Question 1

Which must be true when consumption exceeds income?

Accepted Answer

A) the consumption function shifts upward 
B) the consumption function shifts downward 
C) aggregate expenditures equal real GDP 
D) saving must be negative 
E) aggregate expenditures will fall 
A) the consumption function shifts upward 
B) the consumption function shifts downward 
C) aggregate expenditures equal real GDP 
D) saving must be negative 
E) aggregate expenditures will fall

Question 2

The United States, with only one __________ of the world's population, accounts for about one __________ of the world's imports and one __________ of the world's exports.

Accepted Answer

A) twentieth, sixth, ninth 
B) sixth, ninth, twentieth 
C) ninth, twentieth, sixth 
D) twentieth, ninth, sixth 
E) ninth, sixth, twentieth 
A) twentieth, sixth, ninth 
B) sixth, ninth, twentieth 
C) ninth, twentieth, sixth 
D) twentieth, ninth, sixth 
E) ninth, sixth, twentieth

Question 3

Net taxes are

Accepted Answer

A) taxes plus transfer payments 
B) taxes minus transfer payments 
C) an injection into the economic system 
D) consumption after taxes 
E) government spending minus taxes 
A) taxes plus transfer payments 
B) taxes minus transfer payments 
C) an injection into the economic system 
D) consumption after taxes 
E) government spending minus taxes

Question 4

As disposable income increases, saving decreases.

Accepted Answer

A) True 
 B)False

Question 5

If income increases by $100 and $75 of the increase is spent (consumed), the MPS equals

Accepted Answer

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

Question 6

A simple statement of the consumption behavior suggested in our model is that

Accepted Answer

A) all income earned from wages is spent 
B) total income must be equal to wages plus profits 
C) social values and customs are the primary determinants of consumption spending 
D) spending increases by less than income 
E) people spend more and save more as their disposable income increases 
A) all income earned from wages is spent 
B) total income must be equal to wages plus profits 
C) social values and customs are the primary determinants of consumption spending 
D) spending increases by less than income 
E) people spend more and save more as their disposable income increases

Question 7

The difference between consumption spending and disposable income

Accepted Answer

A) decreases as income increases 
B) stays proportionally the same as income increases 
C) decreases if the interest rate increases 
D) equals the amount of taxes paid 
E) equals saving 
A) decreases as income increases 
B) stays proportionally the same as income increases 
C) decreases if the interest rate increases 
D) equals the amount of taxes paid 
E) equals saving

Question 8

Exhibit 9-3  
-In Exhibit 9-3, when real disposable income is equal to $3 billion, saving is equal to

Accepted Answer

A) $-2 billion 
B) $-1 billion 
C) 0 
D) $1 billion 
E) $2 billion 
A) $-2 billion 
B) $-1 billion 
C) 0 
D) $1 billion 
E) $2 billion

Question 9

The primary determinant of saving is the interest rate.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) interest rates are high 
B) households decide to save less of their income 
C) businesspeople have optimistic expectations about the future 
D) corporate income taxes increase 
E) aggregate income decreases 
A) interest rates are high 
B) households decide to save less of their income 
C) businesspeople have optimistic expectations about the future 
D) corporate income taxes increase 
E) aggregate income decreases

Question 11

The relationship between consumption and income is

Accepted Answer

A) negative and unstable 
B) positive and unstable 
C) negative and stable 
D) positive and stable 
E) impossible to describe without more data 
A) negative and unstable 
B) positive and unstable 
C) negative and stable 
D) positive and stable 
E) impossible to describe without more data

Question 12

An increase 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 13

Expectations that the price level will increase in the future will

Accepted Answer

A) shift the current consumption function upward 
B) make the current consumption function steeper 
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) make the current consumption function steeper 
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 14

According to the life-cycle model, people

Accepted Answer

A) save when they are young in order to finance education and home purchases in middle age 
B) save when they are young in order to finance home purchases during their retirement years 
C) save when they are young and pay off debts when they are old 
D) borrow when they are young and save when they are older 
E) save when they are young and borrow when they are older 
A) save when they are young in order to finance education and home purchases in middle age 
B) save when they are young in order to finance home purchases during their retirement years 
C) save when they are young and pay off debts when they are old 
D) borrow when they are young and save when they are older 
E) save when they are young and borrow when they are older

Question 15

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 save?

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 16

Investment

Accepted Answer

A) is about as volatile as consumption, except during recession years 
B) has averaged about one-sixth of GDP over the past decade 
C) is about as volatile as GDP, except during recession years 
D) is the largest component of aggregate spending 
E) has averaged about two-thirds of GDP over the past decade 
A) is about as volatile as consumption, except during recession years 
B) has averaged about one-sixth of GDP over the past decade 
C) is about as volatile as GDP, except during recession years 
D) is the largest component of aggregate spending 
E) has averaged about two-thirds of GDP over the past decade

Question 17

If investment is autonomous, which of the following is least likely to have an effect on the level of investment?

Accepted Answer

A) a change in the rate of interest 
B) a change in the level of income 
C) a change in the level of optimism or pessimism about the economy as a whole 
D) a change in the expected profitability of investment projects 
E) a change in the rate of inflation 
A) a change in the rate of interest 
B) a change in the level of income 
C) a change in the level of optimism or pessimism about the economy as a whole 
D) a change in the expected profitability of investment projects 
E) a change in the rate of inflation

Question 18

Sarah moves from Upperland, which has no taxes or transfer payments, to Lowerland, where she is hit with taxes of $2,000 and receives transfer payments of $3,000. She earns the same wage in both countries, but in Lowerland her disposable income is

Accepted Answer

A) $1,000 higher 
B) $1,000 lower 
C) $5,000 higher 
D) $2,000 lower 
E) $3,000 higher 
A) $1,000 higher 
B) $1,000 lower 
C) $5,000 higher 
D) $2,000 lower 
E) $3,000 higher

Question 19

The amount of U.S. exports purchased by the rest of the world is primarily determined by

Accepted Answer

A) real disposable income in the United States 
B) real disposable income in other nations 
C) the real interest rate in other nations 
D) the real interest rate in the United States 
E) the government budget deficits in other nations 
A) real disposable income in the United States 
B) real disposable income in other nations 
C) the real interest rate in other nations 
D) the real interest rate in the United States 
E) the government budget deficits in other nations

Question 20

The consumption function assumes that

Accepted Answer

A) only disposable income affects consumption 
B) only the price level affects consumption 
C) many factors other than disposable income affect consumption, and each is allowed to vary along the consumption function 
D) factors other than disposable income affect consumption, but those are held constant along the consumption function 
E) only consumer expectations affect consumption 
A) only disposable income affects consumption 
B) only the price level affects consumption 
C) many factors other than disposable income affect consumption, and each is allowed to vary along the consumption function 
D) factors other than disposable income affect consumption, but those are held constant along the consumption function 
E) only consumer expectations affect consumption

Exam 9: Aggregate Expenditure

Which must be true when consumption exceeds income?

The United States, with only one __________ of the world's population, accounts for about one __________ of the world's imports and one __________ of the world's exports.

Net taxes are

As disposable income increases, saving decreases.

If income increases by $100 and $75 of the increase is spent (consumed), the MPS equals

A simple statement of the consumption behavior suggested in our model is that

The difference between consumption spending and disposable income

Exhibit 9-3 -In Exhibit 9-3, when real disposable income is equal to $3 billion, saving is equal to

The primary determinant of saving is the interest rate.

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

The relationship between consumption and income is

An increase in real disposable income will

Expectations that the price level will increase in the future will

According to the life-cycle model, people

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 save?

Investment

If investment is autonomous, which of the following is least likely to have an effect on the level of investment?

Sarah moves from Upperland, which has no taxes or transfer payments, to Lowerland, where she is hit with taxes of $2,000 and receives transfer payments of $3,000. She earns the same wage in both countries, but in Lowerland her disposable income is

The amount of U.S. exports purchased by the rest of the world is primarily determined by

The consumption function assumes that

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Economic Decision Makers

Demand Supply and Markets

Introduction to Macroeconomics

Tracking the Us Economy

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Money and the Financial System

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