Question 1

The average propensity to consume (APC) is

Accepted Answer

A)  the rate at which real consumption spending changes over time. 
B)  the percentage of real disposable income saved. 
C)  the percentage of real disposable income consumed. 
D)  the percentage of additional real disposable income that will go toward additional consumption spending. 
A)  the rate at which real consumption spending changes over time. 
B)  the percentage of real disposable income saved. 
C)  the percentage of real disposable income consumed. 
D)  the percentage of additional real disposable income that will go toward additional consumption spending. C

Question 2

When real Gross Domestic Product (GDP) is below total planned real expenditures

Accepted Answer

A)  there will be unplanned increases in inventories. 
B)  the circular flow will increase. 
C)  a lower level of equilibrium real Gross Domestic Product (GDP) will occur. 
D)  a higher level of equilibrium real Gross Domestic Product (GDP) will occur. 
A)  there will be unplanned increases in inventories. 
B)  the circular flow will increase. 
C)  a lower level of equilibrium real Gross Domestic Product (GDP) will occur. 
D)  a higher level of equilibrium real Gross Domestic Product (GDP) will occur. D

Question 3

According to the permanent income hypothesis, Lisa's consumption increases only when

Accepted Answer

A)  her average lifetime income increases. 
B)  she saves more. 
C)  her income increases unexpectedly. 
D)  her current income increases. 
A)  her average lifetime income increases. 
B)  she saves more. 
C)  her income increases unexpectedly. 
D)  her current income increases. A

Question 4

Which of the following does NOT occur when the economy is operating at the equilibrium level of GDP?

Accepted Answer

A)  Total planned expenditures equal real GDP. 
B)  Real GDP tends to rise over time. 
C)  Planned investment equals actual investment. 
D)  Inventory investment equals zero. 
A)  Total planned expenditures equal real GDP. 
B)  Real GDP tends to rise over time. 
C)  Planned investment equals actual investment. 
D)  Inventory investment equals zero.

Question 5

-Refer to the above figure. At real GDP of $3 trillion, actual investment equals

Accepted Answer

A)  planned investment of $0.5 trillion. 
B)  planned saving of $1 trillion. 
C)  actual saving of $1 trillion. 
D)  unanticipated inventory adjustments of $0.5 trillion. 
A)  planned investment of $0.5 trillion. 
B)  planned saving of $1 trillion. 
C)  actual saving of $1 trillion. 
D)  unanticipated inventory adjustments of $0.5 trillion.

Question 6

-According to the above figure, planned consumption and income are equal at an income level of

Accepted Answer

A)  Y2. 
B)  Y3. 
C)  Y1. 
D)  Y0. 
A)  Y2. 
B)  Y3. 
C)  Y1. 
D)  Y0.

Question 7

The difference between "saving" and "savings" is that

Accepted Answer

A)  saving is done by households and savings are done by businesses. 
B)  saving is undertaken as a precaution against unemployment and savings are undertaken to increase investment spending. 
C)  savings are cumulation of past and current saving. 
D)  saving is placed in financial institutions such as banks, while savings are kept at home by people. 
A)  saving is done by households and savings are done by businesses. 
B)  saving is undertaken as a precaution against unemployment and savings are undertaken to increase investment spending. 
C)  savings are cumulation of past and current saving. 
D)  saving is placed in financial institutions such as banks, while savings are kept at home by people.

Question 8

If the marginal propensity to consume (MPC) is 0.75 and government purchases increase by $100 billion, then

Accepted Answer

A)  equilibrium real Gross Domestic Product (GDP) will increase by $400 billion. 
B)  equilibrium real Gross Domestic Product (GDP) will increase by $200 billion. 
C)  equilibrium real Gross Domestic Product (GDP) will increase by $40 billion. 
D)  the effect on equilibrium real Gross Domestic Product (GDP) cannot be determined from the given information. 
A)  equilibrium real Gross Domestic Product (GDP) will increase by $400 billion. 
B)  equilibrium real Gross Domestic Product (GDP) will increase by $200 billion. 
C)  equilibrium real Gross Domestic Product (GDP) will increase by $40 billion. 
D)  the effect on equilibrium real Gross Domestic Product (GDP) cannot be determined from the given information.

Question 9

Which of the following is a flow variable?

Accepted Answer

A)  savings 
B)  wealth 
C)  consumption 
D)  debt 
A)  savings 
B)  wealth 
C)  consumption 
D)  debt

Question 10

Saving is

Accepted Answer

A)  the amount one does not consume in a given period of time while savings is the accumulation of past periods of saving. 
B)  the accumulation of past periods of savings while savings is the amount of disposable income that is not consumed in a given period of time. 
C)  the difference between real GDP and disposable income while savings is the difference between disposable income and consumption spending. 
D)  the difference between disposable income and spending on goods and services while savings is the difference between real GDP and disposable income. 
A)  the amount one does not consume in a given period of time while savings is the accumulation of past periods of saving. 
B)  the accumulation of past periods of savings while savings is the amount of disposable income that is not consumed in a given period of time. 
C)  the difference between real GDP and disposable income while savings is the difference between disposable income and consumption spending. 
D)  the difference between disposable income and spending on goods and services while savings is the difference between real GDP and disposable income.

Question 11

If the average propensity to consume is 0.75, then the average propensity to save is

Accepted Answer

A)  1.25 
B)  0.25. 
C)  0.75. 
D)  1.33. 
A)  1.25 
B)  0.25. 
C)  0.75. 
D)  1.33.

Question 12

An increase in real net exports leads to an increase in real GDP. Further

Accepted Answer

A)  real consumption spending and real saving increase. 
B)  real consumption spending increases but real saving does not change. 
C)  real consumption spending increases while real investment spending decreases. 
D)  real government spending decreases to offset the increase in real net exports. 
A)  real consumption spending and real saving increase. 
B)  real consumption spending increases but real saving does not change. 
C)  real consumption spending increases while real investment spending decreases. 
D)  real government spending decreases to offset the increase in real net exports.

Question 13

Which of the following would cause a leftward shift in the investment function?

Accepted Answer

A)  technological progress 
B)  an increase in the rate of interest 
C)  optimistic expectations about business conditions 
D)  a decrease in business taxes 
A)  technological progress 
B)  an increase in the rate of interest 
C)  optimistic expectations about business conditions 
D)  a decrease in business taxes

Question 14

Saving differs from savings in that

Accepted Answer

A)  saving is a flow while savings is a stock. 
B)  saving is a stock while savings is a flow. 
C)  saving is both a flow and a stock while savings is a stock. 
D)  saving is a stock while savings is both a flow and a stock. 
A)  saving is a flow while savings is a stock. 
B)  saving is a stock while savings is a flow. 
C)  saving is both a flow and a stock while savings is a stock. 
D)  saving is a stock while savings is both a flow and a stock.

Question 15

In the consumption function model, the 45-degree line represents where

Accepted Answer

A)  the real disposable income is equal to zero. 
B)  planned real saving is equal to zero. 
C)  planned real consumption spending is equal to zero. 
D)  planned real saving is greater than actual real savings. 
A)  the real disposable income is equal to zero. 
B)  planned real saving is equal to zero. 
C)  planned real consumption spending is equal to zero. 
D)  planned real saving is greater than actual real savings.

Question 16

The average propensity to save is

Accepted Answer

A)  real consumption/real disposable income. 
B)  real saving/real disposable income. 
C)  change in real consumption/change in real disposable income. 
D)  change in real saving/change in real disposable income. 
A)  real consumption/real disposable income. 
B)  real saving/real disposable income. 
C)  change in real consumption/change in real disposable income. 
D)  change in real saving/change in real disposable income.

Question 17

A situation in which spending exceeds income is

Accepted Answer

A)  autonomous consumption. 
B)  positive saving. 
C)  average propensity to save. 
D)  dissaving. 
A)  autonomous consumption. 
B)  positive saving. 
C)  average propensity to save. 
D)  dissaving.

Question 18

At a given interest rate, the investment function shows

Accepted Answer

A)  how many funds people will invest in the stock market. 
B)  how many funds people will earn on their stock market investments. 
C)  how profitable it will be for firms to expand. 
D)  how much businesses will spend on the capital stock. 
A)  how many funds people will invest in the stock market. 
B)  how many funds people will earn on their stock market investments. 
C)  how profitable it will be for firms to expand. 
D)  how much businesses will spend on the capital stock.

Question 19

-Consider the above figure. The equation for the consumption function is

Accepted Answer

A)  C = 40 + 60Yd. 
B)  C = 40 + 50Yd. 
C)  C = 40 + 0.33Yd. 
D)  C = 40 + 0.1Yd. 
A)  C = 40 + 60Yd. 
B)  C = 40 + 50Yd. 
C)  C = 40 + 0.33Yd. 
D)  C = 40 + 0.1Yd.

Question 20

The consumption function relates

Accepted Answer

A)  a household's consumption to its wealth. 
B)  planned household consumption to real disposable income. 
C)  planned household consumption and real interest rates. 
D)  real disposable incomes earned by households with the level of unexpected consumption spending. 
A)  a household's consumption to its wealth. 
B)  planned household consumption to real disposable income. 
C)  planned household consumption and real interest rates. 
D)  real disposable incomes earned by households with the level of unexpected consumption spending.

Exam 12: Consumption, Real GDP, and the Multiplier

The average propensity to consume (APC) is

When real Gross Domestic Product (GDP) is below total planned real expenditures

According to the permanent income hypothesis, Lisa's consumption increases only when

Which of the following does NOT occur when the economy is operating at the equilibrium level of GDP?

-Refer to the above figure. At real GDP of $3 trillion, actual investment equals

-According to the above figure, planned consumption and income are equal at an income level of

The difference between "saving" and "savings" is that

If the marginal propensity to consume (MPC) is 0.75 and government purchases increase by $100 billion, then

Which of the following is a flow variable?

Saving is

If the average propensity to consume is 0.75, then the average propensity to save is

An increase in real net exports leads to an increase in real GDP. Further

Which of the following would cause a leftward shift in the investment function?

Saving differs from savings in that

In the consumption function model, the 45-degree line represents where

The average propensity to save is

A situation in which spending exceeds income is

At a given interest rate, the investment function shows

-Consider the above figure. The equation for the consumption function is

The consumption function relates

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