Question 1

FIGURE 21-3
-Refer to Figure 21-3.If national income is Y1 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 2

Desired consumption divided by disposable income is called the

Accepted Answer

A) consumption function. 
B) marginal propensity to consume. 
C) average propensity to consume. 
D) average propensity to save. 
E) relative consumption ratio. 
A) consumption function. 
B) marginal propensity to consume. 
C) average propensity to consume. 
D) average propensity to save. 
E) relative consumption ratio.

Question 3

On a graph of a consumption function,what is the significance of the 45-degree line?

Accepted Answer

A) It connects all points where desired consumption equals desired expenditure. 
B) It connects all points where desired consumption equals actual disposable income. 
C) It shows the slope of the average consumption function,against which we measure other consumption functions. 
D) It connects all points where desired consumption equals desired saving. 
E) Desired consumption is zero at all points along the 45-degree line. 
A) It connects all points where desired consumption equals desired expenditure. 
B) It connects all points where desired consumption equals actual disposable income. 
C) It shows the slope of the average consumption function,against which we measure other consumption functions. 
D) It connects all points where desired consumption equals desired saving. 
E) Desired consumption is zero at all points along the 45-degree line.

Question 4

If a family's annual disposable income rose from $60 000 to $65 000 and their desired consumption expenditures rose from $50 000 to $54 000,it can be concluded that the family's

Accepted Answer

A) marginal propensity to consume is $800. 
B) average propensity to consume is 0.8. 
C) marginal propensity to consume is 0.8. 
D) average propensity to save is 0.8. 
E) marginal propensity to save is 0.8. 
A) marginal propensity to consume is $800. 
B) average propensity to consume is 0.8. 
C) marginal propensity to consume is 0.8. 
D) average propensity to save is 0.8. 
E) marginal propensity to save is 0.8.

Question 5

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.Suppose this economy is in equilibrium.There is then a significant decline in house prices across the country.The likely effect is

Accepted Answer

A) autonomous consumption will rise above $300 billion and equilibrium national income will therefore rise. 
B) autonomous saving will fall and equilibrium national income will therefore fall. 
C) autonomous saving will rise and equilibrium national income will therefore rise. 
D) autonomous investment will rise and equilibrium national income will therefore rise. 
E) autonomous consumption will fall below $300 billion and equilibrium national income will therefore fall. 
A) autonomous consumption will rise above $300 billion and equilibrium national income will therefore rise. 
B) autonomous saving will fall and equilibrium national income will therefore fall. 
C) autonomous saving will rise and equilibrium national income will therefore rise. 
D) autonomous investment will rise and equilibrium national income will therefore rise. 
E) autonomous consumption will fall below $300 billion and equilibrium national income will therefore fall.

Question 6

If the Jones family's disposable income increases from $1200 to $1700 and their desired saving increases from -$100 to +$100,then the family's

Accepted Answer

A) average propensity to consume is 0.60. 
B) average propensity to consume is 0.40. 
C) marginal propensity to consume is 0.40. 
D) marginal propensity to consume is 0.60. 
E) marginal propensity to save is 1. 
A) average propensity to consume is 0.60. 
B) average propensity to consume is 0.40. 
C) marginal propensity to consume is 0.40. 
D) marginal propensity to consume is 0.60. 
E) marginal propensity to save is 1.

Question 7

Consider a simple macro model with a constant price level and demand-determined output.If the simple multiplier is 3 and there is a $2 million increase in autonomous investment spending,then the equilibrium level of income will increase by

Accepted Answer

A) $1.2 million. 
B) $2 million 
C) $3 million. 
D) $4.5 million. 
E) $6 million. 
A) $1.2 million. 
B) $2 million 
C) $3 million. 
D) $4.5 million. 
E) $6 million.

Question 8

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,what is the level of desired consumption expenditures?

Accepted Answer

A) $68.75 
B) $125 
C) $150 
D) $350 
E) $375 
A) $68.75 
B) $125 
C) $150 
D) $350 
E) $375

Question 9

The Smith family's disposable income rose from $40 000 per year to $42 000 and his desired consumption expenditure rose from $38 000 to $39 600.It can be concluded that their

Accepted Answer

A) average propensity to consume decreased from 0.950 to 0.943. 
B) average propensity to save decreased from 0.950 to 0.943. 
C) marginal propensity to consume is 0.050. 
D) marginal propensity to consume increased from 0.050 to 0.058. 
E) marginal propensity to save is 0.80. 
A) average propensity to consume decreased from 0.950 to 0.943. 
B) average propensity to save decreased from 0.950 to 0.943. 
C) marginal propensity to consume is 0.050. 
D) marginal propensity to consume increased from 0.050 to 0.058. 
E) marginal propensity to save is 0.80.

Question 10

Jeff and Lori's disposable income rose from $80 000 per year to $84 000 and their desired consumption expenditure rose from $76 000 to $79 000.It can be concluded that their

Accepted Answer

A) average propensity to consume is constant. 
B) average propensity to save is always 0.25. 
C) marginal propensity to consume decreased. 
D) marginal propensity to consume is 0.25. 
E) marginal propensity to save is 0.25. 
A) average propensity to consume is constant. 
B) average propensity to save is always 0.25. 
C) marginal propensity to consume decreased. 
D) marginal propensity to consume is 0.25. 
E) marginal propensity to save is 0.25.

Question 11

Consider the simplest macro model with demand-determined output.Suppose an increase in business confidence leads firms to increase investment in new equipment by $100 million.The marginal propensity to spend in this economy is 0.75.What is the eventual total new expenditure in this economy due to the increase in investment?

Accepted Answer

A) $75 million 
B) $100 million 
C) $25 million 
D) $500 million 
E) $400 million 
A) $75 million 
B) $100 million 
C) $25 million 
D) $500 million 
E) $400 million

Question 12

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

Accepted Answer

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

Question 13

Consider a simple macro model with demand-determined output.In such a model,the larger the marginal propensity to spend,the

Accepted Answer

A) larger the MPC. 
B) smaller the MPS. 
C) smaller the simple multiplier. 
D) larger the simple multiplier. 
E) greater is investment. 
A) larger the MPC. 
B) smaller the MPS. 
C) smaller the simple multiplier. 
D) larger the simple multiplier. 
E) greater is investment.

Question 14

Total desired saving divided by total income is called the

Accepted Answer

A) average propensity to consume. 
B) average propensity to save. 
C) average propensity to spend. 
D) marginal propensity to save. 
E) total propensity to save. 
A) average propensity to consume. 
B) average propensity to save. 
C) average propensity to spend. 
D) marginal propensity to save. 
E) total propensity to save.

Question 15

Suppose aggregate output is demand-determined.Suppose a decrease in autonomous investment expenditure of $20 million reduces equilibrium national income by $50 million.The simple multiplier is equal to

Accepted Answer

A) -2.5. 
B) -0.6. 
C) 0.4. 
D) 0.6. 
E) 2.5. 
A) -2.5. 
B) -0.6. 
C) 0.4. 
D) 0.6. 
E) 2.5.

Question 16

In macroeconomics,the consumption function

Accepted Answer

A) and the aggregate expenditure function are the same. 
B) describes the relationship between desired consumption expenditure and the factors that determine it,like national income. 
C) refers to the relationship between consumption expenditure and relative prices. 
D) refers to the relationship between an individual's consumption and his/her wealth. 
E) is relatively unimportant in macroeconomics,because consumption is such a small component of aggregate expenditure. 
A) and the aggregate expenditure function are the same. 
B) describes the relationship between desired consumption expenditure and the factors that determine it,like national income. 
C) refers to the relationship between consumption expenditure and relative prices. 
D) refers to the relationship between an individual's consumption and his/her wealth. 
E) is relatively unimportant in macroeconomics,because consumption is such a small component of aggregate expenditure.

Question 17

Suppose aggregate output is demand-determined.The simple multiplier will increase as a result of

Accepted Answer

A) an increase in the marginal propensity to consume. 
B) a decrease in the marginal propensity to consume. 
C) a decrease in autonomous consumption. 
D) an increase in autonomous consumption. 
E) an increase in investment. 
A) an increase in the marginal propensity to consume. 
B) a decrease in the marginal propensity to consume. 
C) a decrease in autonomous consumption. 
D) an increase in autonomous consumption. 
E) an increase in investment.

Question 18

FIGURE 21-2
-Refer to Figure 21-2.Which of the following is the correct equation for the consumption function depicted in the figure?

Accepted Answer

A) C = 500 + (2/3)YD 
B) C = (0.5)YD 
C) C = 1000 + (2/3)YD 
D) C = 500 + (0.5)YD 
E) C = 2000 + (2/3)YD 
A) C = 500 + (2/3)YD 
B) C = (0.5)YD 
C) C = 1000 + (2/3)YD 
D) C = 500 + (0.5)YD 
E) C = 2000 + (2/3)YD

Question 19

Suppose aggregate output is demand-determined.If the business community decreases its planned investment expenditures by $4 billion,causing equilibrium national income to fall by $8 billion,the marginal propensity to spend must be

Accepted Answer

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

Question 20

Suppose the price level is constant,output is demand-determined,and the economy is closed with no government.If the consumption function is C = (1/2)Y,the simple multiplier is

Accepted Answer

A) 2/3. 
B) 1. 
C) 2. 
D) 3. 
E) Insufficient information to know. 
A) 2/3. 
B) 1. 
C) 2. 
D) 3. 
E) Insufficient information to know.

Exam 21: The Simplest Short-Run Macro Model

FIGURE 21-3 -Refer to Figure 21-3.If national income is Y1 and the aggregate expenditure function is AE1,

Desired consumption divided by disposable income is called the

On a graph of a consumption function,what is the significance of the 45-degree line?

If a family's annual disposable income rose from $60 000 to $65 000 and their desired consumption expenditures rose from $50 000 to $54 000,it can be concluded that the family's

If the Jones family's disposable income increases from $1200 to $1700 and their desired saving increases from -$100 to +$100,then the family's

Consider a simple macro model with a constant price level and demand-determined output.If the simple multiplier is 3 and there is a $2 million increase in autonomous investment spending,then the equilibrium level of income will increase by

The Smith family's disposable income rose from $40 000 per year to $42 000 and his desired consumption expenditure rose from $38 000 to $39 600.It can be concluded that their

Jeff and Lori's disposable income rose from $80 000 per year to $84 000 and their desired consumption expenditure rose from $76 000 to $79 000.It can be concluded that their

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

Consider a simple macro model with demand-determined output.In such a model,the larger the marginal propensity to spend,the

Total desired saving divided by total income is called the

Suppose aggregate output is demand-determined.Suppose a decrease in autonomous investment expenditure of $20 million reduces equilibrium national income by $50 million.The simple multiplier is equal to

In macroeconomics,the consumption function

Suppose aggregate output is demand-determined.The simple multiplier will increase as a result of

FIGURE 21-2 -Refer to Figure 21-2.Which of the following is the correct equation for the consumption function depicted in the figure?

Suppose aggregate output is demand-determined.If the business community decreases its planned investment expenditures by $4 billion,causing equilibrium national income to fall by $8 billion,the marginal propensity to spend must be

Suppose the price level is constant,output is demand-determined,and the economy is closed with no government.If the consumption function is C = (1/2)Y,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

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Unemployment Fluctuations and the Nairu

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The Gains From International Trade

Trade Policy

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Filters

FIGURE 21-3 -Refer to Figure 21-3.If national income is Y₁ and the aggregate expenditure function is AE₁,