Question 1

A decrease in the price level decreases net wealth and increases consumption spending.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is true of the relationship between disposable income and consumption?

Accepted Answer

A) Disposable income and consumption are both dependent variables. 
B) Disposable income and consumption are both independent variables. 
C) Disposable income is the dependent variable and consumption is the independent variable. 
D) Consumption is the dependent variable and disposable income is the independent variable. 
E) Neither is dependent nor independent since they are related by the equation DI = C + S. 
A) Disposable income and consumption are both dependent variables. 
B) Disposable income and consumption are both independent variables. 
C) Disposable income is the dependent variable and consumption is the independent variable. 
D) Consumption is the dependent variable and disposable income is the independent variable. 
E) Neither is dependent nor independent since they are related by the equation DI = C + S.

Question 3

Expectations that the price level will rise in the future cause consumption to rise today.

Accepted Answer

A) True 
 B)False

Question 4

An increase in the value of the U.S. dollar relative to other currencies will

Accepted Answer

A) shift the autonomous net export function upward 
B) shift the autonomous net export function downward 
C) cause a rightward movement along the autonomous net export function 
D) cause a leftward movement along the autonomous net export function 
E) show no movement along or shift of the autonomous net export function 
A) shift the autonomous net export function upward 
B) shift the autonomous net export function downward 
C) cause a rightward movement along the autonomous net export function 
D) cause a leftward movement along the autonomous net export function 
E) show no movement along or shift of the autonomous net export function

Question 5

The consumption function assumes that

Accepted Answer

A) only disposable income affects consumption 
B) only the price level affects consumption 
C) many factors other than disposable income affect consumption, and each is allowed to vary along the consumption function 
D) factors other than disposable income affect consumption, but those are held constant along the consumption function 
E) only consumer expectations affect consumption 
A) only disposable income affects consumption 
B) only the price level affects consumption 
C) many factors other than disposable income affect consumption, and each is allowed to vary along the consumption function 
D) factors other than disposable income affect consumption, but those are held constant along the consumption function 
E) only consumer expectations affect consumption

Question 6

The economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate, other things held constant.

Accepted Answer

A) True 
 B)False

Question 7

If business managers become more pessimistic about future sales and profits, there will be

Accepted Answer

A) a rightward movement along the autonomous investment function 
B) a leftward movement along the autonomous investment function 
C) an upward shift of the autonomous investment function 
D) a downward shift of the autonomous investment function 
E) no movement along or shift of the autonomous investment function 
A) a rightward movement along the autonomous investment function 
B) a leftward movement along the autonomous investment function 
C) an upward shift of the autonomous investment function 
D) a downward shift of the autonomous investment function 
E) no movement along or shift of the autonomous investment function

Question 8

An increase in the MPC will cause the consumption function to become steeper (rotate upwards).

Accepted Answer

A) True 
 B)False

Question 9

The difference between consumption spending and disposable income

Accepted Answer

A) decreases as income increases 
B) stays proportionally the same as income increases 
C) decreases if the interest rate increases 
D) equals the amount of taxes paid 
E) equals saving 
A) decreases as income increases 
B) stays proportionally the same as income increases 
C) decreases if the interest rate increases 
D) equals the amount of taxes paid 
E) equals saving

Question 10

The MPC is a relationship between

Accepted Answer

A) a change in consumption and a change in income 
B) a change in consumption and a change in saving 
C) changes in consumption and changes in saving 
D) the ratio of income to consumption at any given level of income 
E) the total level of consumption and the total level of saving 
A) a change in consumption and a change in income 
B) a change in consumption and a change in saving 
C) changes in consumption and changes in saving 
D) the ratio of income to consumption at any given level of income 
E) the total level of consumption and the total level of saving

Question 11

The marginal propensity to save is the fraction of a change in income that is saved.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following would not shift the consumption function?

Accepted Answer

A) a change in net wealth 
B) a change in interest rates 
C) a change in the price level 
D) a change in expectations 
E) a change in disposable income 
A) a change in net wealth 
B) a change in interest rates 
C) a change in the price level 
D) a change in expectations 
E) a change in disposable income

Question 13

What is the effect on the consumption function of a decrease in disposable income?

Accepted Answer

A) The consumption function shifts upward. 
B) The consumption function shifts downward. 
C) There is movement upward along the consumption function. 
D) There is movement downward along the consumption function. 
E) The consumption function becomes flatter. 
A) The consumption function shifts upward. 
B) The consumption function shifts downward. 
C) There is movement upward along the consumption function. 
D) There is movement downward along the consumption function. 
E) The consumption function becomes flatter.

Question 14

Which of the following would be most likely to cause a rightward shift of the investment demand curve?

Accepted Answer

A) an increase in income 
B) a decline in the market interest rate 
C) an improvement in business expectations 
D) an increase in the market rate of interest 
E) a decrease in income 
A) an increase in income 
B) a decline in the market interest rate 
C) an improvement in business expectations 
D) an increase in the market rate of interest 
E) a decrease in income

Question 15

A decrease in wealth will

Accepted Answer

A) shift the consumption function downward 
B) make the consumption function steeper 
C) cause a movement upward along the consumption function 
D) cause a movement downward along the consumption function 
E) make the consumption function flatter 
A) shift the consumption function downward 
B) make the consumption function steeper 
C) cause a movement upward along the consumption function 
D) cause a movement downward along the consumption function 
E) make the consumption function flatter

Question 16

Disposable income is equal to consumption

Accepted Answer

A) plus investment 
B) plus taxes 
C) plus saving 
D) minus taxes 
E) minus saving 
A) plus investment 
B) plus taxes 
C) plus saving 
D) minus taxes 
E) minus saving

Question 17

If income increases by $100 and the MPS is 1/4, then the amount saved equals

Accepted Answer

A) $50 
B) $75 
C) $25 
D) $100 
E) $33.33 
A) $50 
B) $75 
C) $25 
D) $100 
E) $33.33

Question 18

Investment

Accepted Answer

A) is about as volatile as consumption, except during recession years 
B) has averaged about one-sixth of GDP over the past decade 
C) is about as volatile as GDP, except during recession years 
D) is the largest component of aggregate spending 
E) has averaged about two-thirds of GDP over the past decade 
A) is about as volatile as consumption, except during recession years 
B) has averaged about one-sixth of GDP over the past decade 
C) is about as volatile as GDP, except during recession years 
D) is the largest component of aggregate spending 
E) has averaged about two-thirds of GDP over the past decade

Question 19

An increase in the interest rate would shift the consumption function upward.

Accepted Answer

A) True 
 B)False

Question 20

As domestic income rises, net exports

Accepted Answer

A) fall, since exports remain the same but imports increase 
B) rise, since exports remain the same but imports fall 
C) fall, since exports are lower and imports remain the same 
D) rise, since exports are higher and imports remain the same 
E) may either rise or fall, since exports and imports change in opposite directions 
A) fall, since exports remain the same but imports increase 
B) rise, since exports remain the same but imports fall 
C) fall, since exports are lower and imports remain the same 
D) rise, since exports are higher and imports remain the same 
E) may either rise or fall, since exports and imports change in opposite directions

Exam 10: Aaggregate Expenditure and Agregate Demand

A decrease in the price level decreases net wealth and increases consumption spending.

Which of the following is true of the relationship between disposable income and consumption?

Expectations that the price level will rise in the future cause consumption to rise today.

An increase in the value of the U.S. dollar relative to other currencies will

The consumption function assumes that

The economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate, other things held constant.

If business managers become more pessimistic about future sales and profits, there will be

An increase in the MPC will cause the consumption function to become steeper (rotate upwards).

The difference between consumption spending and disposable income

The MPC is a relationship between

The marginal propensity to save is the fraction of a change in income that is saved.

Which of the following would not shift the consumption function?

What is the effect on the consumption function of a decrease in disposable income?

Which of the following would be most likely to cause a rightward shift of the investment demand curve?

A decrease in wealth will

Disposable income is equal to consumption

If income increases by $100 and the MPS is 1/4, then the amount saved equals

Investment

An increase in the interest rate would shift the consumption function upward.

As domestic income rises, net exports

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

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