Question 1

If income increases by $100 and consumption increases by $75, the slope of the consumption function equals

Accepted Answer

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

Question 2

A grocery store manager has $600 in cash with which to buy a rug cleaner. Rental income from the cleaner would be about $75 per year. The interest rate is 11 percent. Should the manager buy the machine?

Accepted Answer

A) Yes, since the rate of return is greater than the rate of interest. 
B) Yes, since the manager does not have to borrow the money the interest rate is irrelevant. 
C) No, since the yield of $75 is less than the interest cost of 11 percent. 
D) No, since the rate of return is less than the interest rate. 
E) Yes, since the return of $75 is greater than 11 percent. 
A) Yes, since the rate of return is greater than the rate of interest. 
B) Yes, since the manager does not have to borrow the money the interest rate is irrelevant. 
C) No, since the yield of $75 is less than the interest cost of 11 percent. 
D) No, since the rate of return is less than the interest rate. 
E) Yes, since the return of $75 is greater than 11 percent.

Question 3

What is the effect on the consumption function of an increase in disposable income?

Accepted Answer

A) The consumption function shifts upward. 
B) The consumption function shifts downward. 
C) There is movement upward along the consumption function. 
D) There is movement downward along the consumption function. 
E) The consumption function becomes steeper. 
A) The consumption function shifts upward. 
B) The consumption function shifts downward. 
C) There is movement upward along the consumption function. 
D) There is movement downward along the consumption function. 
E) The consumption function becomes steeper.

Question 4

If the U.S. price level decreases, other things equal, U.S. net exports will

Accepted Answer

A) increase 
B) decrease 
C) remain constant, since net exports are assumed to be constant 
D) increase only if the marginal propensity to import also increases 
E) increase only if there is inflation abroad 
A) increase 
B) decrease 
C) remain constant, since net exports are assumed to be constant 
D) increase only if the marginal propensity to import also increases 
E) increase only if there is inflation abroad

Question 5

The main determinants of investment are the interest rate and expected profit.

Accepted Answer

A) True 
 B)False

Question 6

A decrease in wealth will

Accepted Answer

A) shift the consumption function downward 
B) make the consumption function steeper 
C) cause a movement upward along the consumption function 
D) cause a movement downward along the consumption function 
E) make the consumption function flatter 
A) shift the consumption function downward 
B) make the consumption function steeper 
C) cause a movement upward along the consumption function 
D) cause a movement downward along the consumption function 
E) make the consumption function flatter

Question 7

Purchases of existing commodities, such as gold and precious gems, are considered investment spending by economists.

Accepted Answer

A) True 
 B)False

Question 8

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) Neither is dependent nor independent since they are related by the equation DI = C + S. 
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) Neither is dependent nor independent since they are related by the equation DI = C + S.

Question 9

A decrease in the price level will

Accepted Answer

A) decrease consumption because the price of goods is lower 
B) make the consumption function flatter 
C) increase consumption because prices are wages, so people have more income 
D) increase consumption because the value of wealth has increased 
E) decrease consumption because rising interest rates make it more expensive to borrow 
A) decrease consumption because the price of goods is lower 
B) make the consumption function flatter 
C) increase consumption because prices are wages, so people have more income 
D) increase consumption because the value of wealth has increased 
E) decrease consumption because rising interest rates make it more expensive to borrow

Question 10

The slope of the consumption function equals the

Accepted Answer

A) MPC 
B) MPS 
C) APC 
D) APS 
E) ratio of the APC to the APS (i.e., APC divided by APS) 
A) MPC 
B) MPS 
C) APC 
D) APS 
E) ratio of the APC to the APS (i.e., APC divided by APS)

Question 11

Exhibit 9-3  
-In Exhibit 9-3, the slope of the consumption function is equal to

Accepted Answer

A) .33 
B) .5 
C) .67 
D) .7 
E) .9 
A) .33 
B) .5 
C) .67 
D) .7 
E) .9

Question 12

Exhibit 9-3  
-In Exhibit 9-3, the MPS is equal to

Accepted Answer

A) 0.25 
B) 0.33 
C) 0.67 
D) 0.75 
E) 1.33 
A) 0.25 
B) 0.33 
C) 0.67 
D) 0.75 
E) 1.33

Question 13

An increase in the interest rate, other things equal, would

Accepted Answer

A) have no effect on investment 
B) increase the amount invested since the rate of return would be lower 
C) increase the amount invested because income would rise 
D) reduce the amount invested because the opportunity costs of investing would be higher 
E) increase the amount invested because the rate of return would be higher 
A) have no effect on investment 
B) increase the amount invested since the rate of return would be lower 
C) increase the amount invested because income would rise 
D) reduce the amount invested because the opportunity costs of investing would be higher 
E) increase the amount invested because the rate of return would be higher

Question 14

If the market interest rate equals 8 percent, the opportunity cost of the last new investment project undertaken would be approximately 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 15

Autonomous consumption expenditures are

Accepted Answer

A) identical to induced consumption 
B) determined primarily by transfer payments 
C) not influenced by disposable income 
D) increasing at a decreasing rate 
E) increasing at an increasing rate 
A) identical to induced consumption 
B) determined primarily by transfer payments 
C) not influenced by disposable income 
D) increasing at a decreasing rate 
E) increasing at an increasing rate

Question 16

When economists say investment is autonomous, they mean that

Accepted Answer

A) investment is independent of the level of optimism about economic conditions 
B) the forces motivating investment are not economic 
C) investment is independent of the level of income 
D) investment is independent of the level of saving 
E) investment is independent of the rate of interest 
A) investment is independent of the level of optimism about economic conditions 
B) the forces motivating investment are not economic 
C) investment is independent of the level of income 
D) investment is independent of the level of saving 
E) investment is independent of the rate of interest

Question 17

What is the effect on the consumption function of a decrease in disposable income?

Accepted Answer

A) The consumption function shifts upward. 
B) The consumption function shifts downward. 
C) There is movement upward along the consumption function. 
D) There is movement downward along the consumption function. 
E) The consumption function becomes flatter. 
A) The consumption function shifts upward. 
B) The consumption function shifts downward. 
C) There is movement upward along the consumption function. 
D) There is movement downward along the consumption function. 
E) The consumption function becomes flatter.

Question 18

Less of society's resources will be channeled into capital when

Accepted Answer

A) interest rates are high 
B) households decide to save more of their income 
C) businesspeople have optimistic expectations about the future 
D) aggregate income increases 
E) the nation is running a trade deficit 
A) interest rates are high 
B) households decide to save more of their income 
C) businesspeople have optimistic expectations about the future 
D) aggregate income increases 
E) the nation is running a trade deficit

Question 19

At the equilibrium level of real GDP, the MPC equals 1.

Accepted Answer

A) True 
 B)False

Question 20

If income increases by $100 and the MPC is 3/4 (0.75), then consumption increases by

Accepted Answer

A) $25 
B) $66.66 
C) $50 
D) $33.33 
E) $75 
A) $25 
B) $66.66 
C) $50 
D) $33.33 
E) $75

Exam 9: Aggregate Expenditure

If income increases by $100 and consumption increases by $75, the slope of the consumption function equals

A grocery store manager has $600 in cash with which to buy a rug cleaner. Rental income from the cleaner would be about $75 per year. The interest rate is 11 percent. Should the manager buy the machine?

What is the effect on the consumption function of an increase in disposable income?

If the U.S. price level decreases, other things equal, U.S. net exports will

The main determinants of investment are the interest rate and expected profit.

A decrease in wealth will

Purchases of existing commodities, such as gold and precious gems, are considered investment spending by economists.

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

A decrease in the price level will

The slope of the consumption function equals the

Exhibit 9-3 -In Exhibit 9-3, the slope of the consumption function is equal to

Exhibit 9-3 -In Exhibit 9-3, the MPS is equal to

An increase in the interest rate, other things equal, would

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

Autonomous consumption expenditures are

When economists say investment is autonomous, they mean that

What is the effect on the consumption function of a decrease in disposable income?

Less of society's resources will be channeled into capital when

At the equilibrium level of real GDP, the MPC equals 1.

If income increases by $100 and the MPC is 3/4 (0.75), then consumption increases by

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