Question 1

FIGURE 21-2
-Refer to Figure 21-2.What is the marginal propensity to consume associated with this consumption function?

Accepted Answer

A) 0.5 
B) 0.67 
C) 1.0 
D) -0.5 
E) -1.0 
A) 0.5 
B) 0.67 
C) 1.0 
D) -0.5 
E) -1.0

Question 2

The change in desired consumption divided by the change in disposable income that brought it about is called the

Accepted Answer

A) average propensity to consume. 
B) average propensity not to consume. 
C) consumption function. 
D) marginal propensity to consume. 
E) marginal propensity not to spend. 
A) average propensity to consume. 
B) average propensity not to consume. 
C) consumption function. 
D) marginal propensity to consume. 
E) marginal propensity not to spend.

Question 3

FIGURE 21-3
-Refer to Figure 21-3.Assuming AE0 is the prevailing aggregate expenditure function,the distance 0A is a measure of

Accepted Answer

A) aggregate expenditure at equilibrium national income. 
B) autonomous desired expenditures. 
C) induced expenditures. 
D) desired saving. 
E) desired investment. 
A) aggregate expenditure at equilibrium national income. 
B) autonomous desired expenditures. 
C) induced expenditures. 
D) desired saving. 
E) desired investment.

Question 4

Consider a simple macro model with a constant price level and demand-determined output.Suppose the level of actual national income is less than desired aggregate expenditure.In this case,

Accepted Answer

A) inventories will build up,causing national income to rise. 
B) national income will fall,because desired expenditures are less than actual expenditures. 
C) shortages of goods and reductions in inventories will cause producers to increase output and national income to rise. 
D) national income may increase or decrease,depending on the relative sizes of the average propensity to consume and the average propensity to save. 
E) there will be no change in national income because only actual expenditure is relevant. 
A) inventories will build up,causing national income to rise. 
B) national income will fall,because desired expenditures are less than actual expenditures. 
C) shortages of goods and reductions in inventories will cause producers to increase output and national income to rise. 
D) national income may increase or decrease,depending on the relative sizes of the average propensity to consume and the average propensity to save. 
E) there will be no change in national income because only actual expenditure is relevant.

Question 5

In a simple model of the economy,without government or taxes,a shock that causes an upward shift of the aggregate consumption function also causes ________ shift of the saving function.

Accepted Answer

A) an equal upward 
B) a less-than-equal upward 
C) an equal downward 
D) a less-than-equal downward 
E) no 
A) an equal upward 
B) a less-than-equal upward 
C) an equal downward 
D) a less-than-equal downward 
E) no

Question 6

Suppose the price level is constant,output is demand-determined,and the economy is closed with no government.If the saving function is S = -100 + (0.4)Y,the simple multiplier is

Accepted Answer

A) 0.2. 
B) 1. 
C) 2.5. 
D) 5. 
E) Insufficient information to know. 
A) 0.2. 
B) 1. 
C) 2.5. 
D) 5. 
E) Insufficient information to know.

Question 7

In a simple macro model with demand-determined output,the equilibrium level of national income is at an income

Accepted Answer

A) to the left of the point where the AE curve intersects the 45-degree line. 
B) where the AE curve intersects the 45-degree line. 
C) to the right of the point where the AE curve intersects the 45-degree line. 
D) where saving equals consumption. 
E) where saving equals income. 
A) to the left of the point where the AE curve intersects the 45-degree line. 
B) where the AE curve intersects the 45-degree line. 
C) to the right of the point where the AE curve intersects the 45-degree line. 
D) where saving equals consumption. 
E) where saving equals income.

Question 8

21.2 Equilibrium National Income   FIGURE 21-3
-Refer to Figure 21-3.All points along the 45-degree line represent

Accepted Answer

A) combinations of desired aggregate expenditure and actual national income where consumption expenditure equals saving. 
B) the equilibrium condition that desired aggregate expenditure equals actual national income. 
C) levels of actual national income where desired AE is equal to the sum of desired consumption and desired investment. 
D) levels of actual national income that occur when autonomous expenditure is increasing at a constant (linear)rate. 
E) levels of actual national income where desired saving is equal to zero. 
A) combinations of desired aggregate expenditure and actual national income where consumption expenditure equals saving. 
B) the equilibrium condition that desired aggregate expenditure equals actual national income. 
C) levels of actual national income where desired AE is equal to the sum of desired consumption and desired investment. 
D) levels of actual national income that occur when autonomous expenditure is increasing at a constant (linear)rate. 
E) levels of actual national income where desired saving is equal to zero.

Question 9

Undesired or unplanned inventory accumulation is likely to occur when

Accepted Answer

A) consumption exceeds investment. 
B) investment exceeds consumption. 
C) autonomous expenditure exceeds induced expenditure. 
D) desired aggregate expenditure exceeds actual aggregate expenditure. 
E) actual aggregate expenditure exceeds desired aggregate expenditure. 
A) consumption exceeds investment. 
B) investment exceeds consumption. 
C) autonomous expenditure exceeds induced expenditure. 
D) desired aggregate expenditure exceeds actual aggregate expenditure. 
E) actual aggregate expenditure exceeds desired aggregate expenditure.

Question 10

In a simple macro model with demand-determined output,the simple multiplier is equal to 1/(1-z),where z equals the

Accepted Answer

A) average propensity to spend. 
B) average propensity not to spend. 
C) level of autonomous expenditure. 
D) marginal propensity to spend. 
E) marginal propensity not to spend. 
A) average propensity to spend. 
B) average propensity not to spend. 
C) level of autonomous expenditure. 
D) marginal propensity to spend. 
E) marginal propensity not to spend.

Question 11

Consider a simple macro model with demand-determined output.In such a model,the multiplier is larger,the

Accepted Answer

A) higher the level of autonomous expenditures. 
B) steeper is the AE function. 
C) flatter is the AE function. 
D) lower the APC. 
E) lower the level of autonomous expenditures. 
A) higher the level of autonomous expenditures. 
B) steeper is the AE function. 
C) flatter is the AE function. 
D) lower the APC. 
E) lower the level of autonomous expenditures.

Question 12

FIGURE 21-3
-Refer to Figure 21-3.If national income is Y3 and the aggregate expenditure function is AE1,

Accepted Answer

A) the economy is in equilibrium. 
B) there is unintended inventory accumulation and income will rise. 
C) there is unintended inventory accumulation and income will fall. 
D) there is unintended inventory decumulation and income will rise. 
E) there is unintended inventory decumulation and income will fall. 
A) the economy is in equilibrium. 
B) there is unintended inventory accumulation and income will rise. 
C) there is unintended inventory accumulation and income will fall. 
D) there is unintended inventory decumulation and income will rise. 
E) there is unintended inventory decumulation and income will fall.

Question 13

Consider the following information describing an economy with demand-determined output.There is no government or foreign trade.All dollar figures are in billions.
1.equilibrium condition is Y = C + I
2.marginal propensity to save = 0.20
3.the autonomous part of C is $50
4.investment is autonomous and equals $25
TABLE 21-5
-Refer to Table 21-5.At the equilibrium level of national income,the level of desired saving will be

Accepted Answer

A) equal to consumption expenditures. 
B) $375. 
C) $50. 
D) $25. 
E) $0 
A) equal to consumption expenditures. 
B) $375. 
C) $50. 
D) $25. 
E) $0

Question 14

FIGURE 21-2
-Refer to Figure 21-2.The slope of the consumption function in the figure is equal to

Accepted Answer

A) the marginal propensity to consume. 
B) the average propensity to consume. 
C) the marginal propensity to save. 
D) the average propensity to save. 
E) the slope of the 45-degree line. 
A) the marginal propensity to consume. 
B) the average propensity to consume. 
C) the marginal propensity to save. 
D) the average propensity to save. 
E) the slope of the 45-degree line.

Question 15

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.   TABLE 21-3
-Refer to Table 21-3.At the equilibrium level of national income,desired investment ($billions)is

Accepted Answer

A) $100. 
B) $4000. 
C) $3900. 
D) $400. 
E) $1000. 
A) $100. 
B) $4000. 
C) $3900. 
D) $400. 
E) $1000.

Question 16

FIGURE 21-1
-Refer to Figure 21-1.If disposable income is zero,then

Accepted Answer

A) autonomous desired consumption is 0A. 
B) autonomous desired consumption is 0Y1. 
C) desired consumption must also be zero. 
D) the level of desired saving will be 0A. 
E) autonomous desired saving will be 0A. 
A) autonomous desired consumption is 0A. 
B) autonomous desired consumption is 0Y1. 
C) desired consumption must also be zero. 
D) the level of desired saving will be 0A. 
E) autonomous desired saving will be 0A.

Question 17

Consider the following aggregate expenditure function: AE = $300 billion + (0.87)Y.Assuming that we have no government,no international trade and desired investment is autonomous and is equal to $56 billion,then which of the following is the correct statement of the consumption function?

Accepted Answer

A) C = $356 billion + (0.87)Y 
B) C = $356 billion + (0.13)Y 
C) C = $244 billion + (0.87)Y 
D) C = $244 billion + (0.13)Y 
E) C = $300 billion + (0.13)Y 
A) C = $356 billion + (0.87)Y 
B) C = $356 billion + (0.13)Y 
C) C = $244 billion + (0.87)Y 
D) C = $244 billion + (0.13)Y 
E) C = $300 billion + (0.13)Y

Question 18

With respect to consumption,investment,government purchases and net exports,the national-income and product accounts measure

Accepted Answer

A) desired expenditures in each of the categories. 
B) both actual and desired expenditures,since actual expenditure must equal desired expenditure in each category. 
C) the flow of saving at any income. 
D) neither actual nor desired expenditures. 
E) actual expenditures in each of the categories. 
A) desired expenditures in each of the categories. 
B) both actual and desired expenditures,since actual expenditure must equal desired expenditure in each category. 
C) the flow of saving at any income. 
D) neither actual nor desired expenditures. 
E) actual expenditures in each of the categories.

Question 19

Which of the following statements must be true in the simple macro model (with a closed economy and no government)?

Accepted Answer

A) APC increases as income rises. 
B) APS decreases as income rises. 
C) MPS and MPC are both negative. 
D) MPC is negative below a certain level of income. 
E) The sum of MPC and MPS is one. 
A) APC increases as income rises. 
B) APS decreases as income rises. 
C) MPS and MPC are both negative. 
D) MPC is negative below a certain level of income. 
E) The sum of MPC and MPS is one.

Question 20

Consider a simple macro model with a constant price level.If the AE function is horizontal,then we know the simple multiplier is

Accepted Answer

A) less than zero. 
B) zero. 
C) between zero and one. 
D) exactly one. 
E) greater than one. 
A) less than zero. 
B) zero. 
C) between zero and one. 
D) exactly one. 
E) greater than one.

Exam 21: The Simplest Short-Run Macro Model

FIGURE 21-2 -Refer to Figure 21-2.What is the marginal propensity to consume associated with this consumption function?

The change in desired consumption divided by the change in disposable income that brought it about is called the

FIGURE 21-3 -Refer to Figure 21-3.Assuming AE0 is the prevailing aggregate expenditure function,the distance 0A is a measure of

Consider a simple macro model with a constant price level and demand-determined output.Suppose the level of actual national income is less than desired aggregate expenditure.In this case,

In a simple model of the economy,without government or taxes,a shock that causes an upward shift of the aggregate consumption function also causes ________ shift of the saving function.

Suppose the price level is constant,output is demand-determined,and the economy is closed with no government.If the saving function is S = -100 + (0.4)Y,the simple multiplier is

In a simple macro model with demand-determined output,the equilibrium level of national income is at an income

21.2 Equilibrium National Income FIGURE 21-3 -Refer to Figure 21-3.All points along the 45-degree line represent

Undesired or unplanned inventory accumulation is likely to occur when

In a simple macro model with demand-determined output,the simple multiplier is equal to 1/(1-z),where z equals the

Consider a simple macro model with demand-determined output.In such a model,the multiplier is larger,the

FIGURE 21-3 -Refer to Figure 21-3.If national income is Y3 and the aggregate expenditure function is AE1,

FIGURE 21-2 -Refer to Figure 21-2.The slope of the consumption function in the figure is equal to

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 -Refer to Table 21-3.At the equilibrium level of national income,desired investment ($billions)is

FIGURE 21-1 -Refer to Figure 21-1.If disposable income is zero,then

Consider the following aggregate expenditure function: AE = $300 billion + (0.87)Y.Assuming that we have no government,no international trade and desired investment is autonomous and is equal to $56 billion,then which of the following is the correct statement of the consumption function?

With respect to consumption,investment,government purchases and net exports,the national-income and product accounts measure

Which of the following statements must be true in the simple macro model (with a closed economy and no government)?

Consider a simple macro model with a constant price level.If the AE function is horizontal,then we know the simple multiplier is

Economic Issues and Concepts

Economic Theories,Data,and Graphs

Demand, Supply, and Price

Elasticity

Price Controls and Market Efficiency

Consumer Behaviour

Producers in the Short Run

Producers in the Long Run

Competitive Markets

Monopoly, cartels, and Price Discrimination

Imperfect Competition and Strategic Behaviour

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets and Income Inequality

Interest Rates and the Capital Market

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

What Macroeconomics Is All About

The Measurement of National Income

Adding Government and Trade to the Simple Macro Model

Output and Prices in the Short Run

From the Short Run to the Long Run: The Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, Interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

FIGURE 21-3 -Refer to Figure 21-3.Assuming AE₀ is the prevailing aggregate expenditure function,the distance 0A is a measure of

FIGURE 21-3 -Refer to Figure 21-3.If national income is Y₃ and the aggregate expenditure function is AE₁,