Question 1

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 B

Question 2

A decrease in net wealth will

Accepted Answer

A) increase consumption and saving at each level of income 
B) increase saving and decrease consumption at each level of income 
C) decrease consumption and saving at each level of income 
D) increase consumption and decrease saving at each level of income 
E) have no effect on consumption,since consumption is a function of income 
A) increase consumption and saving at each level of income 
B) increase saving and decrease consumption at each level of income 
C) decrease consumption and saving at each level of income 
D) increase consumption and decrease saving at each level of income 
E) have no effect on consumption,since consumption is a function of income B

Question 3

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 E

Question 4

Exhibit 9-2
$$\begin{array} { c c c c c c } 
\begin{array} { c } 
\text { Income } = \
\text { output } \
\text { (Y) }
\end{array} & \mathrm { C } & \begin{array} { c } 
\text { Planned } \
\text { investment }
\end{array} & \begin{array} { c } 
\text { Aggregate } \
\text { expenditure }
\end{array} & \begin{array} { c } 
\text { Unintended } \
\text { inventory } \
\text { adjustment }
\end{array} & \begin{array} { c } 
\text { Actual } \
\text { investment }
\end{array} \
\hline \$ 1,200 & \$ 1,240 & \$ 200 & \$ 1,440 & - \$ 240 & - \$ 40 \
1,400 & 1,380 & 200 & 1,580 & - 180 & - 20 \
1,600 & 1,520 & 200 & 1,720 & - 120 & 80 \
1,800 & 1,660 & 200 & 1,860 & - 60 & 140 \
2,000 & 1,800 & 200 & 2,000 & 0 & 200 \
2,200 & 1,940 & 200 & 2,140 & 60 & 260 \
2,400 & 2,080 & 200 & 2,280 & 120 & 320
\end{array}$$
-We can tell from the data in Exhibit 9-2 that planned investment is autonomous because

Accepted Answer

A) actual investment is constant at each level of income 
B) it does not vary as consumption changes 
C) it does not vary as income changes 
D) it does not vary as the actual investment changes 
E) it does not vary as the price level changes 
A) actual investment is constant at each level of income 
B) it does not vary as consumption changes 
C) it does not vary as income changes 
D) it does not vary as the actual investment changes 
E) it does not vary as the price level changes

Question 5

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 6

A firm's level of investment is tied to the interest rate

Accepted Answer

A) only when the firm has to borrow funds to buy capital 
B) only when the firm has to borrow funds to buy stocks 
C) only when the firm already has the funds and could lend them 
D) because the interest rate represents the opportunity cost of investing in capital 
E) because investments are always made with borrowed funds 
A) only when the firm has to borrow funds to buy capital 
B) only when the firm has to borrow funds to buy stocks 
C) only when the firm already has the funds and could lend them 
D) because the interest rate represents the opportunity cost of investing in capital 
E) because investments are always made with borrowed funds

Question 7

Induced consumption spending

Accepted Answer

A) represents consumption that is independent of income 
B) plus saving equals total consumption spending 
C) is positively related to disposable income 
D) is equal to autonomous consumption spending in equilibrium 
E) is the difference between autonomous consumption spending and disposable income 
A) represents consumption that is independent of income 
B) plus saving equals total consumption spending 
C) is positively related to disposable income 
D) is equal to autonomous consumption spending in equilibrium 
E) is the difference between autonomous consumption spending and disposable income

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 10

An rise 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 11

If consumption is greater than income,saving must be negative.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not an example of a government purchase?

Accepted Answer

A) schools and teacher salaries 
B) Chinese toys to be sold in discount department stores 
C) aircraft carriers 
D) interstate highway construction 
E) All the answers are correct 
A) schools and teacher salaries 
B) Chinese toys to be sold in discount department stores 
C) aircraft carriers 
D) interstate highway construction 
E) All the answers are correct

Question 13

Exhibit 9-4  
-Consider an economy with a consumption function like C1 in Exhibit 9-4.The economy is currently operating at A when the stock market crashes and the value of people's portfolios plummets.This would produce a movement from A to

Accepted Answer

A) B 
B) D 
C) E 
D) F 
E) H 
A) B 
B) D 
C) E 
D) F 
E) H

Question 14

A change in which of the following is least likely to cause a shift of the consumption function?

Accepted Answer

A) the saving rate 
B) consumer expectations about future prices 
C) household wealth 
D) investment spending 
E) the interest rate 
A) the saving rate 
B) consumer expectations about future prices 
C) household wealth 
D) investment spending 
E) the interest rate

Question 15

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 16

Consumption

Accepted Answer

A) makes up about two-thirds of GDP in a typical year 
B) exceeds GDP in years when net exports are negative 
C) is much more volatile than investment,especially during recession years 
D) is much more volatile than investment,especially during expansion years 
E) has declined as a fraction of GDP over time 
A) makes up about two-thirds of GDP in a typical year 
B) exceeds GDP in years when net exports are negative 
C) is much more volatile than investment,especially during recession years 
D) is much more volatile than investment,especially during expansion years 
E) has declined as a fraction of GDP over time

Question 17

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 18

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 19

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 20

Mr.Green is considering four possible investment opportunities,each of which would cost him $5,000.He expects annual returns on these investments of $600,$500,$400,and $300.If the interest rate is 7 percent,how many of these opportunities should Mr.Green undertake?

Accepted Answer

A) one 
B) two 
C) three 
D) four 
E) none 
A) one 
B) two 
C) three 
D) four 
E) none

Exam 9: Aaggregate Expenditure and Aggregate Demand

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

A decrease in net wealth will

Which of the following would not shift the consumption function?

Which of the following is not investment spending?

A firm's level of investment is tied to the interest rate

Induced consumption spending

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

Disposable income is equal to consumption

An rise in stock prices will __________ net wealth and __________ consumption.

If consumption is greater than income,saving must be negative.

Which of the following is not an example of a government purchase?

Exhibit 9-4 -Consider an economy with a consumption function like C1 in Exhibit 9-4.The economy is currently operating at A when the stock market crashes and the value of people's portfolios plummets.This would produce a movement from A to

A change in which of the following is least likely to cause a shift of the consumption function?

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.

Consumption

The difference between consumption spending and disposable income

The consumption function assumes that

Which of the following is true regarding net taxes?

Mr.Green is considering four possible investment opportunities,each of which would cost him $5,000.He expects annual returns on these investments of $600,$500,$400,and $300.If the interest rate is 7 percent,how many of these opportunities should Mr.Green undertake?

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

Baggregate 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

Externalities and the Environment

International Finance

Economic Development

understanding Graphs

National Income Accounts

The Algebra of Demand-Side Equilibrium

Filters

A drop in stock prices will net wealth and consumption.

An rise in stock prices will net wealth and consumption.

Exhibit 9-4 -Consider an economy with a consumption function like C₁ in Exhibit 9-4.The economy is currently operating at A when the stock market crashes and the value of people's portfolios plummets.This would produce a movement from A to