Question 1

A decrease in wealth will

Accepted Answer

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

Question 2

Disposable income is

Accepted Answer

A)  the major determinant of consumption spending 
B)  total salary and wage income minus taxes and transfer payments 
C)  the income households earn before taxes 
D)  aggregate income plus taxes minus transfer payments 
E)  a measure of income that is equivalent to GDP 
A)  the major determinant of consumption spending 
B)  total salary and wage income minus taxes and transfer payments 
C)  the income households earn before taxes 
D)  aggregate income plus taxes minus transfer payments 
E)  a measure of income that is equivalent to GDP

Question 3

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 4

A decrease in the price level will

Accepted Answer

A)  decrease consumption because the price of goods is lower 
B)  make the consumption function flatter 
C)  increase consumption because prices are wages,so people have more income 
D)  increase consumption because the value of wealth has increased 
E)  decrease consumption because rising interest rates make it more expensive to borrow 
A)  decrease consumption because the price of goods is lower 
B)  make the consumption function flatter 
C)  increase consumption because prices are wages,so people have more income 
D)  increase consumption because the value of wealth has increased 
E)  decrease consumption because rising interest rates make it more expensive to borrow

Question 5

Mr.Green is considering four possible investment opportunities,each of which would cost him $5,000.He expects annual returns on these investments of $600,$500,$400,and $300.If the interest rate is 7 percent,how many of these opportunities should Mr.Green undertake?

Accepted Answer

A)  one 
B)  two 
C)  three 
D)  four 
E)  none 
A)  one 
B)  two 
C)  three 
D)  four 
E)  none

Question 6

If a household's income falls from $20,000 to $17,000 and its consumption spending falls from $18,000 to $15,000,then its

Accepted Answer

A)  marginal propensity to consume is -0.67 
B)  marginal propensity to consume is 0.88 
C)  marginal propensity to consume is 0.20 
D)  marginal propensity to save is zero 
E)  marginal propensity to save is 0.12 
A)  marginal propensity to consume is -0.67 
B)  marginal propensity to consume is 0.88 
C)  marginal propensity to consume is 0.20 
D)  marginal propensity to save is zero 
E)  marginal propensity to save is 0.12

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

The slope of the consumption function shows how

Accepted Answer

A)  consumption changes over time 
B)  consumption changes as household size changes 
C)  consumption changes as the price level changes 
D)  income changes as the level of consumption changes 
E)  consumption changes as the level of income changes 
A)  consumption changes over time 
B)  consumption changes as household size changes 
C)  consumption changes as the price level changes 
D)  income changes as the level of consumption changes 
E)  consumption changes as the level of income changes

Question 9

At the equilibrium level of real GDP,the MPC equals 1.

Accepted Answer

A) True 
 B)False

Question 10

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 11

The owners of the Morning Glory Coffee Shop are considering spending $3,000 on a new cappuccino machine.They expect to increase revenues by $200 per year if they do.The current interest rate is 8 percent.Which of the following is true?

Accepted Answer

A)  The rate of return on their investment is $200. 
B)  The rate of return on their investment is 5 percent. 
C)  The owners should not buy the machine. 
D)  The owners should buy the cappuccino machine if they have the $3,000 in cash,but not if they have to borrow the money. 
E)  The owners should buy the cappuccino machine regardless of whether they have the $3,000 in cash or not. 
A)  The rate of return on their investment is $200. 
B)  The rate of return on their investment is 5 percent. 
C)  The owners should not buy the machine. 
D)  The owners should buy the cappuccino machine if they have the $3,000 in cash,but not if they have to borrow the money. 
E)  The owners should buy the cappuccino machine regardless of whether they have the $3,000 in cash or not.

Question 12

A change in which of the following is least likely to cause a shift of the consumption function?

Accepted Answer

A)  the saving rate 
B)  consumer expectations about future prices 
C)  household wealth 
D)  investment spending 
E)  the interest rate 
A)  the saving rate 
B)  consumer expectations about future prices 
C)  household wealth 
D)  investment spending 
E)  the interest rate

Question 13

Which of the following best represents the opportunity cost of investing in capital?

Accepted Answer

A)  the actual revenue stream generated by the investment 
B)  the expected revenue stream generated by the investment 
C)  the profit that investment is expected to generate 
D)  the market interest rate 
E)  the purchase price of the plant and equipment 
A)  the actual revenue stream generated by the investment 
B)  the expected revenue stream generated by the investment 
C)  the profit that investment is expected to generate 
D)  the market interest rate 
E)  the purchase price of the plant and equipment

Question 14

If the market interest rate equals 8 percent,the opportunity cost of the last new investment project undertaken would be approximately equal to

Accepted Answer

A)  zero percent 
B)  4 percent 
C)  infinity 
D)  8 percent 
E)  16 percent 
A)  zero percent 
B)  4 percent 
C)  infinity 
D)  8 percent 
E)  16 percent

Question 15

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 16

An increase in the interest rate would shift the consumption function upward.

Accepted Answer

A) True 
 B)False

Question 17

Expectations that disposable income will decrease in the future will

Accepted Answer

A)  shift the current consumption function upward 
B)  shift the current consumption function downward 
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)  shift the current consumption function downward 
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 18

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 19

If investment is autonomous,an increase in income will shift the investment function upward.

Accepted Answer

A) True 
 B)False

Question 20

Net wealth is a __________ variable.Consumption and income are __________ variables.

Accepted Answer

A)  stock,flow 
B)  stock,stock 
C)  stock,flat 
D)  flow,stock 
E)  flow,flow 
A)  stock,flow 
B)  stock,stock 
C)  stock,flat 
D)  flow,stock 
E)  flow,flow

Exam 9: Aggregate Expenditure

A decrease in wealth will

Disposable income is

As disposable income increases,

A decrease in the price level will

Mr.Green is considering four possible investment opportunities,each of which would cost him $5,000.He expects annual returns on these investments of $600,$500,$400,and $300.If the interest rate is 7 percent,how many of these opportunities should Mr.Green undertake?

If a household's income falls from $20,000 to $17,000 and its consumption spending falls from $18,000 to $15,000,then its

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

The slope of the consumption function shows how

At the equilibrium level of real GDP,the MPC equals 1.

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

The owners of the Morning Glory Coffee Shop are considering spending $3,000 on a new cappuccino machine.They expect to increase revenues by $200 per year if they do.The current interest rate is 8 percent.Which of the following is true?

A change in which of the following is least likely to cause a shift of the consumption function?

Which of the following best represents the opportunity cost of investing in capital?

If the market interest rate equals 8 percent,the opportunity cost of the last new investment project undertaken would be approximately equal to

Expectations that the price level will decrease in the future will

An increase in the interest rate would shift the consumption function upward.

Expectations that disposable income will decrease in the future will

An upward shift of the consumption function might be caused by

If investment is autonomous,an increase in income will shift the investment function upward.

Net wealth is a __________ variable.Consumption and income are __________ variables.

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Productivity and Growth

Tracking the US Economy

Unemployment and Inflation

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

International Trade

International Finance

Developing and Transitional Economies

Understanding Graphs

National Income Accounts

Variable Net Exports

Variable Net Exports Revisited

The Algebra of Income and Expenditure

The Algebra of Demand-Side Equilibrium

Filters

Net wealth is a variable.Consumption and income are variables.