Question 1

Consider the simplest macro model with demand-determined output.If desired aggregate expenditure is greater than actual national income,then

Accepted Answer

A) inventories will likely begin to fall,causing firms to increase production. 
B) actual national income must be less than the equilibrium level. 
C) actual national income must be greater than the equilibrium level. 
D) inventories will likely begin to rise,causing firms to reduce production. 
E) both A and B are correct. 
A) inventories will likely begin to fall,causing firms to increase production. 
B) actual national income must be less than the equilibrium level. 
C) actual national income must be greater than the equilibrium level. 
D) inventories will likely begin to rise,causing firms to reduce production. 
E) both A and B are correct.

Question 2

The "marginal propensity to consume" refers to the additional

Accepted Answer

A) desired saving that occurs out of an additional dollar of disposable income. 
B) desired consumption that occurs out of an additional dollar of disposable income. 
C) desired consumption that occurs out of an additional dollar of investment. 
D) desired consumption caused by a change in tastes. 
E) desired consumption that occurs over time. 
A) desired saving that occurs out of an additional dollar of disposable income. 
B) desired consumption that occurs out of an additional dollar of disposable income. 
C) desired consumption that occurs out of an additional dollar of investment. 
D) desired consumption caused by a change in tastes. 
E) desired consumption that occurs over time.

Question 3

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

Accepted Answer

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

Question 4

Consider a consumption function of the following form: C = 50 + (0.6)YD.At what level of disposable income will desired savings be equal to zero?

Accepted Answer

A) 31.25 
B) 50 
C) 83.33 
D) 125 
E) 208.33 
A) 31.25 
B) 50 
C) 83.33 
D) 125 
E) 208.33

Question 5

FIGURE 21-1
-Refer to Figure 21-1.If disposable income is Y3,the level of desired saving is

Accepted Answer

A) DE. 
B) FD. 
C) Y3F. 
D) Y3D. 
E) Y2Y3. 
A) DE. 
B) FD. 
C) Y3F. 
D) Y3D. 
E) Y2Y3.

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 + (0.2)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

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 increase in expenditure in this economy during the second round of spending?

Accepted Answer

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

Question 8

Consider the simplest macro model with demand-determined output,where AE = C + I.Suppose that actual national income is $900 billion and desired consumption plus desired investment is $890 billion.We can expect that

Accepted Answer

A) firms will see a decrease in inventories,and they will respond by increasing output,thereby increasing actual national income. 
B) firms will decrease autonomous investment by $10 billion until equilibrium national income is reached at $890 billion. 
C) firms will increase autonomous investment by $10 billion until equilibrium national income is reached at $900 billion. 
D) actual national income will increase until equilibrium national income is reached at $900 billion. 
E) firms will see an increase in inventories,and they will respond by decreasing output,thereby decreasing actual national income. 
A) firms will see a decrease in inventories,and they will respond by increasing output,thereby increasing actual national income. 
B) firms will decrease autonomous investment by $10 billion until equilibrium national income is reached at $890 billion. 
C) firms will increase autonomous investment by $10 billion until equilibrium national income is reached at $900 billion. 
D) actual national income will increase until equilibrium national income is reached at $900 billion. 
E) firms will see an increase in inventories,and they will respond by decreasing output,thereby decreasing actual national income.

Question 9

FIGURE 21-3
-Refer to Figure 21-3.In this demand-determined model of the macro economy,the price level is

Accepted Answer

A) measured by Y2/0B. 
B) measured by Y1Y2/AB. 
C) increasing as the economy moves from E0 to E1. 
D) assumed to be constant. 
E) derived from the slope of the AE function. 
A) measured by Y2/0B. 
B) measured by Y1Y2/AB. 
C) increasing as the economy moves from E0 to E1. 
D) assumed to be constant. 
E) derived from the slope of the AE function.

Question 10

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 saving ($billions)will be

Accepted Answer

A) zero. 
B) $40. 
C) $70. 
D) $200. 
E) $240. 
A) zero. 
B) $40. 
C) $70. 
D) $200. 
E) $240.

Question 11

If the consumption function coincides with the 45-degree line,then we know that

Accepted Answer

A) desired consumption is constant at all levels of disposable income. 
B) the marginal propensity to consume is less than one. 
C) the marginal propensity to consume is greater than one. 
D) desired consumption equals desired saving at all levels of disposable income. 
E) desired saving is zero at all levels of disposable income. 
A) desired consumption is constant at all levels of disposable income. 
B) the marginal propensity to consume is less than one. 
C) the marginal propensity to consume is greater than one. 
D) desired consumption equals desired saving at all levels of disposable income. 
E) desired saving is zero at all levels of disposable income.

Question 12

FIGURE 21-2
-Refer to Figure 21-2.The amount of desired consumption expenditure that is unrelated to the level of disposable income is

Accepted Answer

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

Question 13

Consider the simplest macro model with demand-determined output,where AE = C + I.Suppose that actual national income is $900 billion and desired consumption plus desired investment is $920 billion.We can expect that

Accepted Answer

A) firms will see an increase in inventories,and they will respond by decreasing output,thereby decreasing actual national income. 
B) firms will decrease autonomous investment by $20 billion until equilibrium national income is reached at $900 billion. 
C) firms will increase autonomous investment by $20 billion until equilibrium national income is reached at $920 billion. 
D) firms will see a decrease in inventories,and they will respond by increasing output,thereby increasing actual national income. 
E) actual national income will decrease until equilibrium national income is reached at $900 billion. 
A) firms will see an increase in inventories,and they will respond by decreasing output,thereby decreasing actual national income. 
B) firms will decrease autonomous investment by $20 billion until equilibrium national income is reached at $900 billion. 
C) firms will increase autonomous investment by $20 billion until equilibrium national income is reached at $920 billion. 
D) firms will see a decrease in inventories,and they will respond by increasing output,thereby increasing actual national income. 
E) actual national income will decrease until equilibrium national income is reached at $900 billion.

Question 14

Consider a simple macro model with a constant price level and demand-determined output.In such a model,a downward 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 15

Consider the consumption function in a simple macro model with no taxes.At the level of national income where APC = 1,the nation's households are

Accepted Answer

A) consuming all of their disposable income. 
B) allocating their income equally between saving and consumption. 
C) saving a portion of their income,but saving is less than consumption. 
D) spending more than their current income. 
E) saving all of their disposable income. 
A) consuming all of their disposable income. 
B) allocating their income equally between saving and consumption. 
C) saving a portion of their income,but saving is less than consumption. 
D) spending more than their current income. 
E) saving all of their disposable income.

Question 16

The consumption function is based on a number of assumptions.Given these assumptions,which of the following statements is true?

Accepted Answer

A) Below a certain level of income,APC > 1 and MPC < 0. B) The MPC and APC are always less than unity. C) As income rises,the MPC falls and the APC rises. D) The MPC is greater than zero and less than one,and the APC falls as income rises. E) The APC is greater than zero and less than one,and the MPC falls as income rises. A) Below a certain level of income,APC > 1 and MPC < 0. B) The MPC and APC are always less than unity. C) As income rises,the MPC falls and the APC rises. D) The MPC is greater than zero and less than one,and the APC falls as income rises. E) The APC is greater than zero and less than one,and the MPC falls as income rises.

Question 17

Consider the consumption function in our macro model.The key factors that influence desired consumption are assumed to be

Accepted Answer

A) expectations about the future. 
B) wealth. 
C) interest rates. 
D) disposable income. 
E) all of the above 
A) expectations about the future. 
B) wealth. 
C) interest rates. 
D) disposable income. 
E) all of the above

Question 18

In Canada,as in many other countries,the largest component of domestic investment expenditure is

Accepted Answer

A) plant and equipment. 
B) residential housing. 
C) inventories. 
D) financial assets. 
E) savings. 
A) plant and equipment. 
B) residential housing. 
C) inventories. 
D) financial assets. 
E) savings.

Question 19

The simple multiplier,which applies to short-run situations in which the price level is constant,describes changes in

Accepted Answer

A) investment induced by changes in equilibrium income. 
B) saving caused by changes in investment. 
C) the equilibrium level of national income caused by changes in autonomous expenditure. 
D) the rate of interest caused by increased demand for credit. 
E) employment induced by changes in equilibrium income. 
A) investment induced by changes in equilibrium income. 
B) saving caused by changes in investment. 
C) the equilibrium level of national income caused by changes in autonomous expenditure. 
D) the rate of interest caused by increased demand for credit. 
E) employment induced by changes in equilibrium income.

Question 20

The schedule that relates the level of desired total expenditures to the level of actual national income is called the

Accepted Answer

A) consumption function. 
B) desired aggregate demand function. 
C) aggregate expenditure function. 
D) dissaving function. 
E) equilibrium function. 
A) consumption function. 
B) desired aggregate demand function. 
C) aggregate expenditure function. 
D) dissaving function. 
E) equilibrium function.

Exam 21: The Simplest Short-Run Macro Model

Consider the simplest macro model with demand-determined output.If desired aggregate expenditure is greater than actual national income,then

The "marginal propensity to consume" refers to the additional

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

Consider a consumption function of the following form: C = 50 + (0.6)YD.At what level of disposable income will desired savings be equal to zero?

FIGURE 21-1 -Refer to Figure 21-1.If disposable income is Y3,the level of desired saving is

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 + (0.2)Y,the simple multiplier is

Consider the simplest macro model with demand-determined output,where AE = C + I.Suppose that actual national income is $900 billion and desired consumption plus desired investment is $890 billion.We can expect that

FIGURE 21-3 -Refer to Figure 21-3.In this demand-determined model of the macro economy,the price level is

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 saving ($billions)will be

If the consumption function coincides with the 45-degree line,then we know that

FIGURE 21-2 -Refer to Figure 21-2.The amount of desired consumption expenditure that is unrelated to the level of disposable income is

Consider the simplest macro model with demand-determined output,where AE = C + I.Suppose that actual national income is $900 billion and desired consumption plus desired investment is $920 billion.We can expect that

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

Consider the consumption function in a simple macro model with no taxes.At the level of national income where APC = 1,the nation's households are

The consumption function is based on a number of assumptions.Given these assumptions,which of the following statements is true?

Consider the consumption function in our macro model.The key factors that influence desired consumption are assumed to be

In Canada,as in many other countries,the largest component of domestic investment expenditure is

The simple multiplier,which applies to short-run situations in which the price level is constant,describes changes in

The schedule that relates the level of desired total expenditures to the level of actual national income is called the

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Consider a consumption function of the following form: C = 50 + (0.6)Y_D.At what level of disposable income will desired savings be equal to zero?

FIGURE 21-1 -Refer to Figure 21-1.If disposable income is Y₃,the level of desired saving is