Question 1

The marginal propensity to consume is defined as the

Accepted Answer

A) fraction of consumption that is spent on goods, both durable and nondurable 
B) fraction of a change in income that is spent on consumption 
C) fraction of a change in income that is spent on investment 
D) average amount of consumption at different levels of income 
E) average amount of consumption at a given level of income 
A) fraction of consumption that is spent on goods, both durable and nondurable 
B) fraction of a change in income that is spent on consumption 
C) fraction of a change in income that is spent on investment 
D) average amount of consumption at different levels of income 
E) average amount of consumption at a given level of income

Question 2

A change in which of the following is least likely to cause a shift of the consumption function?

Accepted Answer

A) the saving rate 
B) consumer expectations about future prices 
C) household wealth 
D) investment spending 
E) the interest rate 
A) the saving rate 
B) consumer expectations about future prices 
C) household wealth 
D) investment spending 
E) the interest rate

Question 3

Saving in our simple model

Accepted Answer

A) varies inversely with income 
B) is determined primarily by the interest rate 
C) is positive when a person spends less than her income 
D) can never be negative because it is a stock 
E) can never be negative because it is a flow 
A) varies inversely with income 
B) is determined primarily by the interest rate 
C) is positive when a person spends less than her income 
D) can never be negative because it is a stock 
E) can never be negative because it is a flow

Question 4

Actual investment will be larger than planned investment if there is an unintended inventory accumulation.

Accepted Answer

A) True 
 B)False

Question 5

The marginal propensity to consume is the fraction of a change in income that is saved.

Accepted Answer

A) True 
 B)False

Question 6

The fraction of an increase in income that is saved is referred to as the

Accepted Answer

A) marginal propensity to save 
B) average propensity to save 
C) marginal propensity to consume 
D) average propensity to consume 
E) saving-consumption ratio (i.e., saving divided by consumption spending) 
A) marginal propensity to save 
B) average propensity to save 
C) marginal propensity to consume 
D) average propensity to consume 
E) saving-consumption ratio (i.e., saving divided by consumption spending)

Question 7

The interest rate is important to the investment decision

Accepted Answer

A) only when funds must be borrowed 
B) only when firms have the money on hand 
C) regardless of whether funds must be borrowed or firms have the funds on hand 
D) only when the firm has funds on hand and is ready to lend them 
E) only when the firm is purchasing new equipment rather than a new building 
A) only when funds must be borrowed 
B) only when firms have the money on hand 
C) regardless of whether funds must be borrowed or firms have the funds on hand 
D) only when the firm has funds on hand and is ready to lend them 
E) only when the firm is purchasing new equipment rather than a new building

Question 8

Disposable income is

Accepted Answer

A) the major determinant of consumption spending 
B) total salary and wage income minus taxes and transfer payments 
C) the income households earn before taxes 
D) aggregate income plus taxes minus transfer payments 
E) a measure of income that is equivalent to GDP 
A) the major determinant of consumption spending 
B) total salary and wage income minus taxes and transfer payments 
C) the income households earn before taxes 
D) aggregate income plus taxes minus transfer payments 
E) a measure of income that is equivalent to GDP

Question 9

All of the following, except one, are characteristics of the government purchase function. Which is the exception?

Accepted Answer

A) government purchases are autonomous with respect to current income 
B) government purchases exclude transfer payments 
C) government purchases are directly related to government income 
D) government purchases are decided by public officials 
E) government purchases have increased over the past 40 years 
A) government purchases are autonomous with respect to current income 
B) government purchases exclude transfer payments 
C) government purchases are directly related to government income 
D) government purchases are decided by public officials 
E) government purchases have increased over the past 40 years

Question 10

A grocery store manager must decide whether to buy four rug cleaners to rent to customers. The manager estimates that the first would yield $200 a year, the second $150, the third $75, and the fourth $20. If the interest rate is 12 percent and each rug cleaner costs $500, how many should the manager buy?

Accepted Answer

A) none 
B) one 
C) two 
D) three 
E) four 
A) none 
B) one 
C) two 
D) three 
E) four

Question 11

An rise in stock prices will __________ net wealth and __________ consumption.

Accepted Answer

A) reduce; increase 
B) reduce; decrease 
C) reduce; not change 
D) increase; increase 
E) increase; decrease 
A) reduce; increase 
B) reduce; decrease 
C) reduce; not change 
D) increase; increase 
E) increase; decrease

Question 12

If income increases by $100 and the MPS is 1/4, then the amount saved equals

Accepted Answer

A) $50 
B) $75 
C) $25 
D) $100 
E) $33.33 
A) $50 
B) $75 
C) $25 
D) $100 
E) $33.33

Question 13

A drop in stock prices will __________ net wealth and __________ consumption.

Accepted Answer

A) reduce; increase 
B) reduce; decrease 
C) reduce; not change 
D) increase; increase 
E) increase; decrease 
A) reduce; increase 
B) reduce; decrease 
C) reduce; not change 
D) increase; increase 
E) increase; decrease

Question 14

Exhibit 9-2
  
-In Exhibit 9-2, the marginal propensity to consume equals

Accepted Answer

A) 140 
B) 1.00 
C) 1.43 
D) 0.43 
E) 0.70 
A) 140 
B) 1.00 
C) 1.43 
D) 0.43 
E) 0.70

Question 15

Suppose that when disposable income rises from $3 trillion to $3.2 trillion, consumption rises from $2.5 trillion to $2.6 trillion. What is the marginal propensity to consume?

Accepted Answer

A) 0.1 
B) 0.2 
C) 0.5 
D) 0.8 
E) 0.9 
A) 0.1 
B) 0.2 
C) 0.5 
D) 0.8 
E) 0.9

Question 16

The life-cycle model was designed, in part, to explain

Accepted Answer

A) why poor nations save more than do rich nations 
B) why poor nations save a larger fraction of disposable income than do rich nations 
C) why the fraction of total disposable income that is saved seems to remain constant as an economy grows 
D) how the saving rate varies over an economy's life-cycle 
E) Keynes' contention that too much saving can cause a recession 
A) why poor nations save more than do rich nations 
B) why poor nations save a larger fraction of disposable income than do rich nations 
C) why the fraction of total disposable income that is saved seems to remain constant as an economy grows 
D) how the saving rate varies over an economy's life-cycle 
E) Keynes' contention that too much saving can cause a recession

Question 17

On a graph showing investment along the vertical axis and income along the horizontal axis,

Accepted Answer

A) the investment line slopes downward 
B) the investment line would shift upward if income increased 
C) the investment line would shift downward if the interest rate increased 
D) investment is the independent variable and income is the dependent variable 
E) the investment line would shift downward if income increased 
A) the investment line slopes downward 
B) the investment line would shift upward if income increased 
C) the investment line would shift downward if the interest rate increased 
D) investment is the independent variable and income is the dependent variable 
E) the investment line would shift downward if income increased

Question 18

The life-cycle model

Accepted Answer

A) is an explanation of consumption and saving over an individual's lifetime 
B) explains how individuals' longevity is tied to economic conditions 
C) explains how employment varies over a person's lifetime 
D) is an attempt to explain why some individuals save and others do not 
E) is an attempt to explain why some individuals save and others consume 
A) is an explanation of consumption and saving over an individual's lifetime 
B) explains how individuals' longevity is tied to economic conditions 
C) explains how employment varies over a person's lifetime 
D) is an attempt to explain why some individuals save and others do not 
E) is an attempt to explain why some individuals save and others consume

Question 19

Exhibit 9-2
  
-In Exhibit 9-2, the marginal propensity to save equals

Accepted Answer

A) 60 
B) 0 
C) 0.43 
D) 0.57 
E) 0.30 
A) 60 
B) 0 
C) 0.43 
D) 0.57 
E) 0.30

Question 20

An increase in wealth will

Accepted Answer

A) increase consumption and saving at each level of income 
B) increase saving and decrease consumption at each level of income 
C) decrease consumption and saving at each level of income 
D) increase consumption and decrease saving at each level of income 
E) have no effect on consumption, since consumption is a function of income 
A) increase consumption and saving at each level of income 
B) increase saving and decrease consumption at each level of income 
C) decrease consumption and saving at each level of income 
D) increase consumption and decrease saving at each level of income 
E) have no effect on consumption, since consumption is a function of income

Exam 9: Aggregate Expenditure

The marginal propensity to consume is defined as the

A change in which of the following is least likely to cause a shift of the consumption function?

Saving in our simple model

Actual investment will be larger than planned investment if there is an unintended inventory accumulation.

The marginal propensity to consume is the fraction of a change in income that is saved.

The fraction of an increase in income that is saved is referred to as the

The interest rate is important to the investment decision

Disposable income is

All of the following, except one, are characteristics of the government purchase function. Which is the exception?

An rise in stock prices will __________ net wealth and __________ consumption.

If income increases by $100 and the MPS is 1/4, then the amount saved equals

A drop in stock prices will __________ net wealth and __________ consumption.

Exhibit 9-2 -In Exhibit 9-2, the marginal propensity to consume equals

Suppose that when disposable income rises from $3 trillion to $3.2 trillion, consumption rises from $2.5 trillion to $2.6 trillion. What is the marginal propensity to consume?

The life-cycle model was designed, in part, to explain

On a graph showing investment along the vertical axis and income along the horizontal axis,

The life-cycle model

Exhibit 9-2 -In Exhibit 9-2, the marginal propensity to save equals

An increase in wealth will

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An rise in stock prices will net wealth and consumption.

A drop in stock prices will net wealth and consumption.