Question 1

On a graph with consumption on the vertical axis and disposable income on the horizontal axis, the slope of the line is

Accepted Answer

A) greater than one. 
B) equal to one. 
C) less than one. 
D) undefined. 
A) greater than one. 
B) equal to one. 
C) less than one. 
D) undefined.

Question 2

Households can finance their consumer spending from current

Accepted Answer

A) income. 
B) wealth. 
C) debt. 
D) income and current wealth. 
A) income. 
B) wealth. 
C) debt. 
D) income and current wealth.

Question 3

Government spending is an injection in the sense that it

Accepted Answer

A) increases the amount of total spending. 
B) increases the size of the federal deficit. 
C) decreases the amount of household saving. 
D) decreases the amount of taxes paid. 
A) increases the amount of total spending. 
B) increases the size of the federal deficit. 
C) decreases the amount of household saving. 
D) decreases the amount of taxes paid.

Question 4

According to economists, how does an increase in the inflation rate affect the consumption function?

Accepted Answer

A) It shifts the function upward. 
B) It shifts the function downward. 
C) It causes movement upward along the function. 
D) It causes movement downward along the function. 
E) It has no predictable effect on the function. 
A) It shifts the function upward. 
B) It shifts the function downward. 
C) It causes movement upward along the function. 
D) It causes movement downward along the function. 
E) It has no predictable effect on the function.

Question 5

What is disposable income?
 How is it calculated?

Accepted Answer

Disposable income (DI) is the sum of the

Question 6

If income in Austria decreases by 30 million euros and consumption decreases by 24 euros, then the MPC equals

Accepted Answer

A) 0.90. 
B) 0.80. 
C) 0.60 
D) −0.60. 
A) 0.90. 
B) 0.80. 
C) 0.60 
D) −0.60.

Question 7

The consumption function shows an indirect relationship between consumer spending and disposable income.

Accepted Answer

A) True 
 B)False

Question 8

The circular flow diagram is best described as a(n)

Accepted Answer

A) abstraction of little value in macroeconomics. 
B) exact representation of the cause and effect relationship between spending and employment. 
C) model that clarifies the relationship between spending and income. 
D) model to explain the relationship between the federal deficit and tax revenues. 
A) abstraction of little value in macroeconomics. 
B) exact representation of the cause and effect relationship between spending and employment. 
C) model that clarifies the relationship between spending and income. 
D) model to explain the relationship between the federal deficit and tax revenues.

Question 9

When aggregate demand decreases rapidly, the economy is likely to experience

Accepted Answer

A) inflation. 
B) an economic boom. 
C) economic growth. 
D) recession. 
A) inflation. 
B) an economic boom. 
C) economic growth. 
D) recession.

Question 10

For those in the lowest tax bracket, each dollar tax cut 
increases disposable income by about $1.33.

Accepted Answer

A) True 
 B)False

Question 11

The tax cut of 2009 had little significant effect on consumer spending because it

Accepted Answer

A) was not large enough. 
B) was perceived as temporary. 
C) came too early in the year. 
D) was subtracted from 2008 taxes due. 
A) was not large enough. 
B) was perceived as temporary. 
C) came too early in the year. 
D) was subtracted from 2008 taxes due.

Question 12

Government transfer payments are income earned by individuals who work for the federal government.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following would cause an upward shift in the consumption function?

Accepted Answer

A) a stock market crash 
B) an increase in the price level 
C) a decrease in disposable income 
D) a decrease in the price level 
A) a stock market crash 
B) an increase in the price level 
C) a decrease in disposable income 
D) a decrease in the price level

Question 14

A movement from one point to an 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 15

Which of the following is a transfer payment?

Accepted Answer

A) Work-study students receive wages transferred from the university budget. 
B) A company pays the moving expenses for a transferred employee. 
C) A student transfers to another college and receives a tuition rebate. 
D) A student receives a tuition grant from the federal government. 
A) Work-study students receive wages transferred from the university budget. 
B) A company pays the moving expenses for a transferred employee. 
C) A student transfers to another college and receives a tuition rebate. 
D) A student receives a tuition grant from the federal government.

Question 16

According to the relationship represented by the consumption function, governments can indirectly decrease consumption spending by

Accepted Answer

A) increasing taxes. 
B) decreasing transfers. 
C) decreasing taxes. 
D) decreasing government spending. 
A) increasing taxes. 
B) decreasing transfers. 
C) decreasing taxes. 
D) decreasing government spending.

Question 17

Scatter diagrams are a useful way to depict the relationship between two variables.

Accepted Answer

A) True 
 B)False

Question 18

Why is investment spending a highly volatile component?

Accepted Answer

Several factors influence how much busin

Question 19

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.

Question 20

The slope of the scatter diagram representing the relationship between consumption and disposable income in the United States is approximately

Accepted Answer

A) 1.10. 
B) 0.30 
C) 0.50 
D) 0.90 
A) 1.10. 
B) 0.30 
C) 0.50 
D) 0.90

Exam 25: Aggregate Demand and the Powerful Consumer

On a graph with consumption on the vertical axis and disposable income on the horizontal axis, the slope of the line is

Households can finance their consumer spending from current

Government spending is an injection in the sense that it

According to economists, how does an increase in the inflation rate affect the consumption function?

What is disposable income? How is it calculated?

If income in Austria decreases by 30 million euros and consumption decreases by 24 euros, then the MPC equals

The consumption function shows an indirect relationship between consumer spending and disposable income.

The circular flow diagram is best described as a(n)

When aggregate demand decreases rapidly, the economy is likely to experience

For those in the lowest tax bracket, each dollar tax cut increases disposable income by about $1.33.

The tax cut of 2009 had little significant effect on consumer spending because it

Government transfer payments are income earned by individuals who work for the federal government.

Which of the following would cause an upward shift in the consumption function?

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

Which of the following is a transfer payment?

According to the relationship represented by the consumption function, governments can indirectly decrease consumption spending by

Scatter diagrams are a useful way to depict the relationship between two variables.

Why is investment spending a highly volatile component?

Disposable income can be defined as national product

The slope of the scatter diagram representing the relationship between consumption and disposable income in the United States is approximately

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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