Question 1

The marginal propensity to consume plus the marginal propensity to save must always equal 1.

Accepted Answer

A) True 
 B)False

Question 2

A change in taxes of a given amount shifts the consumption function vertically by ____ than that amount,because the marginal propensity to consume is ____.

Accepted Answer

A)  less; less than 1 
B)  greater; greater than 1 
C)  greater; always equal to 1. 
D)  less; equal to zero. 
A)  less; less than 1 
B)  greater; greater than 1 
C)  greater; always equal to 1. 
D)  less; equal to zero.

Question 3

Which of the following will result as part of the interest rate effect when the price level rises?

Accepted Answer

A)  Households and firms increase their holdings of money. 
B)  Interest rates will increase. 
C)  A lower quantity of real GDP will be demanded. 
D)  All of the above will result as part of the interest rate effect when the price level rises. 
A)  Households and firms increase their holdings of money. 
B)  Interest rates will increase. 
C)  A lower quantity of real GDP will be demanded. 
D)  All of the above will result as part of the interest rate effect when the price level rises.

Question 4

Which of the following changes in taxes would lead to the smallest increase in consumption?

Accepted Answer

A)  a $20,000 decrease in taxes, if MPC equals 0.5 
B)  a $12,000 decrease in taxes, if MPC equals 0.75 
C)  a $15,000 decrease in taxes, if MPC equals 0.6 
D)  a $30,000 decrease in taxes, if MPC equals 0.25 
A)  a $20,000 decrease in taxes, if MPC equals 0.5 
B)  a $12,000 decrease in taxes, if MPC equals 0.75 
C)  a $15,000 decrease in taxes, if MPC equals 0.6 
D)  a $30,000 decrease in taxes, if MPC equals 0.25

Question 5

Explain the effects of the following actions on equilibrium income.
1.Government purchases rise by $20 billion.
2.Taxes fall by $20 billion.

Accepted Answer

Assume that the marginal prope

Question 6

When resources are at full capacity,output is less responsive to changes in ____ and the price level is ____.

Accepted Answer

A)  prices; stable 
B)  prices; less responsive 
C)  aggregate demand; highly responsive 
D)  aggregate demand; less responsive 
A)  prices; stable 
B)  prices; less responsive 
C)  aggregate demand; highly responsive 
D)  aggregate demand; less responsive

Question 7

The expenditure multiplier only considers the impact of consumption changes on aggregate expenditures.

Accepted Answer

A) True 
 B)False

Question 8

If government spending increased by $200 billion and the MPC within the economy was 0.9,what would be the total impact on real GDP?

Accepted Answer

A)  $180 billion increase 
B)  $222 billion increase 
C)  $380 billion increase 
D)  $2.0 trillion increase 
A)  $180 billion increase 
B)  $222 billion increase 
C)  $380 billion increase 
D)  $2.0 trillion increase

Question 9

If consumption spending is the only variable of aggregate expenditure dependent on income,the multiplier is MPC/(1 - MPC).

Accepted Answer

A) True 
 B)False

Question 10

If the price level is fixed,then changes in nominal income will be equivalent to changes in real income.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following changes in disposable income would lead to the smallest increase in consumption?

Accepted Answer

A)  a $20,000 increase in disposable income, if MPC equals 0.5 
B)  a $12,000 increase in disposable income, if MPC equals 0.75 
C)  a $15,000 increase in disposable income, if MPC equals 0.6 
D)  a $30,000 increase in disposable income, if MPC equals 0.25 
A)  a $20,000 increase in disposable income, if MPC equals 0.5 
B)  a $12,000 increase in disposable income, if MPC equals 0.75 
C)  a $15,000 increase in disposable income, if MPC equals 0.6 
D)  a $30,000 increase in disposable income, if MPC equals 0.25

Question 12

If the marginal propensity to consume is 0.60,the marginal propensity to save will be:

Accepted Answer

A)  greater than 0.60. 
B)  equal to 0.40. 
C)  equal to 0.60. 
D)  equal to 0. 
A)  greater than 0.60. 
B)  equal to 0.40. 
C)  equal to 0.60. 
D)  equal to 0.

Question 13

Exhibit 23-1   Refer to Exhibit 23-1.Which of the following would tend to move consumer spending from A to D?

Accepted Answer

A)  increase in debt 
B)  decrease in interest rates 
C)  decrease in consumer confidence 
D)  stock market decline 
A)  increase in debt 
B)  decrease in interest rates 
C)  decrease in consumer confidence 
D)  stock market decline

Question 14

A given change in either someone's income or net taxes would have a greater effect on their consumption spending the greater their MPC.

Accepted Answer

A) True 
 B)False

Question 15

Marginal propensity to save is equal to the change in ____ divided by the change in ____.

Accepted Answer

A)  consumption spending; total income 
B)  saving; total income 
C)  saving; disposable income 
D)  consumption spending; disposable income 
A)  consumption spending; total income 
B)  saving; total income 
C)  saving; disposable income 
D)  consumption spending; disposable income

Question 16

A given change in disposable income would have the greatest effect on consumption with which of the following marginal propensities to consume?

Accepted Answer

A)  0.2 
B)  0.4 
C)  0.6 
D)  0.8 
A)  0.2 
B)  0.4 
C)  0.6 
D)  0.8

Question 17

In the simplest Keynesian expenditure model,which of the following is fixed to allow for easy evaluation of changes in demand due to real income?

Accepted Answer

A)  the price level 
B)  interest rates 
C)  tastes and preferences 
D)  future expectations 
A)  the price level 
B)  interest rates 
C)  tastes and preferences 
D)  future expectations

Question 18

Keynes believed that:

Accepted Answer

A)  discretionary fiscal policy was needed to stabilize the economy. 
B)  wages are not flexible particularly in a downward direction. 
C)  the economy could remain in a period of unemployment for a long time period. 
D)  all of the above 
A)  discretionary fiscal policy was needed to stabilize the economy. 
B)  wages are not flexible particularly in a downward direction. 
C)  the economy could remain in a period of unemployment for a long time period. 
D)  all of the above

Question 19

Which of the following changes in disposable income would lead to the greatest increase in consumption?

Accepted Answer

A)  a $20,000 increase in disposable income, if MPC equals 0.5 
B)  a $12,000 increase in disposable income, if MPC equals 0.75 
C)  a $15,000 increase in disposable income, if MPC equals 0.6 
D)  a $30,000 increase in disposable income, if MPC equals 0.25 
A)  a $20,000 increase in disposable income, if MPC equals 0.5 
B)  a $12,000 increase in disposable income, if MPC equals 0.75 
C)  a $15,000 increase in disposable income, if MPC equals 0.6 
D)  a $30,000 increase in disposable income, if MPC equals 0.25

Question 20

Identify factors that would cause consumption spending to increase.What effect would that have on aggregate demand?

Accepted Answer

The factors that cause consumption to in

Exam 23: The Aggregate Expenditure Model

The marginal propensity to consume plus the marginal propensity to save must always equal 1.

A change in taxes of a given amount shifts the consumption function vertically by ____ than that amount,because the marginal propensity to consume is ____.

Which of the following will result as part of the interest rate effect when the price level rises?

Which of the following changes in taxes would lead to the smallest increase in consumption?

Explain the effects of the following actions on equilibrium income. 1.Government purchases rise by $20 billion. 2.Taxes fall by $20 billion.

When resources are at full capacity,output is less responsive to changes in ____ and the price level is ____.

The expenditure multiplier only considers the impact of consumption changes on aggregate expenditures.

If government spending increased by $200 billion and the MPC within the economy was 0.9,what would be the total impact on real GDP?

If consumption spending is the only variable of aggregate expenditure dependent on income,the multiplier is MPC/(1 - MPC).

If the price level is fixed,then changes in nominal income will be equivalent to changes in real income.

Which of the following changes in disposable income would lead to the smallest increase in consumption?

If the marginal propensity to consume is 0.60,the marginal propensity to save will be:

Exhibit 23-1 Refer to Exhibit 23-1.Which of the following would tend to move consumer spending from A to D?

A given change in either someone's income or net taxes would have a greater effect on their consumption spending the greater their MPC.

Marginal propensity to save is equal to the change in ____ divided by the change in ____.

A given change in disposable income would have the greatest effect on consumption with which of the following marginal propensities to consume?

In the simplest Keynesian expenditure model,which of the following is fixed to allow for easy evaluation of changes in demand due to real income?

Keynes believed that:

Which of the following changes in disposable income would lead to the greatest increase in consumption?

Identify factors that would cause consumption spending to increase.What effect would that have on aggregate demand?

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters

A change in taxes of a given amount shifts the consumption function vertically by than that amount,because the marginal propensity to consume is .

When resources are at full capacity,output is less responsive to changes in and the price level is .

Marginal propensity to save is equal to the change in divided by the change in .