Question 1

Disposable income is

Accepted Answer

A) the major determinant of consumption spending 
B) total salary and wage income minus taxes and transfer payments 
C) the income households earn before taxes 
D) aggregate income plus taxes minus transfer payments 
E) a measure of income that is equivalent to GDP 
A) the major determinant of consumption spending 
B) total salary and wage income minus taxes and transfer payments 
C) the income households earn before taxes 
D) aggregate income plus taxes minus transfer payments 
E) a measure of income that is equivalent to GDP

Question 2

An increase in wealth will

Accepted Answer

A) shift the consumption function upward 
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 upward 
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 3

Exports minus imports equal net exports.

Accepted Answer

A) True 
 B)False

Question 4

When economists say investment is autonomous,they mean that

Accepted Answer

A) investment is independent of the level of optimism about economic conditions 
B) the forces motivating investment are not economic 
C) investment is independent of the level of income 
D) investment is independent of the level of saving 
E) investment is independent of the rate of interest 
A) investment is independent of the level of optimism about economic conditions 
B) the forces motivating investment are not economic 
C) investment is independent of the level of income 
D) investment is independent of the level of saving 
E) investment is independent of the rate of interest

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Exhibit 9-3  
-In Exhibit 9-3,the slope of the consumption function is equal to

Accepted Answer

A) .33 
B) .5 
C) .67 
D) .7 
E) .9 
A) .33 
B) .5 
C) .67 
D) .7 
E) .9

Question 7

An increase in the interest rate,other things equal,would

Accepted Answer

A) have no effect on investment 
B) increase the amount invested since the rate of return would be lower 
C) increase the amount invested because income would rise 
D) reduce the amount invested because the opportunity costs of investing would be higher 
E) increase the amount invested because the rate of return would be higher 
A) have no effect on investment 
B) increase the amount invested since the rate of return would be lower 
C) increase the amount invested because income would rise 
D) reduce the amount invested because the opportunity costs of investing would be higher 
E) increase the amount invested because the rate of return would be higher

Question 8

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 9

Expectations that the price level will increase in the future will

Accepted Answer

A) shift the current consumption function upward 
B) make the current consumption function steeper 
C) make the current consumption function flatter 
D) result in a movement downward along the current consumption function 
E) have no effect on the current consumption function 
A) shift the current consumption function upward 
B) make the current consumption function steeper 
C) make the current consumption function flatter 
D) result in a movement downward along the current consumption function 
E) have no effect on the current consumption function

Question 10

If income increases by $100 and the MPS is 1/4,then the additional 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 11

If income rises from $6.0 trillion to $6.4 trillion,consumption rises from $5.5 trillion to $5.8 trillion.What is the slope of the aggregate expenditure line? (Assume there is neither international trade nor any government.)

Accepted Answer

A) 0.25 
B) 0.33 
C) 0.67 
D) 0.75 
E) 1.33 
A) 0.25 
B) 0.33 
C) 0.67 
D) 0.75 
E) 1.33

Question 12

Net exports

Accepted Answer

A) increase as real domestic income increases 
B) decrease as real domestic income increases 
C) are independent of real domestic income 
D) are always positive 
E) are always negative 
A) increase as real domestic income increases 
B) decrease as real domestic income increases 
C) are independent of real domestic income 
D) are always positive 
E) are always negative

Question 13

Which of the following would shift the consumption function downward?

Accepted Answer

A) a decrease in stock prices 
B) a lower interest rate 
C) a lower price level 
D) lower disposable income 
E) expectations of higher future prices 
A) a decrease in stock prices 
B) a lower interest rate 
C) a lower price level 
D) lower disposable income 
E) expectations of higher future prices

Question 14

A decrease in the price level will

Accepted Answer

A) decrease consumption because the price of goods is lower 
B) make the consumption function flatter 
C) increase consumption because prices are wages,so people have more income 
D) increase consumption because the value of wealth has increased 
E) decrease consumption because rising interest rates make it more expensive to borrow 
A) decrease consumption because the price of goods is lower 
B) make the consumption function flatter 
C) increase consumption because prices are wages,so people have more income 
D) increase consumption because the value of wealth has increased 
E) decrease consumption because rising interest rates make it more expensive to borrow

Question 15

Exhibit 9-4  
-Consider an economy with a consumption function like C1 in Exhibit 9-4.The economy is currently operating at A when interest rates go up.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 16

Less of society's resources will be channeled into capital when

Accepted Answer

A) interest rates are high 
B) households decide to save more of their income 
C) businesspeople have optimistic expectations about the future 
D) aggregate income increases 
E) the nation is running a trade deficit 
A) interest rates are high 
B) households decide to save more of their income 
C) businesspeople have optimistic expectations about the future 
D) aggregate income increases 
E) the nation is running a trade deficit

Question 17

If autonomous investment were measured on the vertical axis and disposable income were measured on the horizontal axis,what would the graph look like?

Accepted Answer

A) a horizontal line 
B) a vertical line 
C) an upward-sloping line 
D) a downward-sloping line 
E) the line would first slope upward and then slope downward 
A) a horizontal line 
B) a vertical line 
C) an upward-sloping line 
D) a downward-sloping line 
E) the line would first slope upward and then slope downward

Question 18

Exhibit 9-3  
-In Exhibit 9-3,when real disposable income is equal to $3 billion,saving is equal to

Accepted Answer

A) $-2 billion 
B) $-1 billion 
C) 0 
D) $1 billion 
E) $2 billion 
A) $-2 billion 
B) $-1 billion 
C) 0 
D) $1 billion 
E) $2 billion

Question 19

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 housing market takes off increasing housing values.This would produce a movement from A to

Accepted Answer

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

Question 20

Exhibit 9-3  
-In Exhibit 9-3,when real disposable income is equal to $6 billion,saving is equal to

Accepted Answer

A) 0 
B) $1 billion 
C) $2 billion 
D) $3 billion 
E) $4 billion 
A) 0 
B) $1 billion 
C) $2 billion 
D) $3 billion 
E) $4 billion

Exam 9: Aaggregate Expenditure and Aggregate Demand

Disposable income is

An increase in wealth will

Exports minus imports equal net exports.

When economists say investment is autonomous,they mean that

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

Exhibit 9-3 -In Exhibit 9-3,the slope of the consumption function is equal to

An increase in the interest rate,other things equal,would

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.

Expectations that the price level will increase in the future will

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

If income rises from $6.0 trillion to $6.4 trillion,consumption rises from $5.5 trillion to $5.8 trillion.What is the slope of the aggregate expenditure line? (Assume there is neither international trade nor any government.)

Net exports

Which of the following would shift the consumption function downward?

A decrease in the price level will

Exhibit 9-4 -Consider an economy with a consumption function like C1 in Exhibit 9-4.The economy is currently operating at A when interest rates go up.This would produce a movement from A to

Less of society's resources will be channeled into capital when

If autonomous investment were measured on the vertical axis and disposable income were measured on the horizontal axis,what would the graph look like?

Exhibit 9-3 -In Exhibit 9-3,when real disposable income is equal to $3 billion,saving is equal 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 the housing market takes off increasing housing values.This would produce a movement from A to

Exhibit 9-3 -In Exhibit 9-3,when real disposable income is equal to $6 billion,saving is equal to

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

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Exhibit 9-4 -Consider an economy with a consumption function like C₁ in Exhibit 9-4.The economy is currently operating at A when interest rates go up.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 the housing market takes off increasing housing values.This would produce a movement from A to