Question 1

The main determinants of investment are the interest rate and expected profit.

Accepted Answer

A) True 
 B)False

Question 2

Purchases of existing commodities,such as gold and precious gems,are considered investment spending by economists.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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

Question 5

If income increases by $100 and saving increases by $25,the slope of the saving function equals

Accepted Answer

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

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

If autonomous investment were measured on the vertical axis and disposable income were measured on the horizontal axis,what would the graph look like?

Accepted Answer

A)  a horizontal line 
B)  a vertical line 
C)  an upward-sloping line 
D)  a downward-sloping line 
E)  the line would first slope upward and then slope downward 
A)  a horizontal line 
B)  a vertical line 
C)  an upward-sloping line 
D)  a downward-sloping line 
E)  the line would first slope upward and then slope downward

Question 8

Saving in our simple model

Accepted Answer

A)  varies inversely with income 
B)  is determined primarily by the interest rate 
C)  is positive when a person spends less than her income 
D)  can never be negative because it is a stock 
E)  can never be negative because it is a flow 
A)  varies inversely with income 
B)  is determined primarily by the interest rate 
C)  is positive when a person spends less than her income 
D)  can never be negative because it is a stock 
E)  can never be negative because it is a flow

Question 9

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 10

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 11

A grocery store manager must decide whether to buy a rug cleaner to rent to customers.The cleaner costs $800.It is expected to yield $200 in income per year.What is the expected annual rate of return from the cleaner?

Accepted Answer

A)  $600 
B)  $200 
C)  400 percent 
D)  75 percent 
E)  25 percent 
A)  $600 
B)  $200 
C)  400 percent 
D)  75 percent 
E)  25 percent

Question 12

Induced consumption spending

Accepted Answer

A)  represents consumption that is independent of income 
B)  plus saving equals total consumption spending 
C)  is positively related to disposable income 
D)  is equal to autonomous consumption spending in equilibrium 
E)  is the difference between autonomous consumption spending and disposable income 
A)  represents consumption that is independent of income 
B)  plus saving equals total consumption spending 
C)  is positively related to disposable income 
D)  is equal to autonomous consumption spending in equilibrium 
E)  is the difference between autonomous consumption spending and disposable income

Question 13

As disposable income increases,saving decreases.

Accepted Answer

A) True 
 B)False

Question 14

If income increases by $100 and the MPC is 3/4 (0.75),then consumption increases by

Accepted Answer

A)  $25 
B)  $66.66 
C)  $50 
D)  $33.33 
E)  $75 
A)  $25 
B)  $66.66 
C)  $50 
D)  $33.33 
E)  $75

Question 15

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 16

A decrease in net wealth will

Accepted Answer

A)  increase consumption and saving at each level of income 
B)  increase saving and decrease consumption at each level of income 
C)  decrease consumption and saving at each level of income 
D)  increase consumption and decrease saving at each level of income 
E)  have no effect on consumption,since consumption is a function of income 
A)  increase consumption and saving at each level of income 
B)  increase saving and decrease consumption at each level of income 
C)  decrease consumption and saving at each level of income 
D)  increase consumption and decrease saving at each level of income 
E)  have no effect on consumption,since consumption is a function of income

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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 19

The marginal propensity to consume is defined as the

Accepted Answer

A)  fraction of consumption that is spent on goods,both durable and nondurable 
B)  fraction of a change in income that is spent on consumption 
C)  fraction of a change in income that is spent on investment 
D)  average amount of consumption at different levels of income 
E)  average amount of consumption at a given level of income 
A)  fraction of consumption that is spent on goods,both durable and nondurable 
B)  fraction of a change in income that is spent on consumption 
C)  fraction of a change in income that is spent on investment 
D)  average amount of consumption at different levels of income 
E)  average amount of consumption at a given level of income

Question 20

As the U.S.price level increases,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

Exam 9: Aggregate Expenditure

The main determinants of investment are the interest rate and expected profit.

Purchases of existing commodities,such as gold and precious gems,are considered investment spending by economists.

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.

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

If income increases by $100 and saving increases by $25,the slope of the saving function equals

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

If autonomous investment were measured on the vertical axis and disposable income were measured on the horizontal axis,what would the graph look like?

Saving in our simple model

Which must be true when consumption exceeds income?

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

A grocery store manager must decide whether to buy a rug cleaner to rent to customers.The cleaner costs $800.It is expected to yield $200 in income per year.What is the expected annual rate of return from the cleaner?

Induced consumption spending

As disposable income increases,saving decreases.

If income increases by $100 and the MPC is 3/4 (0.75),then consumption increases by

Expectations that the price level will increase in the future will

A decrease in net wealth will

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

Net taxes are

The marginal propensity to consume is defined as the

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

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

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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.