Question 1

In the simple macroeconomic model,"autonomous expenditures" are

Accepted Answer

A) dependent on national income. 
B) not dependent on national income. 
C) induced expenditures. 
D) those which are constant. 
E) non-domestic expenditures. 
A) dependent on national income. 
B) not dependent on national income. 
C) induced expenditures. 
D) those which are constant. 
E) non-domestic expenditures.

Question 2

Consider the following information describing a closed economy with no government.Aggregate output is demand determined and the price level is constant.   TABLE 21-6
-Refer to Table 21-6.This economy's equilibrium level of national income is

Accepted Answer

A) 500. 
B) 600. 
C) 750. 
D) 1000. 
E) 1500. 
A) 500. 
B) 600. 
C) 750. 
D) 1000. 
E) 1500.

Question 3

FIGURE 21-2
-Refer to Figure 21-2.If disposable income is $3000,desired consumption expenditure is equal to

Accepted Answer

A) $0. 
B) $500. 
C) $1000. 
D) $1500. 
E) $2000. 
A) $0. 
B) $500. 
C) $1000. 
D) $1500. 
E) $2000.

Question 4

Consider a simple macro model with a constant price level and demand-determined output.Suppose desired aggregate expenditures are less than the current level of national income.The vertical distance between the AE curve and the 45-degree line represents

Accepted Answer

A) desired accumulation of inventories. 
B) desired decumulation of inventories. 
C) the amount by which output exceeds desired expenditures. 
D) the output gap. 
E) the amount by which desired expenditures exceeds output. 
A) desired accumulation of inventories. 
B) desired decumulation of inventories. 
C) the amount by which output exceeds desired expenditures. 
D) the output gap. 
E) the amount by which desired expenditures exceeds output.

Question 5

The table below shows disposable income and desired consumption for a closed economy with no government.
   TABLE 21-1
-Refer to Table 21-1.The marginal propensity to consume is equal to

Accepted Answer

A) 0.8. 
B) 0.67. 
C) 0.6. 
D) 0.4. 
E) 0.2. 
A) 0.8. 
B) 0.67. 
C) 0.6. 
D) 0.4. 
E) 0.2.

Question 6

If the marginal propensity to consume (MPC)is equal to 0.9,an increase in household income causes desired consumption expenditure to

Accepted Answer

A) rise by more than the increase in income. 
B) rise by the full increase in income. 
C) rise by less than the full increase in income. 
D) fall,as an increase in income will increase saving. 
E) remain constant,because the MPC is also constant. 
A) rise by more than the increase in income. 
B) rise by the full increase in income. 
C) rise by less than the full increase in income. 
D) fall,as an increase in income will increase saving. 
E) remain constant,because the MPC is also constant.

Question 7

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.The equilibrium level of national income ($billions)will be

Accepted Answer

A) $3000. 
B) $3600. 
C) $3900. 
D) $4000. 
E) $4400. 
A) $3000. 
B) $3600. 
C) $3900. 
D) $4000. 
E) $4400.

Question 8

Consider an exogenous increase in the real interest rate in the simple macro model.This will tend to cause ________ in desired consumption and ________ in desired investment.

Accepted Answer

A) an increase; an increase 
B) an increase; a decrease 
C) a decrease; a decrease 
D) a decrease; no change 
E) a decrease; an increase 
A) an increase; an increase 
B) an increase; a decrease 
C) a decrease; a decrease 
D) a decrease; no change 
E) a decrease; an increase

Question 9

Consider the following news headline: "Canadian business leaders fear reduced world demand for commodities".Which of the following correctly describes the likely effect in our simple macro model?

Accepted Answer

A) the investment function shifts downward 
B) the AE function shifts downward 
C) the investment function shifts upward 
D) the savings function shifts downward 
E) both A and B are correct 
A) the investment function shifts downward 
B) the AE function shifts downward 
C) the investment function shifts upward 
D) the savings function shifts downward 
E) both A and B are correct

Question 10

FIGURE 21-1
-Refer to Figure 21-1.The marginal propensity to consume is equal to

Accepted Answer

A) EF/Y2Y3. 
B) EF/DF. 
C) ED/CF. 
D) DF/Y2Y3. 
E) ED/Y2Y3. 
A) EF/Y2Y3. 
B) EF/DF. 
C) ED/CF. 
D) DF/Y2Y3. 
E) ED/Y2Y3.

Question 11

Suppose disposable income for an entire economy rises from $400 billion to $440 billion and desired consumption rises from $350 billion to $380 billion.We can conclude that the marginal propensity to consume for this economy is

Accepted Answer

A) 0.65. 
B) 0.75. 
C) 0.80. 
D) 0.90. 
E) 1.33. 
A) 0.65. 
B) 0.75. 
C) 0.80. 
D) 0.90. 
E) 1.33.

Question 12

Consider the simplest macro model with a constant price level and demand-determined output.In such a model,an upward shift of the saving function causes equilibrium national income to

Accepted Answer

A) fall because the AE function shifts downward simultaneously. 
B) rise because the AE function shifts upward simultaneously. 
C) remain constant but consist of more consumption and less investment. 
D) remain constant but consist of less consumption and more investment. 
E) remain constant because it does not affect desired aggregate expenditure. 
A) fall because the AE function shifts downward simultaneously. 
B) rise because the AE function shifts upward simultaneously. 
C) remain constant but consist of more consumption and less investment. 
D) remain constant but consist of less consumption and more investment. 
E) remain constant because it does not affect desired aggregate expenditure.

Question 13

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 21-4
-Refer to Table 21-4.At the equilibrium level of national income,desired consumption expenditure ($billions)will be

Accepted Answer

A) $30. 
B) $70. 
C) $210. 
D) $240. 
E) $280. 
A) $30. 
B) $70. 
C) $210. 
D) $240. 
E) $280.

Question 14

In general,the marginal propensity to spend is the change in total desired expenditure induced by a change in ________ whereas the marginal propensity to consume is the change in desired consumption expenditure induced by a change in ________.In the case of the simplest macro model with no government and no international trade,however,the marginal propensity to spend is ________ the marginal propensity to consume.

Accepted Answer

A) national income; disposable income; greater than 
B) national income; disposable income; equal to 
C) disposable income; national income; equal to 
D) disposable income; national income; greater than 
E) national income; disposable income; smaller than 
A) national income; disposable income; greater than 
B) national income; disposable income; equal to 
C) disposable income; national income; equal to 
D) disposable income; national income; greater than 
E) national income; disposable income; smaller than

Question 15

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is 0.8,the simple multiplier is

Accepted Answer

A) 0. 
B) 0.8. 
C) 1.25. 
D) 5.0. 
E) 8.0. 
A) 0. 
B) 0.8. 
C) 1.25. 
D) 5.0. 
E) 8.0.

Question 16

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is 0.4,the simple multiplier is

Accepted Answer

A) 0. 
B) 0.4. 
C) 1.67. 
D) 2.5. 
E) 4.0. 
A) 0. 
B) 0.4. 
C) 1.67. 
D) 2.5. 
E) 4.0.

Question 17

Consider the following information for an economy with demand-determined output and a constant price level.There is no government or foreign trade.   TABLE 21-8
-Refer to Table 21-8.This economy's equilibrium level of national income is

Accepted Answer

A) 500. 
B) 600. 
C) 750. 
D) 1000. 
E) 1500. 
A) 500. 
B) 600. 
C) 750. 
D) 1000. 
E) 1500.

Question 18

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is zero,the simple multiplier is

Accepted Answer

A) zero. 
B) a positive number between zero and one. 
C) one. 
D) a positive number greater than one but less than infinity. 
E) infinitely large. 
A) zero. 
B) a positive number between zero and one. 
C) one. 
D) a positive number greater than one but less than infinity. 
E) infinitely large.

Question 19

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.The equilibrium level of national income is

Accepted Answer

A) $375. 
B) $249. 
C) $155. 
D) $75. 
E) $93.75. 
A) $375. 
B) $249. 
C) $155. 
D) $75. 
E) $93.75.

Question 20

Suppose the price level is constant,output is demand-determined,and the economy is closed with no government.If the marginal propensity to spend is 0.7,the simple multiplier is

Accepted Answer

A) 0.33. 
B) 0.70. 
C) 1.00. 
D) 1.42. 
E) 3.33. 
A) 0.33. 
B) 0.70. 
C) 1.00. 
D) 1.42. 
E) 3.33.

Exam 21: The Simplest Short-Run Macro Model

In the simple macroeconomic model,"autonomous expenditures" are

Consider the following information describing a closed economy with no government.Aggregate output is demand determined and the price level is constant. TABLE 21-6 -Refer to Table 21-6.This economy's equilibrium level of national income is

FIGURE 21-2 -Refer to Figure 21-2.If disposable income is $3000,desired consumption expenditure is equal to

Consider a simple macro model with a constant price level and demand-determined output.Suppose desired aggregate expenditures are less than the current level of national income.The vertical distance between the AE curve and the 45-degree line represents

The table below shows disposable income and desired consumption for a closed economy with no government. TABLE 21-1 -Refer to Table 21-1.The marginal propensity to consume is equal to

If the marginal propensity to consume (MPC)is equal to 0.9,an increase in household income causes desired consumption expenditure 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.The equilibrium level of national income ($billions)will be

Consider an exogenous increase in the real interest rate in the simple macro model.This will tend to cause ________ in desired consumption and ________ in desired investment.

Consider the following news headline: "Canadian business leaders fear reduced world demand for commodities".Which of the following correctly describes the likely effect in our simple macro model?

FIGURE 21-1 -Refer to Figure 21-1.The marginal propensity to consume is equal to

Suppose disposable income for an entire economy rises from $400 billion to $440 billion and desired consumption rises from $350 billion to $380 billion.We can conclude that the marginal propensity to consume for this economy is

Consider the simplest macro model with a constant price level and demand-determined output.In such a model,an upward shift of the saving function causes equilibrium national income 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 21-4 -Refer to Table 21-4.At the equilibrium level of national income,desired consumption expenditure ($billions)will be

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is 0.8,the simple multiplier is

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is 0.4,the simple multiplier is

Consider the following information for an economy with demand-determined output and a constant price level.There is no government or foreign trade. TABLE 21-8 -Refer to Table 21-8.This economy's equilibrium level of national income is

Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is zero,the simple multiplier is

Suppose the price level is constant,output is demand-determined,and the economy is closed with no government.If the marginal propensity to spend is 0.7,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

Consider an exogenous increase in the real interest rate in the simple macro model.This will tend to cause in desired consumption and in desired investment.