Question 1

If business executives become more optimistic about the future, we would expect that

Accepted Answer

A)  the investment curve would shift outward to the right. 
B)  the saving function would shift up. 
C)  the consumption curve would shift up. 
D)  investment spending would decrease. 
A)  the investment curve would shift outward to the right. 
B)  the saving function would shift up. 
C)  the consumption curve would shift up. 
D)  investment spending would decrease.

Question 2

If your real disposable income goes up by $1,000 per week, and your real consumption spending goes up by $800 per week, you have a marginal propensity to consume of

Accepted Answer

A)  0.2. 
B)  0.8. 
C)  1.2. 
D)  1.0. 
A)  0.2. 
B)  0.8. 
C)  1.2. 
D)  1.0.

Question 3

Which of the following represents the relationship between disposable income (DI), consumption (C), and saving (S)?

Accepted Answer

A)  DI + C = S 
B)  DI = C + S 
C)  DI = C * S 
D)  DI = C - S 
A)  DI + C = S 
B)  DI = C + S 
C)  DI = C * S 
D)  DI = C - S

Question 4

The relationship that tells us how much a person intends to spend at various levels of income is

Accepted Answer

A)  the spending function. 
B)  the expenditure function. 
C)  the consumption function. 
D)  the buying function. 
A)  the spending function. 
B)  the expenditure function. 
C)  the consumption function. 
D)  the buying function.

Question 5

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $4,000?

Accepted Answer

A)  -0.45 
B)  0.69 
C)  0.7 
D)  1.45 
A)  -0.45 
B)  0.69 
C)  0.7 
D)  1.45

Question 6

Suppose the marginal propensity to consume (MPC) is 0.8 and there is a $4,000 increase in planned investment. Given this information, real GDP will increase by

Accepted Answer

A)  $4,000. 
B)  $20,000. 
C)  $5,000. 
D)  $2,000. 
A)  $4,000. 
B)  $20,000. 
C)  $5,000. 
D)  $2,000.

Question 7

Suppose there is a $200 billion increase in government spending. We know that this increase in government spending will cause which of the following to occur?

Accepted Answer

A)  an increase in equilibrium real GDP and an increase in the multiplier. 
B)  an increase in equilibrium real GDP and a reduction in the multiplier. 
C)  an increase in equilibrium real GDP and no change in the multiplier. 
D)  equilibrium real GDP will increase by exactly $200 billion 
A)  an increase in equilibrium real GDP and an increase in the multiplier. 
B)  an increase in equilibrium real GDP and a reduction in the multiplier. 
C)  an increase in equilibrium real GDP and no change in the multiplier. 
D)  equilibrium real GDP will increase by exactly $200 billion

Question 8

-In the above table, saving is positive when real disposable income is greater than

Accepted Answer

A)  zero. 
B)  $100. 
C)  $300. 
D)  $500. 
A)  zero. 
B)  $100. 
C)  $300. 
D)  $500.

Question 9

-In the above diagram, what happens if the real GDP is $3 trillion? $5 trillion? $7 trillion? What is the equilibrium level of real GDP? Why?

Accepted Answer

At real GDP of $3 trillion, planned real

Question 10

Based on historical data, which of the following tended to be most variable over time?

Accepted Answer

A)  real consumption spending 
B)  real saving 
C)  real investment spending 
D)  the average propensity to consume 
A)  real consumption spending 
B)  real saving 
C)  real investment spending 
D)  the average propensity to consume

Question 11

Explain how the aggregate demand curve is related to the C + I + G + X curve.

Accepted Answer

The C + I + G + X curve determines equil

Question 12

-Refer to the above figure. Dissaving occurs,

Accepted Answer

A)  only at point A. 
B)  to the left of point B. 
C)  only at point B. 
D)  to the right of point B. 
A)  only at point A. 
B)  to the left of point B. 
C)  only at point B. 
D)  to the right of point B.

Question 13

What is the primary determinant of real saving and real consumption according to Keynes? Explain.

Accepted Answer

Keynes argued that real consumption and

Question 14

-Refer to the above figure. Point B

Accepted Answer

A)  equals autonomous consumption. 
B)  equals autonomous consumption plus autonomous consumption plus planned investment plus autonomous government spending plus autonomous net exports. 
C)  has no special significance. 
D)  equals government expenditures. 
A)  equals autonomous consumption. 
B)  equals autonomous consumption plus autonomous consumption plus planned investment plus autonomous government spending plus autonomous net exports. 
C)  has no special significance. 
D)  equals government expenditures.

Question 15

When the average propensity to save (APS) is 0.20, then this means

Accepted Answer

A)  people are spending 20 percent of their disposable income. 
B)  people are spending 80 percent of their disposable income. 
C)  people are saving $0.20 of the last dollar earned. 
D)  people are spending 60 percent of their disposable income and investing the remaining 20 percent. 
A)  people are spending 20 percent of their disposable income. 
B)  people are spending 80 percent of their disposable income. 
C)  people are saving $0.20 of the last dollar earned. 
D)  people are spending 60 percent of their disposable income and investing the remaining 20 percent.

Question 16

Planned expenditures equal real disposable income

Accepted Answer

A)  at every point on the consumption function. 
B)  at every point on the saving function. 
C)  at every point on the 45-degree line. 
D)  when saving equals zero. 
A)  at every point on the consumption function. 
B)  at every point on the saving function. 
C)  at every point on the 45-degree line. 
D)  when saving equals zero.

Question 17

-Use the above table. At an income of $50,

Accepted Answer

A)  real saving is $20. 
B)  real dissaving is $10. 
C)  real saving is $10. 
D)  real dissaving is $50. 
A)  real saving is $20. 
B)  real dissaving is $10. 
C)  real saving is $10. 
D)  real dissaving is $50.

Question 18

When real planned saving is greater than real planned investment spending,

Accepted Answer

A)  the interest rate will increase. 
B)  the interest rate will decrease. 
C)  real GDP will increase. 
D)  real GDP will decrease. 
A)  the interest rate will increase. 
B)  the interest rate will decrease. 
C)  real GDP will increase. 
D)  real GDP will decrease.

Question 19

The investment function would shift inward to the left if

Accepted Answer

A)  real disposable income decreased. 
B)  interest rates increased. 
C)  there was an increase in business taxes. 
D)  there was a positive change in productive technology. 
A)  real disposable income decreased. 
B)  interest rates increased. 
C)  there was an increase in business taxes. 
D)  there was a positive change in productive technology.

Question 20

The break-even point on the consumption function represents the point where

Accepted Answer

A)  consumption equals spending. 
B)  income equals consumption plus spending. 
C)  consumption is zero. 
D)  consumption equals income. 
A)  consumption equals spending. 
B)  income equals consumption plus spending. 
C)  consumption is zero. 
D)  consumption equals income.

Exam 12: Consumption, Real GDP, and the Multiplier

If business executives become more optimistic about the future, we would expect that

If your real disposable income goes up by $1,000 per week, and your real consumption spending goes up by $800 per week, you have a marginal propensity to consume of

Which of the following represents the relationship between disposable income (DI), consumption (C), and saving (S)?

The relationship that tells us how much a person intends to spend at various levels of income is

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $4,000?

Suppose the marginal propensity to consume (MPC) is 0.8 and there is a $4,000 increase in planned investment. Given this information, real GDP will increase by

Suppose there is a $200 billion increase in government spending. We know that this increase in government spending will cause which of the following to occur?

-In the above table, saving is positive when real disposable income is greater than

-In the above diagram, what happens if the real GDP is $3 trillion? $5 trillion? $7 trillion? What is the equilibrium level of real GDP? Why?

Based on historical data, which of the following tended to be most variable over time?

Explain how the aggregate demand curve is related to the C + I + G + X curve.

-Refer to the above figure. Dissaving occurs,

What is the primary determinant of real saving and real consumption according to Keynes? Explain.

-Refer to the above figure. Point B

When the average propensity to save (APS) is 0.20, then this means

Planned expenditures equal real disposable income

-Use the above table. At an income of $50,

When real planned saving is greater than real planned investment spending,

The investment function would shift inward to the left if

The break-even point on the consumption function represents the point where

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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