Deck 27: Expenditure Multipliers

Question 1

The marginal propensity to consume is the

A)fraction of the first dollar of disposable income received that is saved.
B)fraction of the first dollar of disposable income received that is consumed.
C)fraction of the last dollar of disposable income received that is saved.
D)fraction of a change in disposable income that is spent on consumption.
E)total amount of consumption divided by the total amount of disposable income.

Answer 1

D

Question 2

The marginal propensity to save

A)equals 1 - MPC.
B)is between zero and 1/2.
C)is greater than 1.
D)is greater than 1 but less than 2.
E)is negative.

Answer 2

A

Question 3

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for an economy.

Refer to Figure 27.1.1. When disposable income is equal to $200 billion, saving is

A)zero.
B)$200 billion.
C)$150 billion.
D)$60 billion.
E)- $60 billion.

Answer 3

E

Question 4

The marginal propensity to consume is calculated as

A)consumption expenditure divided by the change in disposable income.
B)the change in consumption expenditure divided by disposable income.
C)consumption expenditure divided by total disposable income.
D)the change in consumption expenditure divided by saving.
E)the change in consumption expenditure divided by the change in disposable income.

Question 5

If the marginal propensity to consume is 0.85, what change in consumption expenditure would you expect if disposable income increases by $200 million?

A)$20 million
B)$170 million
C)$180 million
D)$1,800 million
E)$18 million

Question 6

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for an economy.

Refer to Figure 27.1.1. The marginal propensity to consume for this economy is

A)0.5.
B)1.
C)0.2.
D)0.8.
E)0.6.

Question 7

Dissaving occurs when a household

A)spends less than it receives in disposable income.
B)spends more than it saves.
C)saves more than it spends.
D)consumes more than it receives in disposable income.
E)borrows.

Question 8

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for an economy.

Refer to Figure 27.1.1. When disposable income is $200 billion,

A)saving is equal to line segment AD.
B)households are consuming less than $200 billion.
C)businesses are spending more than households because the consumption function lies above the 45° line.
D)households are dissaving an amount equal to line segment AB.
E)households are saving an amount equal to line segment AB.

Question 9

When the consumption function lies below the 45° line, households

A)spend all of any increase in disposable income.
B)consume more than their disposable income.
C)are saving some portion of their disposable income.
D)save all of any increase in disposable income.
E)are dissaving.

Question 10

The sum of the marginal propensity to save and the marginal propensity to consume

A)always equals 1.
B)sometimes equals 1.
C)always equals 0.
D)never equals 1.
E)is greater than zero but less than 1.

Question 11

The marginal propensity to consume

A)is negative if dissaving is present.
B)is greater than 1 if dissaving is present.
C)is between 1/2 and 1.
D)is greater than 1 but less than 2.
E)is between zero and 1.

Question 12

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for an economy.

Refer to Figure 27.1.1. Consumption and disposable income are equal

A)at all points along the consumption function.
B)when saving equals $40 billion and disposable income equals $540 billion.
C)when disposable income is $500 billion.
D)when disposable income is $600 billion.
E)when disposable income is greater than or equal to $500 billion.

Question 13

The marginal propensity to save is calculated as

A)saving divided by disposable income.
B)saving divided by the change in disposable income.
C)the change in saving divided by the change in consumption expenditure.
D)the change in saving divided by the change in disposable income.
E)the change in saving divided by disposable income.

Question 14

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for an economy.

Refer to Figure 27.1.1. When disposable income is $500 billion, saving is equal to

A)disposable income.
B)zero.
C)$20 billion.
D)consumption expenditure.
E)$40 billion.

Question 15

If consumption is $8,000 when disposable income is $10,000, the marginal propensity to consume

A)is 0.50.
B)is 0.75.
C)is 0.80.
D)is 1.25.
E)cannot be determined from the information given.

Question 16

If a household's disposable income increases from $12,000 to $22,000 and at the same time its consumption expenditure increases from $4,000 to $9,000, then

A)the household is dissaving.
B)the slope of the consumption function is 0.6.
C)the slope of the consumption function is 0.5.
D)the marginal propensity to consume over this range is negative.
E)the marginal propensity to save over this range is negative.

Question 17

If consumption expenditure for a household increases from $300 to $500 when disposable income increases from $200 to $500, the marginal propensity to consume is

A)equal to 1.
B)equal to 0.75.
C)equal to 1.33.
D)negative.
E)equal to 0.67.

Question 18

Complete the following sentence. A household

A)consumes or pays taxes out of disposable income.
B)consumes, saves, or pays taxes out of disposable income.
C)consumes or saves out of disposable income.
D)only consumes out of disposable income.
E)saves more than it consumes.

Question 19

If the marginal propensity to save is 0.2, then

A)the marginal propensity to consume is larger than 0.8.
B)the marginal propensity to consume is 0.8.
C)the marginal propensity to consume is also 0.2.
D)the slope of the consumption function is 0.2.
E)the slope of the saving function is 0.8.

Question 20

Disposable income is

A)used for consumption only.
B)aggregate income minus taxes plus transfer payments.
C)aggregate income plus transfer payments.
D)aggregate income minus taxes.
E)aggregate income minus transfer payments.

Question 21

The consumption function shows the relationship between consumption expenditure and

A)the interest rate.
B)the price level.
C)disposable income.
D)saving.
E)nominal income.

Question 22

Table 27.1.3

35)Refer to Table 27.1.3. Autonomous consumption is equal to
Refer to Table 27.1.3. The marginal propensity to consume is

A)0.35.
B)0.65.
C)1.15.
D)1.65.
E)1.54.

Question 23

The fraction of a change in disposable income that is saved is the

A)marginal propensity to consume.
B)marginal propensity to save.
C)marginal propensity to dispose.
D)marginal tax rate.
E)saving function.

Question 24

The fraction of a change in disposable income spent on consumption is the

A)marginal propensity to consume.
B)marginal propensity to save.
C)marginal propensity to dispose.
D)marginal tax rate.
E)consumption function.

Question 25

Table 27.1.1
The following table shows the relationship between consumption
expenditure (C)and disposable income (YD)for a hypothetical economy.
Refer to Table 27.1.1. If YD is $400, then saving is

A)-$50.
B)$50.
C)zero.
D)$100.
E)-$125.

Question 26

Table 27.1.2

Refer to Table 27.1.2. Saving equals $100 when disposable income is

A)$475.
B)$550.
C)$525.
D)$575.
E)$625.

Question 27

The slope of the consumption function is

A)less than the slope of the 45° line.
B)greater than the slope of the 45° line.
C)equal to the slope of the 45° line.
D)one.
E)zero.

Question 28

Table 27.1.3

35)Refer to Table 27.1.3. Autonomous consumption is equal to
In Table 27.1.3, at which of the following values of disposable income is there positive saving?

A)zero
B)$100
C)$200
D)all values over $300
E)all values under $300

Question 29

Table 27.1.2

Refer to Table 27.1.2. What is the value of the marginal propensity to consume?

A)0.75
B)0.25
C)1.33
D)0.34
E)0.67

Question 30

Table 27.1.2

Refer to Table 27.1.2. When saving is zero, what is the level of disposable income?

A)$325
B)$400
C)$475
D)$550
E)$625

Question 31

The saving function shows the relationship between saving and

A)the interest rate.
B)the price level.
C)disposable income.
D)consumption.
E)nominal income.

Question 32

Table 27.1.1
The following table shows the relationship between consumption
expenditure (C)and disposable income (YD)for a hypothetical economy.
Refer to Table 27.1.1. The marginal propensity to save is

A)decreasing as YD increases.
B)equal to zero when YD equals $600.
C)0.75.
D)0.25.
E)4.

Question 33

Table 27.1.3

35)Refer to Table 27.1.3. Autonomous consumption is equal to
Refer to Table 27.1.3. Autonomous consumption is equal to

A)$0.
B)$65.
C)$100.
D)$260.
E)$400.

Question 34

Table 27.1.2

Refer to Table 27.1.2. What is the value of the marginal propensity to save?

A)0.27
B)0.25
C)0.67
D)0.33
E)1.33

Question 35

Table 27.1.1
The following table shows the relationship between consumption
expenditure (C)and disposable income (YD)for a hypothetical economy.
Refer to Table 27.1.1. Based on the information in the table, saving would be $125 if YD were

A)$1,000.
B)$1,100.
C)$1,200.
D)$1,300.
E)$900.

Question 36

Table 27.1.1
The following table shows the relationship between consumption
expenditure (C)and disposable income (YD)for a hypothetical economy.
Refer to Table 27.1.1. Based on the information in the table, if YD were zero, then

A)consumption would be zero.
B)consumption would be $150.
C)saving would be zero.
D)consumption would be -$150.
E)consumption would be $100.

Question 37

Table 27.1.1
The following table shows the relationship between consumption
expenditure (C)and disposable income (YD)for a hypothetical economy.
Refer to Table 27.1.1. The marginal propensity to consume is

A)increasing as YD increases.
B)equal to 1 when YD equals $600.
C)0.75.
D)0.25.
E)1.33.

Question 38

Figure 27.1.2

Refer to Figure 27.1.2. The marginal propensity to consume is

A)800.
B)0.8.
C)0.2.
D)0.25.
E)0.75.

Question 39

Figure 27.1.2

Refer to Figure 27.1.2. Autonomous consumption is

A)-$200.
B)$200.
C)$800.
D)$600.
E)zero.

Question 40

The vertical distance between the consumption function and the 45° line measures

A)disposable income.
B)consumption.
C)saving or dissaving.
D)the marginal propensity to consume.
E)the marginal propensity to save.

Question 41

When disposable income increases,

A)the consumption function shifts upward.
B)the saving function shifts downward.
C)a movement occurs down along the consumption function.
D)a movement occurs up along the consumption function.
E)a movement occurs down along the saving function.

Question 42

If there is an unplanned increase in inventories, aggregate planned expenditure is

A)greater than real GDP and firms increase production.
B)greater than real GDP and firms decrease production.
C)less than real GDP and firms increase production.
D)less than real GDP and firms decrease production.
E)less than real GDP and firms decrease investment.

Question 43

If aggregate planned expenditure is less than real GDP, then inventories

A)increase and real GDP increases.
B)increase and real GDP falls.
C)decrease and real GDP increases.
D)decrease and real GDP decreases.
E)remain constant and real GDP remains constant.

Question 44

The marginal propensity to import is equal to

A)disposable income minus consumption expenditure minus saving divided by real GDP.
B)the change in imports divided by the change in real GDP that brought it about, other things remaining the same.
C)the change in net imports divided by the change in disposable income, other things remaining the same.
D)imports minus exports.
E)1 - MPS - MPC.

Question 45

Figure 27.2.1
There are no exports or imports in this economy.

Refer to Figure 27.2.1. When real GDP is equal to Ya, then

A)actual expenditure is less than planned expenditure.
B)actual expenditure is greater than planned expenditure.
C)planned expenditure is equal to actual expenditure.
D)the economy is in equilibrium.
E)real GDP decreases.

Question 46

Fact 27.1.2 Canadians' Wealth Rises
Gains in stock markets and increased house prices boosted Canadians' wealth in the first quarter of 2014. On a per capita basis, household wealth rose to $222,600. Statistics Canada also reported that consumption expenditure increased by $4 billion in the first quarter of 2014.
Source: Toronto Star, September 11, 2014, and Statistics Canada
Consider Fact 27.1.2. A rise in household wealth does all of the following except

A)decreases saving.
B)shifts the saving function upward.
C)shifts the consumption function upward.
D)increases consumption expenditure.
E)increases autonomous consumption.

Question 47

Everything else remaining the same, a decrease in expected future income ________ current consumption expenditure and ________ saving.

A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases
E)does not change; does not change

Question 48

The marginal propensity to consume

A)is equal to zero when disposable income equals consumption expenditure.
B)is equal to 1 minus the slope of the saving function.
C)is negative when saving is positive.
D)increases as the economy moves upward along the consumption function.
E)is greater than the slope of the 45-degree line.

Question 49

An increase in autonomous consumption

A)shifts the consumption function upward.
B)shifts the consumption function downward.
C)creates a movement downward along the consumption function.
D)creates a movement upward along the consumption function.
E)changes the slope of the consumption function.

Question 50

As Canada experiences increasing wealth and increasing expected future income,

A)there is a movement down along the consumption function.
B)the consumption function shifts steadily upward and autonomous consumption increases.
C)the consumption function shifts steadily upward with no change in autonomous consumption.
D)the consumption function shifts steadily upward and autonomous consumption decreases.
E)there is a movement down along the saving function.

Question 51

The marginal propensity to import is calculated as

A)imports divided by the change in real GDP.
B)the change in imports divided by real GDP.
C)imports divided by real GDP.
D)the change in imports divided by the change in real GDP.
E)1-MPC.

Question 52

Everything else remaining the same, if Canadians expect future disposable income to rise, then

A)Canada's consumption function shifts downward.
B)Canada's consumption function shifts upward.
C)a movement occurs up along Canada's consumption function.
D)a movement occurs down along Canada's consumption function.
E)Canada's saving function shifts upward.

Question 53

If aggregate planned expenditure exceeds real GDP, then inventories

A)increase and real GDP increases.
B)increase and real GDP falls.
C)decrease and real GDP increases.
D)decrease and real GDP decreases.
E)remain constant and real GDP remains constant.

Question 54

Fact 27.1.1
In an economy, when disposable income increases from $400 billion to $500 billion, consumption expenditure increases from $480 billion to $540 billion.
Consider Fact 27.1.1. The marginal propensity to consume is

A)0.75.
B)0.80.
C)0.60.
D)0.40.
E)0.25.

Question 55

The aggregate expenditure curve shows the relationship between aggregate planned expenditure and

A)disposable income.
B)real GDP.
C)the interest rate.
D)consumption expenditure.
E)the price level.

Question 56

Fact 27.1.1
In an economy, when disposable income increases from $400 billion to $500 billion, consumption expenditure increases from $480 billion to $540 billion.
Consider Fact 27.1.1. When disposable income increases from $400 billion to $500 billion, saving

A)increases by $40 billion.
B)increases by an unknown amount.
C)decreases by an unknown amount.
D)increases by $60 billion.
E)decreases by $60 billion.

Question 57

Which of the following events would shift the consumption function upward?

A)an increase in disposable income
B)a decrease in disposable income
C)a decrease in wealth
D)a decrease in expected future disposable income
E)an increase in wealth

Question 58

If an economy's real GDP increases from $100 billion to $150 billion, and at the same time its imports increase from $40 billion to $50 billion, then the marginal propensity to import

A)decreases from 0.4 to 0.2.
B)is greater than 0.2 and less than 0.4.
C)is 0.2.
D)is 0.36.
E)is 0.4.

Question 59

If real GDP is $3 billion and aggregate planned expenditure is $3.5 billion, then inventories

A)increase and productions increases.
B)increase and production decreases.
C)decrease and production increases.
D)decrease and production decreases.
E)remain the same and production decreases.

Question 60

Fact 27.1.1
In an economy, when disposable income increases from $400 billion to $500 billion, consumption expenditure increases from $480 billion to $540 billion.
Consider Fact 27.1.1. The marginal propensity to save is

A)0.75.
B)0.80.
C)0.60.
D)0.40.
E)0.25.

Question 61

Figure 27.2.1
There are no exports or imports in this economy.

Refer to Figure 27.2.1. When real GDP is equal to Ya, then aggregate planned expenditure

A)exceeds real GDP, and real GDP increases.
B)is less than real GDP, and real GDP decreases.
C)exceeds real GDP, and real GDP decreases.
D)is equal to real GDP, and real GDP neither increases nor decreases.
E)is less than real GDP, and real GDP increases.

Question 62

Figure 27.2.2
Use the figure below to answer the following questions.

The economy depicted does not engage in international trade and has no government. Planned aggregate expenditure (AE)is equal to the sum of consumption expenditure (C)and investment (I).
Refer to Figure 27.2.2. Investment is

A)$50 billion.
B)$25 billion.
C)$75 billion.
D)$100 billion.
E)increasing as real GDP increases.

Question 63

Equilibrium expenditure occurs when

A)consumption equals real GDP.
B)aggregate planned expenditure equals real GDP.
C)aggregate planned expenditure equals consumption.
D)induced consumption equals aggregate planned expenditure.
E)the price level equals 100.

Question 64

A change in consumption, in response to a change in income, is

A)unplanned consumption.
B)autonomous consumption.
C)induced consumption.
D)equilibrium consumption.
E)planned consumption.

Question 65

Which one of the following variables has an induced component?

A)investment
B)consumption
C)exports
D)government expenditure on goods and services
E)consumption and investment

Question 66

Figure 27.2.2
Use the figure below to answer the following questions.

Refer to Figure 27.2.2. Equilibrium expenditure is

A)$100 billion.
B)$300 billion.
C)$250 billion.
D)$200 billion.
E)$400 billion.

Question 67

Figure 27.2.1
There are no exports or imports in this economy.

Refer to Figure 27.2.1. Equilibrium real GDP

A)is decreasing.
B)is equal to Ya.
C)is equal to Yb.
D)is equal to Yc.
E)can be any of Ya, Yb, or Yc depending on what is happening to inventories.

Question 68

Figure 27.2.1
There are no exports or imports in this economy.

Refer to Figure 27.2.1. When real GDP is equal to Yb, then aggregate planned expenditure is

A)less than real GDP, and real GDP decreases.
B)less than real GDP, and real GDP increases.
C)greater than real GDP, and real GDP increases.
D)greater than real GDP, and real GDP decreases.
E)equal to real GDP, and real GDP neither increases nor decreases.

Question 69

If there is an unplanned decrease in inventories, aggregate planned expenditure is

A)greater than real GDP, and firms increase production.
B)greater than real GDP, and firms decrease production.
C)less than real GDP, and firms increase production.
D)less than real GDP, and firms decrease production.
E)greater than real GDP, and firms increase investment.

Question 70

Everything else remaining the same, autonomous consumption

A)increases as disposable income decreases.
B)increases as disposable income increases.
C)does not change as disposable income changes.
D)is usually assumed to be zero.
E)decreases as disposable income decreases.

Question 71

Suppose real GDP increases by $1 billion and, as a result, consumption increases by $500 million. This change in consumption is

A)unplanned.
B)induced.
C)autonomous.
D)too little.
E)planned.

Question 72

Consumption expenditure minus imports, which varies with real GDP, is

A)aggregate expenditure.
B)autonomous expenditure.
C)planned consumption.
D)induced expenditure.
E)unplanned consumption.

Question 73

Figure 27.2.1
There are no exports or imports in this economy.

Refer to Figure 27.2.1. When real GDP is equal to Yc, then aggregate planned expenditure is

A)less than real GDP, and real GDP decreases.
B)less than real GDP, and real GDP increases.
C)greater than real GDP, and real GDP decreases.
D)equal to real GDP, and real GDP neither increases nor decreases.
E)greater than real GDP, and real GDP increases.

Question 74

If AE = 100 + 0.7Y and Y = 300, then unplanned inventories

A)increase by 10.
B)increase by 200.
C)decrease by 10.
D)decrease by 200.
E)do not change and equilibrium exists.

Question 75

Figure 27.2.2
Use the figure below to answer the following questions.

Refer to Figure 27.2.2. When real GDP is $300 billion, real GDP

A)is less than aggregate planned expenditure by $25 billion, and firms decrease production.
B)exceeds aggregate planned expenditure by $25 billion, and firms increase production.
C)is the same as aggregate planned expenditure, and firms do not change production.
D)exceeds aggregate planned expenditure by $25 billion, and firms decrease production.
E)exceeds aggregate planned expenditure by $50 billion, and firms increase production.

Question 76

If AE = 50 + 0.6Y and Y = 200, then unplanned inventories

A)increase by 75.
B)increase by 30.
C)decrease by 75.
D)decrease by 30.
E)do not change and equilibrium exists.

Question 77

Figure 27.2.1
There are no exports or imports in this economy.

Refer to Figure 27.2.1. When real GDP is equal to Yc, then

A)actual expenditure is less than planned expenditure.
B)actual expenditure is greater than planned expenditure.
C)planned expenditure is equal to actual expenditure.
D)the economy is in equilibrium.
E)real GDP increases.

Question 78

Figure 27.2.2
Use the figure below to answer the following questions.

Refer to Figure 27.2.2. When real GDP is $100 billion,

A)real GDP is less than aggregate planned expenditure, and firms increase production.
B)aggregate planned expenditure is greater than real GDP, and firms decrease production.
C)real GDP is greater than aggregate planned expenditure, and firms decrease production.
D)aggregate planned expenditure equals real GDP, and the economy is in equilibrium.
E)aggregate planned expenditure is less than real GDP, and firms increase production.

Question 79

As real GDP increases,

A)autonomous consumption increases.
B)planned investment increases.
C)exports increase.
D)imports increase.
E)imports decrease.

Question 80

Figure 27.2.1
There are no exports or imports in this economy.

Refer to Figure 27.2.1. When real GDP is equal to Yb, then

A)actual expenditure is less than planned expenditure.
B)actual expenditure is greater than planned expenditure.
C)planned expenditure is equal to actual expenditure.
D)real GDP increases.
E)real GDP decreases.