Question 1

An increase in the value of the U.S. dollar in world markets, other things constant, would increase the demand for U.S. exports.

Accepted Answer

A) True 
 B)False  False

Question 2

Fluctuations in investment

Accepted Answer

A) account for almost all of the variability in GDP during expansions 
B) account for almost all of the variability in GDP 
C) account for almost all of the variability in GDP during recessions 
D) are larger during expansions than during recessions 
E) account for more of the variability in GDP than consumption does 
A) account for almost all of the variability in GDP during expansions 
B) account for almost all of the variability in GDP 
C) account for almost all of the variability in GDP during recessions 
D) are larger during expansions than during recessions 
E) account for more of the variability in GDP than consumption does E

Question 3

Economists assume that the fundamental motive of investors is

Accepted Answer

A) to maximize profit 
B) to maximize income 
C) to maximize the firm's growth 
D) to promote economic growth for the economy as a whole 
E) the desire to save 
A) to maximize profit 
B) to maximize income 
C) to maximize the firm's growth 
D) to promote economic growth for the economy as a whole 
E) the desire to save A

Question 4

If incomes in the United States increase, other things equal, then U.S.

Accepted Answer

A) imports increase and exports remain constant 
B) exports increase and imports decrease 
C) imports decrease and exports decrease 
D) imports remain constant and exports increase 
E) net exports remain constant 
A) imports increase and exports remain constant 
B) exports increase and imports decrease 
C) imports decrease and exports decrease 
D) imports remain constant and exports increase 
E) net exports remain constant

Question 5

A drop in stock prices will __________ net wealth and __________ consumption.

Accepted Answer

A) reduce; increase 
B) reduce; decrease 
C) reduce; not change 
D) increase; increase 
E) increase; decrease 
A) reduce; increase 
B) reduce; decrease 
C) reduce; not change 
D) increase; increase 
E) increase; decrease

Question 6

If a new pizza oven costs $50,000 and is expected to generate $10,000 in revenue next year, its expected rate of return is 20 percent.

Accepted Answer

A) True 
 B)False

Question 7

The interest rate is important to the investment decision

Accepted Answer

A) only when funds must be borrowed 
B) only when firms have the money on hand 
C) regardless of whether funds must be borrowed or firms have the funds on hand 
D) only when the firm has funds on hand and is ready to lend them 
E) only when the firm is purchasing new equipment rather than a new building 
A) only when funds must be borrowed 
B) only when firms have the money on hand 
C) regardless of whether funds must be borrowed or firms have the funds on hand 
D) only when the firm has funds on hand and is ready to lend them 
E) only when the firm is purchasing new equipment rather than a new building

Question 8

Which of the following is not a component of aggregate expenditure?

Accepted Answer

A) consumption 
B) government spending 
C) saving 
D) purchases of new plant and equipment by firms 
E) intentional increases in business inventories 
A) consumption 
B) government spending 
C) saving 
D) purchases of new plant and equipment by firms 
E) intentional increases in business inventories

Question 9

Changes in the price level will not shift the consumption function.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following would not shift the consumption function upwards?

Accepted Answer

A) an increase in wealth 
B) an increase in disposable income 
C) a decrease in the price level 
D) a decline in the interest rate 
E) a more optimistic outlook about the future 
A) an increase in wealth 
B) an increase in disposable income 
C) a decrease in the price level 
D) a decline in the interest rate 
E) a more optimistic outlook about the future

Question 11

If disposable income increases, consumption spending increases and saving decreases.

Accepted Answer

A) True 
 B)False

Question 12

A household that expects a decrease in disposable income in the future will

Accepted Answer

A) increase its current consumption spending 
B) decrease its current consumption spending 
C) maintain its current consumption spending 
D) increase its current consumption spending, then increase spending when income falls 
E) decrease its current consumption spending, then increase spending when income falls 
A) increase its current consumption spending 
B) decrease its current consumption spending 
C) maintain its current consumption spending 
D) increase its current consumption spending, then increase spending when income falls 
E) decrease its current consumption spending, then increase spending when income falls

Question 13

The owners of the Morning Glory Coffee Shop are considering spending $3,000 on a new cappuccino machine. They expect to increase revenues by $200 per year if they do. The current interest rate is 8 percent. Which of the following is true?

Accepted Answer

A) The rate of return on their investment is $200. 
B) The rate of return on their investment is 5 percent. 
C) The owners should not buy the machine. 
D) The owners should buy the cappuccino machine if they have the $3,000 in cash, but not if they have to borrow the money. 
E) The owners should buy the cappuccino machine regardless of whether they have the $3,000 in cash or not. 
A) The rate of return on their investment is $200. 
B) The rate of return on their investment is 5 percent. 
C) The owners should not buy the machine. 
D) The owners should buy the cappuccino machine if they have the $3,000 in cash, but not if they have to borrow the money. 
E) The owners should buy the cappuccino machine regardless of whether they have the $3,000 in cash or not.

Question 14

Which of the following is not investment spending?

Accepted Answer

A) an increase in business inventories 
B) the extensive renovation of an old factory building 
C) the purchase of stock in Potomac Electric Company 
D) the construction of a new apartment building 
E) the purchase of a new silo for a farm 
A) an increase in business inventories 
B) the extensive renovation of an old factory building 
C) the purchase of stock in Potomac Electric Company 
D) the construction of a new apartment building 
E) the purchase of a new silo for a farm

Question 15

If the U.S. price level increases, other things equal, U.S. net exports

Accepted Answer

A) increase 
B) decrease 
C) remain constant, since net exports are assumed to be constant 
D) increase only if the marginal propensity to import also increases 
E) increase only if there is lower inflation abroad 
A) increase 
B) decrease 
C) remain constant, since net exports are assumed to be constant 
D) increase only if the marginal propensity to import also increases 
E) increase only if there is lower inflation abroad

Question 16

Suppose that when disposable income rises from $5.2 trillion to $6.0 trillion, consumption rises from $5.0 trillion to $5.6 trillion. What is the marginal propensity to save?

Accepted Answer

A) 0.25 
B) 0.33 
C) 0.75 
D) 0.67 
E) 0.07 
A) 0.25 
B) 0.33 
C) 0.75 
D) 0.67 
E) 0.07

Question 17

Which of the following is true regarding net taxes?

Accepted Answer

A) The level of net taxes varies directly with the level of transfer payments. 
B) The level of net taxes varies inversely with the level of taxes. 
C) Net taxes must always be less than zero. 
D) Net taxes increase when income tax rates are slashed. 
E) Net taxes rise when welfare benefits are cut. 
A) The level of net taxes varies directly with the level of transfer payments. 
B) The level of net taxes varies inversely with the level of taxes. 
C) Net taxes must always be less than zero. 
D) Net taxes increase when income tax rates are slashed. 
E) Net taxes rise when welfare benefits are cut.

Question 18

The current level of investment depends on the current level of income.

Accepted Answer

A) True 
 B)False

Question 19

Out of disposable income, households

Accepted Answer

A) consume and save 
B) consume and invest 
C) save and invest 
D) consume, save, and pay taxes 
E) consume, save, pay taxes, and make transfer payments 
A) consume and save 
B) consume and invest 
C) save and invest 
D) consume, save, and pay taxes 
E) consume, save, pay taxes, and make transfer payments

Question 20

A simple statement of the consumption behavior suggested in our model is that

Accepted Answer

A) all income earned from wages is spent 
B) total income must be equal to wages plus profits 
C) social values and customs are the primary determinants of consumption spending 
D) spending increases by less than income 
E) people spend more and save more as their disposable income increases 
A) all income earned from wages is spent 
B) total income must be equal to wages plus profits 
C) social values and customs are the primary determinants of consumption spending 
D) spending increases by less than income 
E) people spend more and save more as their disposable income increases

Exam 10: Aaggregate Expenditure and Agregate Demand

An increase in the value of the U.S. dollar in world markets, other things constant, would increase the demand for U.S. exports.

Fluctuations in investment

Economists assume that the fundamental motive of investors is

If incomes in the United States increase, other things equal, then U.S.

A drop in stock prices will __________ net wealth and __________ consumption.

If a new pizza oven costs $50,000 and is expected to generate $10,000 in revenue next year, its expected rate of return is 20 percent.

The interest rate is important to the investment decision

Which of the following is not a component of aggregate expenditure?

Changes in the price level will not shift the consumption function.

Which of the following would not shift the consumption function upwards?

If disposable income increases, consumption spending increases and saving decreases.

A household that expects a decrease in disposable income in the future will

The owners of the Morning Glory Coffee Shop are considering spending $3,000 on a new cappuccino machine. They expect to increase revenues by $200 per year if they do. The current interest rate is 8 percent. Which of the following is true?

Which of the following is not investment spending?

If the U.S. price level increases, other things equal, U.S. net exports

Suppose that when disposable income rises from $5.2 trillion to $6.0 trillion, consumption rises from $5.0 trillion to $5.6 trillion. What is the marginal propensity to save?

Which of the following is true regarding net taxes?

The current level of investment depends on the current level of income.

Out of disposable income, households

A simple statement of the consumption behavior suggested in our model is that

The Art and Science of Economic Analysis

Understanding Graphs-Appendix

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the Us Economy

Unemployment and Inflation

Productivity and Growth

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

Economic Development

Filters

A drop in stock prices will net wealth and consumption.