Question 1

An increase in the price level will

Accepted Answer

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

Question 2

Which must be true when consumption exceeds income?

Accepted Answer

A) the consumption function shifts upward 
B) the consumption function shifts downward 
C) aggregate expenditures equal real GDP 
D) saving must be negative 
E) aggregate expenditures will fall 
A) the consumption function shifts upward 
B) the consumption function shifts downward 
C) aggregate expenditures equal real GDP 
D) saving must be negative 
E) aggregate expenditures will fall

Question 3

The inverse of the slope of the consumption function equals the marginal propensity to save.

Accepted Answer

A) True 
 B)False

Question 4

If a household's income falls from $26,000 to $24,000 and its consumption spending falls from $25,000 to $23,500,then its

Accepted Answer

A) marginal propensity to consume is 0.98 
B) marginal propensity to consume is 1.33 
C) marginal propensity to consume is 0.94 
D) marginal propensity to save is 0.02 
E) marginal propensity to save is 0.25 
A) marginal propensity to consume is 0.98 
B) marginal propensity to consume is 1.33 
C) marginal propensity to consume is 0.94 
D) marginal propensity to save is 0.02 
E) marginal propensity to save is 0.25

Question 5

If autonomous net taxes increase by $10 trillion and the marginal propensity to consume is 0.8,consumption initially will

Accepted Answer

A) increase by $50 trillion 
B) decrease by $10 trillion 
C) decrease by $8 trillion 
D) increase by $10 trillion 
E) decrease by $50 trillion 
A) increase by $50 trillion 
B) decrease by $10 trillion 
C) decrease by $8 trillion 
D) increase by $10 trillion 
E) decrease by $50 trillion

Question 6

If investment is autonomous,which of the following is least likely to have an effect on the level of investment?

Accepted Answer

A) a change in the rate of interest 
B) a change in the level of income 
C) a change in the level of optimism or pessimism about the economy as a whole 
D) a change in the expected profitability of investment projects 
E) a change in the rate of inflation 
A) a change in the rate of interest 
B) a change in the level of income 
C) a change in the level of optimism or pessimism about the economy as a whole 
D) a change in the expected profitability of investment projects 
E) a change in the rate of inflation

Question 7

The MPC plus the MPS equals

Accepted Answer

A) 0.5 
B) the multiplier 
C) the slope of the consumption function 
D) 1.0 
E) the slope of the saving function 
A) 0.5 
B) the multiplier 
C) the slope of the consumption function 
D) 1.0 
E) the slope of the saving function

Question 8

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 9

If disposable income decreases,there is typically a decrease in consumption spending.

Accepted Answer

A) True 
 B)False

Question 10

The most important determinant of a household's consumption spending is

Accepted Answer

A) its disposable income 
B) its total wealth 
C) the number of persons in the household 
D) its net wealth 
E) the ratio of wage to nonwage income the household earns 
A) its disposable income 
B) its total wealth 
C) the number of persons in the household 
D) its net wealth 
E) the ratio of wage to nonwage income the household earns

Question 11

As disposable income increases,saving decreases.

Accepted Answer

A) True 
 B)False

Question 12

All of the following,except one,are characteristics of the government purchase function.Which is the exception?

Accepted Answer

A) government purchases are autonomous with respect to current income 
B) government purchases exclude transfer payments 
C) government purchases are directly related to government income 
D) government purchases are decided by public officials 
E) government purchases have increased over the past 40 years 
A) government purchases are autonomous with respect to current income 
B) government purchases exclude transfer payments 
C) government purchases are directly related to government income 
D) government purchases are decided by public officials 
E) government purchases have increased over the past 40 years

Question 13

The marginal propensity to consume

Accepted Answer

A) is the proportion of disposable income consumed 
B) is the reciprocal of the ratio of disposable income to saving 
C) is the change in consumption relative to a change in disposable income 
D) minus the marginal propensity to save must equal 1 
E) is greater than 1 at all levels of income 
A) is the proportion of disposable income consumed 
B) is the reciprocal of the ratio of disposable income to saving 
C) is the change in consumption relative to a change in disposable income 
D) minus the marginal propensity to save must equal 1 
E) is greater than 1 at all levels of income

Question 14

At the equilibrium level of real GDP,the MPC equals 1.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following would tend to shift the investment function upward?

Accepted Answer

A) higher interest rates 
B) gloomy sales expectations 
C) a cut in corporate taxes that raises after-tax profits 
D) a decrease in the marginal propensity to consume 
E) an increase in aggregate income 
A) higher interest rates 
B) gloomy sales expectations 
C) a cut in corporate taxes that raises after-tax profits 
D) a decrease in the marginal propensity to consume 
E) an increase in aggregate income

Question 16

If the market interest rate equals 8 percent,the opportunity cost of the last new investment project undertaken would be approximately equal to

Accepted Answer

A) zero percent 
B) 4 percent 
C) infinity 
D) 8 percent 
E) 16 percent 
A) zero percent 
B) 4 percent 
C) infinity 
D) 8 percent 
E) 16 percent

Question 17

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 18

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 pessimistic.This would produce a movement from A to

Accepted Answer

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

Question 19

If a household's income rises from $20,000 to $22,000 and its consumption spending rises from $19,000 to $20,500,then its

Accepted Answer

A) marginal propensity to save is 0.70 
B) marginal propensity to save is 0.02 
C) marginal propensity to consume is 0.93 
D) marginal propensity to consume is 0.95 
E) marginal propensity to consume is 0.75 
A) marginal propensity to save is 0.70 
B) marginal propensity to save is 0.02 
C) marginal propensity to consume is 0.93 
D) marginal propensity to consume is 0.95 
E) marginal propensity to consume is 0.75

Question 20

An increase in incomes in other countries,other things equal,would cause U.S.

Accepted Answer

A) exports to decrease and imports to increase 
B) exports to increase and imports to increase 
C) imports to decrease and exports to decrease 
D) imports to increase and exports would remain unchanged 
E) imports to remain unchanged and exports to increase 
A) exports to decrease and imports to increase 
B) exports to increase and imports to increase 
C) imports to decrease and exports to decrease 
D) imports to increase and exports would remain unchanged 
E) imports to remain unchanged and exports to increase

Exam 9: Aaggregate Expenditure and Aggregate Demand

An increase in the price level will

Which must be true when consumption exceeds income?

The inverse of the slope of the consumption function equals the marginal propensity to save.

If a household's income falls from $26,000 to $24,000 and its consumption spending falls from $25,000 to $23,500,then its

If autonomous net taxes increase by $10 trillion and the marginal propensity to consume is 0.8,consumption initially will

If investment is autonomous,which of the following is least likely to have an effect on the level of investment?

The MPC plus the MPS equals

Investment

If disposable income decreases,there is typically a decrease in consumption spending.

The most important determinant of a household's consumption spending is

As disposable income increases,saving decreases.

All of the following,except one,are characteristics of the government purchase function.Which is the exception?

The marginal propensity to consume

At the equilibrium level of real GDP,the MPC equals 1.

Which of the following would tend to shift the investment function upward?

If the market interest rate equals 8 percent,the opportunity cost of the last new investment project undertaken would be approximately equal to

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

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 pessimistic.This would produce a movement from A to

If a household's income rises from $20,000 to $22,000 and its consumption spending rises from $19,000 to $20,500,then its

An increase in incomes in other countries,other things equal,would cause U.S.

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 pessimistic.This would produce a movement from A to