decrease. 
A) Consumers become more optimistic. 
B) The price level increased. 
C) Consumers' incomes increase. 
D) Real interest rates decrease.

Question 17

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 18

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 19

National income is

Accepted Answer

A) the sum of all wages and salaries, interest, rent, and profits in the economy. 
B) equal to the money value of national output. 
C) the before-tax income of all individuals in the economy. 
D) All of the above are correct. 
A) the sum of all wages and salaries, interest, rent, and profits in the economy. 
B) equal to the money value of national output. 
C) the before-tax income of all individuals in the economy. 
D) All of the above are correct.

Question 20

The value of intermediate goods is not included in the calculation of GDP to avoid the problem of

Accepted Answer

A) depreciation. 
B) inflation. 
C) double counting. 
D) transfer payments. 
A) depreciation. 
B) inflation. 
C) double counting. 
D) transfer payments.

Exam 25: Aggregate Demand and the Powerful Consumer

If U.S.consumers become more optimistic about their future income and wealth, the consumption function will shift upward.

Which of the following will most likely have the greatest effect on an individual's consumption function?

Gross private domestic investment in the United States consists of three components:

Consumer spending is an injection in the circular flow of income and spending.

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

In Macronesia, the MPC is approximately .80.If disposable income changes from 1,000 billion pukas to 1,500 billion pukas, then consumption will change by a(n)

If an economist wants to make a prediction about the effects of a change in disposable income on the change in consumption spending based on historical data, she must assume that

If real disposable income is $300 billion and real consumer expenditures are $250 billion, it can be assumed that

The purchase of a new house is included in government spending.

The majority of payments made by the federal government are for

The most volatile part of wealth is:

Employee compensation accounts for about what percentage of national income?

Figure 8-1 -Given the scatter diagram in Figure 8-1, what is the MPC (your best estimate)?

Which of the following methods could be used to calculate GDP?

Among the following, which would not be considered part of the investment component of GDP?

If the consumption function shifts downward, which of the following is the most likely cause?

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

National income is

The value of intermediate goods is not included in the calculation of GDP to avoid the problem of

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: the Price System

The Shortcomings of Free Markets

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

Is Useconomic Leadership Threatened

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

He 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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