Question 1

Which of the following would not shift the consumption function?

Accepted Answer

A) a change in household wealth 
B) a change in the price level 
C) a change in household disposable income 
D) a change in the level of unemployment 
E) a change in the rate of interest 
A) a change in household wealth 
B) a change in the price level 
C) a change in household disposable income 
D) a change in the level of unemployment 
E) a change in the rate of interest

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion,then consumption spending will rise by

Accepted Answer

A) $ 6 billion 
B) $14 billion 
C) $20 billion 
D) $28 billion 
E) $67 billion 
A) $ 6 billion 
B) $14 billion 
C) $20 billion 
D) $28 billion 
E) $67 billion

Question 4

The main determinants of investment are the interest rate and expected profit.

Accepted Answer

A) True 
 B)False

Question 5

If every time disposable income increases by $5 billion,consumption increases by $4 billion and saving increases by $1 billion,the MPC and MPS are,respectively,

Accepted Answer

A) 1/4,1/2 
B) 1/2,1/2 
C) 1,0 
D) 4/5,1/5 
E) the answer is indeterminate from the information given 
A) 1/4,1/2 
B) 1/2,1/2 
C) 1,0 
D) 4/5,1/5 
E) the answer is indeterminate from the information given

Question 6

Exhibit 9-4  
-Consider an economy with a consumption function like C1 in Exhibit 9-4.The economy is currently operating at A when people's expectations about the future become increasingly optimistic.This would produce a movement from A to

Accepted Answer

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

Question 7

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 consume?

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 8

A grocery store manager has $600 in cash with which to buy a rug cleaner.Rental income from the cleaner would be about $75 per year.The interest rate is 11 percent.Should the manager buy the machine?

Accepted Answer

A) Yes,since the rate of return is greater than the rate of interest. 
B) Yes,since the manager does not have to borrow the money the interest rate is irrelevant. 
C) No,since the yield of $75 is less than the interest cost of 11 percent. 
D) No,since the rate of return is less than the interest rate. 
E) Yes,since the return of $75 is greater than 11 percent. 
A) Yes,since the rate of return is greater than the rate of interest. 
B) Yes,since the manager does not have to borrow the money the interest rate is irrelevant. 
C) No,since the yield of $75 is less than the interest cost of 11 percent. 
D) No,since the rate of return is less than the interest rate. 
E) Yes,since the return of $75 is greater than 11 percent.

Question 9

Exhibit 9-4  
-Consider an economy with a consumption function like C1 in Exhibit 9-4.The economy is currently operating at A when there is an increase in real disposable income.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 10

The primary determinant of saving is income.

Accepted Answer

A) True 
 B)False

Question 11

An increase in 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

Question 12

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

Question 13

An increase in the interest rate will increase consumption spending.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) a decline in business profits 
B) a decline in wealth 
C) an increase in the price level 
D) an increase in the interest rate 
E) a more pessimistic outlook about the future 
A) a decline in business profits 
B) a decline in wealth 
C) an increase in the price level 
D) an increase in the interest rate 
E) a more pessimistic outlook about the future

Question 15

A decrease in real disposable income 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 16

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 17

The marginal propensity to consume is defined as the

Accepted Answer

A) fraction of consumption that is spent on goods,both durable and nondurable 
B) fraction of a change in income that is spent on consumption 
C) fraction of a change in income that is spent on investment 
D) average amount of consumption at different levels of income 
E) average amount of consumption at a given level of income 
A) fraction of consumption that is spent on goods,both durable and nondurable 
B) fraction of a change in income that is spent on consumption 
C) fraction of a change in income that is spent on investment 
D) average amount of consumption at different levels of income 
E) average amount of consumption at a given level of income

Question 18

Autonomous consumption expenditures are

Accepted Answer

A) identical to induced consumption 
B) determined primarily by transfer payments 
C) not influenced by disposable income 
D) increasing at a decreasing rate 
E) increasing at an increasing rate 
A) identical to induced consumption 
B) determined primarily by transfer payments 
C) not influenced by disposable income 
D) increasing at a decreasing rate 
E) increasing at an increasing rate

Question 19

Saving in our simple model

Accepted Answer

A) varies inversely with income 
B) is determined primarily by the interest rate 
C) is positive when a person spends less than her income 
D) can never be negative because it is a stock 
E) can never be negative because it is a flow 
A) varies inversely with income 
B) is determined primarily by the interest rate 
C) is positive when a person spends less than her income 
D) can never be negative because it is a stock 
E) can never be negative because it is a flow

Question 20

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.

Exam 9: Aaggregate Expenditure and Aggregate Demand

Which of the following would not shift the consumption function?

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

If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion,then consumption spending will rise by

The main determinants of investment are the interest rate and expected profit.

If every time disposable income increases by $5 billion,consumption increases by $4 billion and saving increases by $1 billion,the MPC and MPS are,respectively,

Exhibit 9-4 -Consider an economy with a consumption function like C1 in Exhibit 9-4.The economy is currently operating at A when people's expectations about the future become increasingly optimistic.This would produce a movement from A to

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 consume?

A grocery store manager has $600 in cash with which to buy a rug cleaner.Rental income from the cleaner would be about $75 per year.The interest rate is 11 percent.Should the manager buy the machine?

Exhibit 9-4 -Consider an economy with a consumption function like C1 in Exhibit 9-4.The economy is currently operating at A when there is an increase in real disposable income.This would produce a movement from A to

The primary determinant of saving is income.

An increase in wealth will

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

An increase in the interest rate will increase consumption spending.

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

A decrease in real disposable income will

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

The marginal propensity to consume is defined as the

Autonomous consumption expenditures are

Saving in our simple model

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

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

Exhibit 9-4 -Consider an economy with a consumption function like C₁ in Exhibit 9-4.The economy is currently operating at A when people's expectations about the future become increasingly optimistic.This would produce a movement from A to

Exhibit 9-4 -Consider an economy with a consumption function like C₁ in Exhibit 9-4.The economy is currently operating at A when there is an increase in real disposable income.This would produce a movement from A to