Question 1

According to the permanent income hypothesis, when income rises above the permanent income level, the household saves at a lower rate than the long-run MPS.

Accepted Answer

A) True 
 B)False

Question 2

The part of the disposable income that is not consumed by households is:

Accepted Answer

A) given away in the form of taxes. 
B) given away as charity. 
C) saved. 
D) deducted as a depreciation cost. 
E) spent on imports. 
A) given away in the form of taxes. 
B) given away as charity. 
C) saved. 
D) deducted as a depreciation cost. 
E) spent on imports.

Question 3

A key assumption of the Keynesian model of macroeconomics is a fixed _____.

Accepted Answer

A) interest rate 
B) price level 
C) exchange rate 
D) real GDP 
E) unemployment level 
A) interest rate 
B) price level 
C) exchange rate 
D) real GDP 
E) unemployment level

Question 4

The figure given below represents the consumption function of a country. Figure 9.3   According to Figure 9.3, autonomous consumption equals:

Accepted Answer

A) -$200. 
B) $0. 
C) $100. 
D) $200. 
E) $400. 
A) -$200. 
B) $0. 
C) $100. 
D) $200. 
E) $400.

Question 5

If a household's disposable income increases from $50, 000 to $100, 000 and its consumption increases from $40, 000 to $80, 000, the MPS must be _____.

Accepted Answer

A) 0.4 
B) 0.8 
C) 0.7 
D) 0.2 
E) 0.5 
A) 0.4 
B) 0.8 
C) 0.7 
D) 0.2 
E) 0.5

Question 6

In most derivations of the aggregate expenditures model, investment is assumed to be independent of real GDP.What would be the effect on the aggregate expenditures (AE)function if investment spending were positively related to income?

Accepted Answer

A) The intercept of the AE function would rise. 
B) The slope of the AE function would become flatter. 
C) Both the slope and the intercept of the AE function would increase. 
D) The slope of the AE function would become steeper. 
E) The intercept of the AE function would increase, and its slope would become flatter. 
A) The intercept of the AE function would rise. 
B) The slope of the AE function would become flatter. 
C) Both the slope and the intercept of the AE function would increase. 
D) The slope of the AE function would become steeper. 
E) The intercept of the AE function would increase, and its slope would become flatter.

Question 7

Planned investment is inversely related to the interest rate because the higher the interest rate, the higher the rate of return on investment projects.

Accepted Answer

A) True 
 B)False

Question 8

Households in America tend to consume more and more as they grow older.

Accepted Answer

A) True 
 B)False

Question 9

An increase in the marginal propensity to consume necessarily reduces the marginal propensity to save.

Accepted Answer

A) True 
 B)False

Question 10

An MPI of 0.4 indicates that for every 100 percent increase in domestic income:

Accepted Answer

A) there is a 40 percent increase in investment. 
B) there is a 60 percent increase in investment. 
C) there is a 40 percent decline in imports. 
D) there is a 60 percent increase in imports. 
E) there is a 40 percent increase in imports. 
A) there is a 40 percent increase in investment. 
B) there is a 60 percent increase in investment. 
C) there is a 40 percent decline in imports. 
D) there is a 60 percent increase in imports. 
E) there is a 40 percent increase in imports.

Question 11

When capacity utilization rate is high:

Accepted Answer

A) the price level is likely to go up. 
B) consumption is likely to go down. 
C) investment is likely to increase. 
D) the rate of interest is likely to decrease. 
E) aggregate supply of goods is likely to remain constant. 
A) the price level is likely to go up. 
B) consumption is likely to go down. 
C) investment is likely to increase. 
D) the rate of interest is likely to decrease. 
E) aggregate supply of goods is likely to remain constant.

Question 12

As disposable income increases, consumption spending will rise, but it will rise by less than disposable income if the MPS is positive.

Accepted Answer

A) True 
 B)False

Question 13

Saving remaining constant, the average propensity to save declines with an increase in disposable income.

Accepted Answer

A) True 
 B)False

Question 14

The figure given below represents the consumption function of a country. Figure 9.3   Refer to Figure 9.3.The savings function of the country will have a positive intercept at all income levels of _____.

Accepted Answer

A) less than $200 
B) greater than $200 
C) less than $600 
D) greater than $400 
E) less than $800 
A) less than $200 
B) greater than $200 
C) less than $600 
D) greater than $400 
E) less than $800

Question 15

The figure given below represents the consumption function of a country. Figure 9.3   Refer to Figure 9.3.When disposable income is $800, consumption spending must equal:

Accepted Answer

A) $200. 
B) $700. 
C) $600. 
D) $800. 
E) $400. 
A) $200. 
B) $700. 
C) $600. 
D) $800. 
E) $400.

Question 16

The aggregate expenditures function:

Accepted Answer

A) has the same slope as the aggregate demand curve. 
B) is the key determinant of equilibrium real GDP in a fixed-price model. 
C) is negatively related to household consumption. 
D) is negatively related to net exports. 
E) is equal to C+I+G-X. 
A) has the same slope as the aggregate demand curve. 
B) is the key determinant of equilibrium real GDP in a fixed-price model. 
C) is negatively related to household consumption. 
D) is negatively related to net exports. 
E) is equal to C+I+G-X.

Question 17

Autonomous consumption is defined as:

Accepted Answer

A) the domestic consumption that does not depend on the exchange rate. 
B) the consumption expenditures incurred by the government. 
C) the level of consumption that does not depend on income. 
D) an equilibrium condition that needs to be met for the model to work. 
E) the part of consumption that is related to investment. 
A) the domestic consumption that does not depend on the exchange rate. 
B) the consumption expenditures incurred by the government. 
C) the level of consumption that does not depend on income. 
D) an equilibrium condition that needs to be met for the model to work. 
E) the part of consumption that is related to investment.

Question 18

As a function of real GDP (real GDP being measured on the horizontal axis), autonomous investment is represented by a(n):

Accepted Answer

A) U-shaped curve. 
B) vertical line. 
C) positively sloped line. 
D) negatively sloped line. 
E) horizontal line. 
A) U-shaped curve. 
B) vertical line. 
C) positively sloped line. 
D) negatively sloped line. 
E) horizontal line.

Question 19

When we assume that investment is autonomous we imply that:

Accepted Answer

A) it is a fixed constant amount. 
B) it is independent of current real GDP. 
C) it is a positive function of interest rates. 
D) it is actually zero. 
E) it has no impact on consumption. 
A) it is a fixed constant amount. 
B) it is independent of current real GDP. 
C) it is a positive function of interest rates. 
D) it is actually zero. 
E) it has no impact on consumption.

Question 20

The consumption function illustrates that:

Accepted Answer

A) saving increases as disposable income decreases. 
B) consumption increases as saving increases. 
C) consumption increases as disposable income increases. 
D) consumption increases as disposable income decreases. 
E) consumption increases as investment increases. 
A) saving increases as disposable income decreases. 
B) consumption increases as saving increases. 
C) consumption increases as disposable income increases. 
D) consumption increases as disposable income decreases. 
E) consumption increases as investment increases.

Exam 13: Aggregate Expenditures

According to the permanent income hypothesis, when income rises above the permanent income level, the household saves at a lower rate than the long-run MPS.

The part of the disposable income that is not consumed by households is:

A key assumption of the Keynesian model of macroeconomics is a fixed _____.

The figure given below represents the consumption function of a country. Figure 9.3 According to Figure 9.3, autonomous consumption equals:

If a household's disposable income increases from $50, 000 to $100, 000 and its consumption increases from $40, 000 to $80, 000, the MPS must be _____.

In most derivations of the aggregate expenditures model, investment is assumed to be independent of real GDP.What would be the effect on the aggregate expenditures (AE)function if investment spending were positively related to income?

Planned investment is inversely related to the interest rate because the higher the interest rate, the higher the rate of return on investment projects.

Households in America tend to consume more and more as they grow older.

An increase in the marginal propensity to consume necessarily reduces the marginal propensity to save.

An MPI of 0.4 indicates that for every 100 percent increase in domestic income:

When capacity utilization rate is high:

As disposable income increases, consumption spending will rise, but it will rise by less than disposable income if the MPS is positive.

Saving remaining constant, the average propensity to save declines with an increase in disposable income.

The figure given below represents the consumption function of a country. Figure 9.3 Refer to Figure 9.3.The savings function of the country will have a positive intercept at all income levels of _____.

The figure given below represents the consumption function of a country. Figure 9.3 Refer to Figure 9.3.When disposable income is $800, consumption spending must equal:

The aggregate expenditures function:

Autonomous consumption is defined as:

As a function of real GDP (real GDP being measured on the horizontal axis), autonomous investment is represented by a(n):

When we assume that investment is autonomous we imply that:

The consumption function illustrates that:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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