Question 1

Which of the following best represents the opportunity cost of investing in capital?

Accepted Answer

A) the actual revenue stream generated by the investment 
B) the expected revenue stream generated by the investment 
C) the profit that investment is expected to generate 
D) the market interest rate 
E) the purchase price of the plant and equipment 
A) the actual revenue stream generated by the investment 
B) the expected revenue stream generated by the investment 
C) the profit that investment is expected to generate 
D) the market interest rate 
E) the purchase price of the plant and equipment

Question 2

The MPC plus the MPS equals

Accepted Answer

A) 0.5 
B) the multiplier 
C) the slope of the consumption function 
D) 1.0 
E) the slope of the saving function 
A) 0.5 
B) the multiplier 
C) the slope of the consumption function 
D) 1.0 
E) the slope of the saving function

Question 3

If investment is autonomous, an increase in income will shift the investment function upward.

Accepted Answer

A) True 
 B)False

Question 4

A decline in the interest rate, other things constant, shifts the investment function downward.

Accepted Answer

A) True 
 B)False

Question 5

Exports minus imports equal net exports.

Accepted Answer

A) True 
 B)False

Question 6

Exhibit 9-2
  
-We can tell from the data in Exhibit 9-2 that planned investment is autonomous because

Accepted Answer

A) actual investment is constant at each level of income 
B) it does not vary as consumption changes 
C) it does not vary as income changes 
D) it does not vary as the actual investment changes 
E) it does not vary as the price level changes 
A) actual investment is constant at each level of income 
B) it does not vary as consumption changes 
C) it does not vary as income changes 
D) it does not vary as the actual investment changes 
E) it does not vary as the price level changes

Question 7

The primary determinant of saving is income.

Accepted Answer

A) True 
 B)False

Question 8

Along the aggregate consumption function, an increase in income will

Accepted Answer

A) cause autonomous consumption to rise 
B) shift the consumption function upward 
C) cause a corresponding downward shift of the saving function 
D) cause movement along the given consumption function 
E) shift the consumption function downward 
A) cause autonomous consumption to rise 
B) shift the consumption function upward 
C) cause a corresponding downward shift of the saving function 
D) cause movement along the given consumption function 
E) shift the consumption function downward

Question 9

During recession years,

Accepted Answer

A) investment declines while consumption increases 
B) investment increases while consumption declines 
C) investment is constant while consumption declines 
D) investment declines much faster than GDP declines 
E) consumption declines much faster than GDP declines 
A) investment declines while consumption increases 
B) investment increases while consumption declines 
C) investment is constant while consumption declines 
D) investment declines much faster than GDP declines 
E) consumption declines much faster than GDP declines

Question 10

A decrease in the price level decreases net wealth and increases consumption spending.

Accepted Answer

A) True 
 B)False

Question 11

If income rises from $6.0 trillion to $6.4 trillion, consumption rises from $5.5 trillion to $5.8 trillion. What is the slope of the aggregate expenditure line? (Assume there is neither international trade nor any government.)

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 12

As domestic income rises, net exports

Accepted Answer

A) fall, since exports remain the same but imports increase 
B) rise, since exports remain the same but imports fall 
C) fall, since exports are lower and imports remain the same 
D) rise, since exports are higher and imports remain the same 
E) may either rise or fall, since exports and imports change in opposite directions 
A) fall, since exports remain the same but imports increase 
B) rise, since exports remain the same but imports fall 
C) fall, since exports are lower and imports remain the same 
D) rise, since exports are higher and imports remain the same 
E) may either rise or fall, since exports and imports change in opposite directions

Question 13

The saving rate is high in Japan even though interest rates there hover near zero percent.

Accepted Answer

A) True 
 B)False

Question 14

An increase in the interest rate would shift the consumption function upward.

Accepted Answer

A) True 
 B)False

Question 15

An increase in the interest rate will increase consumption spending.

Accepted Answer

A) True 
 B)False

Question 16

If a household's income falls from $20,000 to $17,000 and its consumption spending falls from $18,000 to $15,000, then its

Accepted Answer

A) marginal propensity to consume is -0.67 
B) marginal propensity to consume is 0.88 
C) marginal propensity to consume is 0.20 
D) marginal propensity to save is zero 
E) marginal propensity to save is 0.12 
A) marginal propensity to consume is -0.67 
B) marginal propensity to consume is 0.88 
C) marginal propensity to consume is 0.20 
D) marginal propensity to save is zero 
E) marginal propensity to save is 0.12

Question 17

If consumption is greater than income, saving must be negative.

Accepted Answer

A) True 
 B)False

Question 18

Expectations that disposable income will decrease in the future will

Accepted Answer

A) shift the current consumption function upward 
B) shift the current consumption function downward 
C) make the current consumption function flatter 
D) result in a movement downward along the current consumption function 
E) have no effect on the current consumption function 
A) shift the current consumption function upward 
B) shift the current consumption function downward 
C) make the current consumption function flatter 
D) result in a movement downward along the current consumption function 
E) have no effect on the current consumption function

Question 19

Which of the following is true of the autonomous investment and saving functions?

Accepted Answer

A) The autonomous investment function has a positive slope; the saving function is a horizontal line. 
B) The autonomous investment function has a negative slope; the saving function has a positive slope. 
C) The autonomous investment function is a horizontal line; the saving function has a positive slope. 
D) Both the autonomous investment function and the saving function slope upward. 
E) Both the autonomous investment function and the saving function slope downward. 
A) The autonomous investment function has a positive slope; the saving function is a horizontal line. 
B) The autonomous investment function has a negative slope; the saving function has a positive slope. 
C) The autonomous investment function is a horizontal line; the saving function has a positive slope. 
D) Both the autonomous investment function and the saving function slope upward. 
E) Both the autonomous investment function and the saving function slope downward.

Question 20

Net wealth is a __________ variable. Consumption and income are __________ variables.

Accepted Answer

A) stock, flow 
B) stock, stock 
C) stock, flat 
D) flow, stock 
E) flow, flow 
A) stock, flow 
B) stock, stock 
C) stock, flat 
D) flow, stock 
E) flow, flow

Exam 9: Aggregate Expenditure

Which of the following best represents the opportunity cost of investing in capital?

The MPC plus the MPS equals

If investment is autonomous, an increase in income will shift the investment function upward.

A decline in the interest rate, other things constant, shifts the investment function downward.

Exports minus imports equal net exports.

Exhibit 9-2 -We can tell from the data in Exhibit 9-2 that planned investment is autonomous because

The primary determinant of saving is income.

Along the aggregate consumption function, an increase in income will

During recession years,

A decrease in the price level decreases net wealth and increases consumption spending.

If income rises from $6.0 trillion to $6.4 trillion, consumption rises from $5.5 trillion to $5.8 trillion. What is the slope of the aggregate expenditure line? (Assume there is neither international trade nor any government.)

As domestic income rises, net exports

The saving rate is high in Japan even though interest rates there hover near zero percent.

An increase in the interest rate would shift the consumption function upward.

An increase in the interest rate will increase consumption spending.

If a household's income falls from $20,000 to $17,000 and its consumption spending falls from $18,000 to $15,000, then its

If consumption is greater than income, saving must be negative.

Expectations that disposable income will decrease in the future will

Which of the following is true of the autonomous investment and saving functions?

Net wealth is a __________ variable. Consumption and income are __________ variables.

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand Supply and Markets

Introduction to Macroeconomics

Tracking the Us Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

The Algebra of Income and Expenditure

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

The Algebra of Demand-Side Equilibrium

International Trade

International Finance

Economic Development

National Income Accounts

Understanding Graphs

Variable Net Exports

Variable Net Exports Revisited

Filters

Net wealth is a variable. Consumption and income are variables.