Question 1

As disposable income increases,

Accepted Answer

A) consumption and saving both increase 
B) consumption increases and saving decreases 
C) consumption and saving both decrease 
D) consumption decreases but saving increases 
E) saving increases, but we cannot predict what happens to consumption 
A) consumption and saving both increase 
B) consumption increases and saving decreases 
C) consumption and saving both decrease 
D) consumption decreases but saving increases 
E) saving increases, but we cannot predict what happens to consumption

Question 2

The primary determinant of consumption spending is the price level.

Accepted Answer

A) True 
 B)False

Question 3

Imagine a macro investment demand curve that shows that, if the market interest rate is 4 percent, the quantity of investment demanded is $500 billion. Then, if the market rate rises to 5 percent, the most likely result is that the quantity of investment demanded

Accepted Answer

A) does not change 
B) rises to $550 billion 
C) declines to $450 billion 
D) rises to $1 trillion 
E) It is not possible to answer without seeing the actual curve 
A) does not change 
B) rises to $550 billion 
C) declines to $450 billion 
D) rises to $1 trillion 
E) It is not possible to answer without seeing the actual curve

Question 4

Expectations that the price level will decrease in the future will

Accepted Answer

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

Question 5

Exhibit 9-1
  
-Given the data in Exhibit 9-1, the level of saving at a disposable income of $1,200 is

Accepted Answer

A) $80 
B) $240 
C) $950 
D) $1,200 
E) $1,300 
A) $80 
B) $240 
C) $950 
D) $1,200 
E) $1,300

Question 6

Fluctuations in consumption

Accepted Answer

A) are noticeably smaller during recessions than during expansions 
B) are roughly similar to fluctuations in investment 
C) are roughly similar to fluctuations in GDP 
D) are closely followed by economic forecasters because those fluctuations often signal that a recession will occur 
E) account for most of the variability in GDP 
A) are noticeably smaller during recessions than during expansions 
B) are roughly similar to fluctuations in investment 
C) are roughly similar to fluctuations in GDP 
D) are closely followed by economic forecasters because those fluctuations often signal that a recession will occur 
E) account for most of the variability in GDP

Question 7

An upward shift of the consumption function might be caused by

Accepted Answer

A) an increase in disposable income 
B) a decrease in disposable income 
C) a decrease in the price level 
D) a decrease in household wealth 
E) an increase in the interest rate 
A) an increase in disposable income 
B) a decrease in disposable income 
C) a decrease in the price level 
D) a decrease in household wealth 
E) an increase in the interest rate

Question 8

If business managers become more pessimistic about future sales and profits, 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 9

Expectations that the price level will rise in the future cause consumption to rise today.

Accepted Answer

A) True 
 B)False

Question 10

If disposable income decreases, there is typically a decrease in consumption spending.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is not investment spending?

Accepted Answer

A) an increase in business inventories 
B) the extensive renovation of an old factory building 
C) the purchase of stock in Potomac Electric Company 
D) the construction of a new apartment building 
E) the purchase of a new silo for a farm 
A) an increase in business inventories 
B) the extensive renovation of an old factory building 
C) the purchase of stock in Potomac Electric Company 
D) the construction of a new apartment building 
E) the purchase of a new silo for a farm

Question 12

According to the life-cycle model,

Accepted Answer

A) richer economies save about the same fraction of disposable income as do poor countries 
B) people spend much of their income when young, and borrow to finance retirement when they are older 
C) rich countries save a higher fraction of disposable income than do poor countries 
D) richer economies save less than do poor economies 
E) the saving rate in all nations increases over time 
A) richer economies save about the same fraction of disposable income as do poor countries 
B) people spend much of their income when young, and borrow to finance retirement when they are older 
C) rich countries save a higher fraction of disposable income than do poor countries 
D) richer economies save less than do poor economies 
E) the saving rate in all nations increases over time

Question 13

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

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 lower 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 lower inflation abroad

Question 14

Suppose that when disposable income rises from $5.2 trillion to $6.0 trillion, consumption rises from $5.0 trillion to $5.6 trillion. What is the marginal propensity to consume?

Accepted Answer

A) 0.25 
B) 0.33 
C) 0.75 
D) 0.67 
E) 0.07 
A) 0.25 
B) 0.33 
C) 0.75 
D) 0.67 
E) 0.07

Question 15

The current level of investment depends on the current level of income.

Accepted Answer

A) True 
 B)False

Question 16

A decrease in real disposable income 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 17

The consumption function relates consumption spending to

Accepted Answer

A) the price level 
B) interest rates 
C) disposable income 
D) expectations about the price level 
E) household wealth 
A) the price level 
B) interest rates 
C) disposable income 
D) expectations about the price level 
E) household wealth

Question 18

Which is true of disposable income?

Accepted Answer

A) it excludes transfer payments 
B) the portion of income is used solely for consumption 
C) it is that part of aggregate income that is taken in taxes by government 
D) all of disposable income contributes directly to aggregate expenditure 
E) disposable income equals consumption expenditures plus saving 
A) it excludes transfer payments 
B) the portion of income is used solely for consumption 
C) it is that part of aggregate income that is taken in taxes by government 
D) all of disposable income contributes directly to aggregate expenditure 
E) disposable income equals consumption expenditures plus saving

Question 19

As the U.S. price level decreases, 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 20

Suppose that autonomous investment level is $100 billion per year. If income in the economy falls,

Accepted Answer

A) the level of investment will increase 
B) the level of investment will decrease 
C) the quantity of investment demanded will increase 
D) the quantity of investment demanded will decrease 
E) investment spending will not change 
A) the level of investment will increase 
B) the level of investment will decrease 
C) the quantity of investment demanded will increase 
D) the quantity of investment demanded will decrease 
E) investment spending will not change

Exam 9: Aggregate Expenditure

As disposable income increases,

The primary determinant of consumption spending is the price level.

Imagine a macro investment demand curve that shows that, if the market interest rate is 4 percent, the quantity of investment demanded is $500 billion. Then, if the market rate rises to 5 percent, the most likely result is that the quantity of investment demanded

Expectations that the price level will decrease in the future will

Exhibit 9-1 -Given the data in Exhibit 9-1, the level of saving at a disposable income of $1,200 is

Fluctuations in consumption

An upward shift of the consumption function might be caused by

If business managers become more pessimistic about future sales and profits, there will be

Expectations that the price level will rise in the future cause consumption to rise today.

If disposable income decreases, there is typically a decrease in consumption spending.

Which of the following is not investment spending?

According to the life-cycle model,

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

Suppose that when disposable income rises from $5.2 trillion to $6.0 trillion, consumption rises from $5.0 trillion to $5.6 trillion. What is the marginal propensity to consume?

The current level of investment depends on the current level of income.

A decrease in real disposable income will

The consumption function relates consumption spending to

Which is true of disposable income?

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

Suppose that autonomous investment level is $100 billion per year. If income in the economy falls,

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Introduction to Macroeconomics

Tracking the Us Economy

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