Question 1

Disposable income is equal to consumption

Accepted Answer

A) plus investment 
B) plus taxes 
C) plus saving 
D) minus taxes 
E) minus saving 
A) plus investment 
B) plus taxes 
C) plus saving 
D) minus taxes 
E) minus saving

Question 2

The inverse of the slope of the consumption function equals the marginal propensity to save.

Accepted Answer

A) True 
 B)False

Question 3

An increase in the value of the U.S. dollar relative to other currencies will

Accepted Answer

A) shift the autonomous net export function upward 
B) shift the autonomous net export function downward 
C) cause a rightward movement along the autonomous net export function 
D) cause a leftward movement along the autonomous net export function 
E) show no movement along or shift of the autonomous net export function 
A) shift the autonomous net export function upward 
B) shift the autonomous net export function downward 
C) cause a rightward movement along the autonomous net export function 
D) cause a leftward movement along the autonomous net export function 
E) show no movement along or shift of the autonomous net export function

Question 4

Economists assume that the fundamental motive of investors is

Accepted Answer

A) to maximize profit 
B) to maximize income 
C) to maximize the firm's growth 
D) to promote economic growth for the economy as a whole 
E) the desire to save 
A) to maximize profit 
B) to maximize income 
C) to maximize the firm's growth 
D) to promote economic growth for the economy as a whole 
E) the desire to save

Question 5

The slope of the saving function is equal to the MPS.

Accepted Answer

A) True 
 B)False

Question 6

According to the life-cycle model,

Accepted Answer

A) saving increases over the typical individual's lifetime 
B) consumption decreases over the life cycle as individual save more for retirement 
C) people with high incomes save a smaller fraction of their incomes than do people with low income 
D) saving and consumption tend to vary in a systematic way over an individual's lifetime 
E) the saving rate for an economy as a whole increases over its lifetime 
A) saving increases over the typical individual's lifetime 
B) consumption decreases over the life cycle as individual save more for retirement 
C) people with high incomes save a smaller fraction of their incomes than do people with low income 
D) saving and consumption tend to vary in a systematic way over an individual's lifetime 
E) the saving rate for an economy as a whole increases over its lifetime

Question 7

A grocery store manager must decide whether to buy a rug cleaner to rent to customers. The cleaner costs $800. It is expected to yield $200 in income per year. What is the expected annual rate of return from the cleaner?

Accepted Answer

A) $600 
B) $200 
C) 400 percent 
D) 75 percent 
E) 25 percent 
A) $600 
B) $200 
C) 400 percent 
D) 75 percent 
E) 25 percent

Question 8

An increase in the price level will

Accepted Answer

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

Question 9

If the interest rate decreases, then there will be

Accepted Answer

A) a rightward movement along the autonomous investment function 
B) a leftward movement along the autonomous investment function 
C) an upward shift of the autonomous investment function 
D) a downward shift of the autonomous investment function 
E) no movement along or shift of the autonomous investment function 
A) a rightward movement along the autonomous investment function 
B) a leftward movement along the autonomous investment function 
C) an upward shift of the autonomous investment function 
D) a downward shift of the autonomous investment function 
E) no movement along or shift of the autonomous investment function

Question 10

A firm's level of investment is tied to the interest rate

Accepted Answer

A) only when the firm has to borrow funds to buy capital 
B) only when the firm has to borrow funds to buy stocks 
C) only when the firm already has the funds and could lend them 
D) because the interest rate represents the opportunity cost of investing in capital 
E) because investments are always made with borrowed funds 
A) only when the firm has to borrow funds to buy capital 
B) only when the firm has to borrow funds to buy stocks 
C) only when the firm already has the funds and could lend them 
D) because the interest rate represents the opportunity cost of investing in capital 
E) because investments are always made with borrowed funds

Question 11

Although consumer spending has averaged about 90 percent of disposable income, in recent years the percentage of disposable income claimed by consumption has

Accepted Answer

A) risen to about 96 percent 
B) risen to 100 percent 
C) risen to 99 percent 
D) fallen to about 76 percent 
E) risen to about 98 percent 
A) risen to about 96 percent 
B) risen to 100 percent 
C) risen to 99 percent 
D) fallen to about 76 percent 
E) risen to about 98 percent

Question 12

The partners in the Wonderwords word processing firm spend $12,000 on computers, hoping to earn an additional $1,000 per year with them. If the partners could earn 7 percent interest on a bank deposit they should

Accepted Answer

A) put the $12,000 in the bank 
B) put $6,000 in the bank and spend only $6,000 on computers 
C) buy the computers because the rate of return on the computers is positive 
D) buy the computers only if they do not have to borrow the funds to buy the computers 
E) buy the computers because the rate of return on the computers exceeds 7 percent 
A) put the $12,000 in the bank 
B) put $6,000 in the bank and spend only $6,000 on computers 
C) buy the computers because the rate of return on the computers is positive 
D) buy the computers only if they do not have to borrow the funds to buy the computers 
E) buy the computers because the rate of return on the computers exceeds 7 percent

Question 13

The slope of the consumption function equals the marginal propensity to consume.

Accepted Answer

A) True 
 B)False

Question 14

The non-income determinants of consumption include all of the following except one. Which is the exception?

Accepted Answer

A) net wealth 
B) the profitability of new investment 
C) the price level 
D) expectations 
E) the interest rate 
A) net wealth 
B) the profitability of new investment 
C) the price level 
D) expectations 
E) the interest rate

Question 15

If autonomous investment were measured on the vertical axis and disposable income were measured on the horizontal axis, what would the graph look like?

Accepted Answer

A) a horizontal line 
B) a vertical line 
C) an upward-sloping line 
D) a downward-sloping line 
E) the line would first slope upward and then slope downward 
A) a horizontal line 
B) a vertical line 
C) an upward-sloping line 
D) a downward-sloping line 
E) the line would first slope upward and then slope downward

Question 16

As the U.S. price level increases, other things equal, U.S. products become

Accepted Answer

A) more expensive abroad, which decreases U.S. exports 
B) less expensive abroad, which increases U.S. exports 
C) more expensive abroad, which has no effect on U.S. exports, since exports are assumed to be constant 
D) less expensive abroad, which has no effect on U.S. exports, since exports are assumed to be constant 
E) more expensive abroad, which increases U.S. exports 
A) more expensive abroad, which decreases U.S. exports 
B) less expensive abroad, which increases U.S. exports 
C) more expensive abroad, which has no effect on U.S. exports, since exports are assumed to be constant 
D) less expensive abroad, which has no effect on U.S. exports, since exports are assumed to be constant 
E) more expensive abroad, which increases U.S. exports

Question 17

Net exports

Accepted Answer

A) increase as real domestic income increases 
B) decrease as real domestic income increases 
C) are independent of real domestic income 
D) are always positive 
E) are always negative 
A) increase as real domestic income increases 
B) decrease as real domestic income increases 
C) are independent of real domestic income 
D) are always positive 
E) are always negative

Question 18

If disposable income increases, consumption spending increases and saving decreases.

Accepted Answer

A) True 
 B)False

Question 19

An increase in the MPC will cause the consumption function to become steeper (rotate upwards).

Accepted Answer

A) True 
 B)False

Question 20

The life-cycle hypothesis suggests that the economy's saving rate depends on all of the following except one. Which is the exception?

Accepted Answer

A) the relative numbers of savers and dissavers 
B) the manner in which saving is taxed 
C) the convenience and reliability of saving institutions 
D) the relative cost of housing 
E) the rate of profit 
A) the relative numbers of savers and dissavers 
B) the manner in which saving is taxed 
C) the convenience and reliability of saving institutions 
D) the relative cost of housing 
E) the rate of profit

Exam 9: Aggregate Expenditure

Disposable income is equal to consumption

The inverse of the slope of the consumption function equals the marginal propensity to save.

An increase in the value of the U.S. dollar relative to other currencies will

Economists assume that the fundamental motive of investors is

The slope of the saving function is equal to the MPS.

According to the life-cycle model,

A grocery store manager must decide whether to buy a rug cleaner to rent to customers. The cleaner costs $800. It is expected to yield $200 in income per year. What is the expected annual rate of return from the cleaner?

An increase in the price level will

If the interest rate decreases, then there will be

A firm's level of investment is tied to the interest rate

Although consumer spending has averaged about 90 percent of disposable income, in recent years the percentage of disposable income claimed by consumption has

The partners in the Wonderwords word processing firm spend $12,000 on computers, hoping to earn an additional $1,000 per year with them. If the partners could earn 7 percent interest on a bank deposit they should

The slope of the consumption function equals the marginal propensity to consume.

The non-income determinants of consumption include all of the following except one. Which is the exception?

If autonomous investment were measured on the vertical axis and disposable income were measured on the horizontal axis, what would the graph look like?

As the U.S. price level increases, other things equal, U.S. products become

Net exports

If disposable income increases, consumption spending increases and saving decreases.

An increase in the MPC will cause the consumption function to become steeper (rotate upwards).

The life-cycle hypothesis suggests that the economy's saving rate depends on all of the following except one. Which is the exception?

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

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