Deck 9: Aggregate Demand

Question 1

Which of the following is not true about the marginal propensity to consume?

A)It is equal to the change in consumption divided by the change in disposable income.
B)It is equal to the slope of the consumption function.
C)It is equal to 1 - MPS.
D)It is always equal to or greater than 1.

Answer 1

D

Question 2

Given that C = $1,000 + 0.60Y_D,if the level of disposable income is $1,000,the level of saving is

A)$600.
B)$400.
C)-$600.
D)-$300.

Answer 2

C

Question 3

The combination of price level and real output that is compatible with both aggregate demand and aggregate supply is the definition of

A)Full-employment GDP.
B)Disposable income.
C)Macro equilibrium.
D)Real expenditures.

Answer 3

C

Question 4

Given that C = $500 + 0.8Y_D,if the level of disposable income is $1,000,the level of saving is

A)$300.
B)-$300.
C)$500.
D)-$1,300.

Question 5

If,in the aggregate,consumers spend 75 cents of every extra dollar received,then the

A)APC is 1.25.
B)APC is 0.75.
C)MPC is 0.75.
D)MPS is 0.75.

Question 6

If consumption is $340 and saving is $20,then disposable income

A)Is $340.
B)Is $360.
C)Is $320.
D)Cannot be determined from the information given.

Question 7

The marginal propensity to consume can be found by dividing

A)Total consumption by total saving.
B)Total consumption by the number of people consuming.
C)The change in total consumption by the change in disposable income.
D)Disposable income by total consumption.

Question 8

If the MPC is 0.8 and the APC is 0.9,the MPS equals

A)0.1.
B)0.2.
C)0.8.
D)1.7.

Question 9

Aggregate demand is the total quantity of output

A)Demanded if the economy is in equilibrium.
B)Demanded at alternative price levels in a given time period.
C)Producers are willing and able to supply at alternative price levels.
D)Consumers actually buy.

Question 10

The components of aggregate demand are

A)Consumption,government spending,net exports,and investment.
B)Consumption,exports,imports,and disposable income.
C)Consumption,inventory,government spending,and disposable income.
D)Exports,imports,investment,and disposable income.

Question 11

If disposable income increases from $9,000 billion to $11,000 billion,and consumption increases from $9,500 billion to $11,000 billion,the MPC must be

A)0.75.
B)1.00.
C)0.90.
D)0.25.

Question 12

When consumer spending exceeds disposable income,all of the following are true except

A)The APS is negative.
B)The APC is greater than 1.
C)Households are dissaving.
D)The MPS is negative.

Question 13

Consumption expenditures

A)Account for approximately two-thirds of total spending.
B)Include purchases of new and used goods by consumers.
C)Are equal to disposable personal income plus personal saving.
D)Are equal to consumer spending plus transfer payments.

Question 14

Suppose the MPC in an economy is 0.9.The APC is initially 0.95 and disposable income is $4 billion.If disposable income increases to $14 billion,what is the new level of consumption?

A)$13.3 billion.
B)$12.8 billion.
C)$9 billion.
D)$12.6 billion.

Question 15

When the APC is greater than 1,the APS must be

A)Equal to 1.
B)Greater than 1 also.
C)Between 0 and 1.
D)Negative.

Question 16

The MPC indicates the portion of

A)An additional dollar of disposable income that will be saved.
B)An additional dollar of disposable income that will be spent.
C)Total income that will be saved.
D)Total income that will be spent.

Question 17

According to Keynesian theory,which of the following is not true at each short-term macro equilibrium?

A)The economy may or may not be at full employment.
B)The aggregate demand curve intersects the aggregate supply curve.
C)All macroeconomic goals are achieved.
D)Producers are selling everything they currently produce.

Question 18

The MPC + MPS must always equal

A)The slope of the consumption function.
B)1.
C)The APC.
D)

Question 19

Which of the following forces did Keynes assert had the strongest influence on consumption decisions?

A)Prices.
B)Wealth.
C)Interest rates.
D)Disposable income.

Question 20

If the MPC is 0.60 and disposable income increases from $20,000 billion to $22,000 billion,consumption will increase by

A)$2,000 billion.
B)$800 billion.
C)$1,200 billion.
D)$600 billion.

Question 21

The line described by the consumption function C = a + bY_D will change its slope when

A)The MPC changes.
B)Consumer confidence changes.
C)Disposable income changes.
D)The APS changes.

Question 22

Suppose a consumption function is given as C = $150 + 0.75Y_D.The marginal propensity to save is

A)150.
B)0.75.
C)0.25.
D)-0.75.

Question 23

Given that autonomous consumption equals $1,000,disposable income equals $20,000,and the MPC equals 0.80,the level of

A)Saving equals $4,000.
B)Saving equals $19,000.
C)Consumption equals $17,000.
D)Consumption equals $16,000.

Question 24

If wealth rises,

A)There will be a movement to the left along the AD curve.
B)There will be a movement to the right along the AD curve.
C)The AD curve will shift to the left.
D)The AD curve will shift to the right.

Question 25

Suppose the consumption function is C = $200 + 0.85Y_D.If disposable income is $400,consumption is

A)$200.
B)$540.
C)$340.
D)$185.

Question 26

The consumption function implies that

A)Disposable income inversely influences consumption.
B)Consumption increases as disposable income increases.
C)Autonomous consumption changes when people have low incomes.
D)None of the choices are correct.

Question 27

If an increase in disposable income causes consumption to increase from $4,000 to $10,000 and causes saving to increase from $1,000 to $5,000,then it can be inferred that the MPS equals

A)0.60.
B)0.40.
C)0.05.
D)-0.60.

Question 28

Given a consumption function of C = $25 + 0.75Y_D,the average propensity to consume equals 1 when disposable income equals

A)$25.
B)$75.
C)$100.
D)-$300.

Question 29

An increase in the income-dependent portion of the consumption function would correspond to a

A)Shift of the consumption function upward.
B)Shift of the consumption function downward.
C)Movement along the consumption function to the right.
D)Movement along the consumption function to the left.

Question 30

Which of the following is not a determinant of autonomous consumption?

A)Wealth.
B)Technology.
C)Tax policy.
D)Consumer confidence.

Question 31

If autonomous consumption decreases,then

A)The AD curve will shift to the right.
B)The AD curve will shift to the left.
C)There will be a movement to the left along the AD curve.
D)The AD curve will not be affecteD.In this case,the autonomous consumption category falls,so the AD curve would decrease,thereby shifting to the left.

Question 32

Suppose a consumption function is given as C = $500 + 0.75Y_D.The marginal propensity to consume is

A)200.
B)0.75.
C)0.25.
D)-0.75.

Question 33

Suppose a consumption function is given as C = $175 + 0.85Y_D.The marginal propensity to save is

A)200.
B)0.15.
C)-0.15.
D)0.85.

Question 34

Using the disposable income level at which the consumption function intersects the 45-degree line,we can identify

A)Full employment at the intersection point.
B)An inflationary gap to the right of the intersection point.
C)Dissaving to the left of the intersection point.
D)Dissaving to the right of the intersection point.

Question 35

Under what conditions would the APC equal the MPC at all levels of disposable income?

A)When autonomous consumption equals 0.
B)When there is saving at very high levels of disposable income.
C)When disposable income is greater than consumption.
D)When the aggregate expenditure line is horizontal.

Question 36

Which of the following is not a determinant of autonomous consumption?

A)The disposable income level.
B)Taxes.
C)The availability of credit.
D)The price level.

Question 37

In a graph with disposable income on the horizontal axis and consumption on the vertical axis,the intersection of the 45-degree line with the

A)Consumption function indicates zero saving.
B)Aggregate spending curve indicates full employment.
C)Full-employment output indicates equilibrium (macro).
D)Aggregate demand curve indicates equilibrium.

Question 38

If an increase in disposable income causes consumption to increase from $4,000 to $10,000 and causes saving to increase from $2,000 to $4,000,it can be inferred that the MPC equals

A)0.4.
B)0.6.
C)0.5.
D)0.75.

Question 39

Which of the following statements is not true about the consumption function?

A)The equation is written as C = a + bY_D.
B)It indicates the rate of consumer spending that will take place at various disposable income levels.
C)It indicates that consumption is inversely related to disposable income.
D)It shows how consumption is influenced by disposable income.

Question 40

Suppose the consumption function is C = $100 + 0.85Y_D.If disposable income is $400,saving is

A)-$40.00.
B)$40.00.
C)-$15.00.
D)$15.00.

Question 41

Which government sector has the ability to respond countercyclically to the economy?

A)State only.
B)Federal only.
C)Local only.
D)Federal,state,and local.

Question 42

If firms become more pessimistic about future sales,then

A)The AD curve will shift to the right.
B)The AD curve will shift to the left.
C)There will be a rightward movement along the AD curve.
D)There will be a leftward movement along the AD curve.

Question 43

If the availability of credit increases,then

A)There will be a movement to the left along the AD curve.
B)There will be a movement to the right along the AD curve.
C)The AD curve will shift to the left.
D)The AD curve will shift to the right.

Question 44

Which of the following will cause an increase in U.S.imports?

A)An increase in U.S.consumer confidence.
B)An increase in foreign consumer income.
C)An increase in foreign business investment.
D)A decrease in U.S.wealth.

Question 45

Which of the following causes a movement along the investment demand curve?

A)A change in expenditures.
B)A change in technology.
C)A change in the rate of interest.
D)The current level of income.

Question 46

Investment spending includes expenditures on all of the following except

A)Stocks and bonds.
B)Equipment.
C)Inventory.
D)Plants or office buildings.

Question 47

Which of the following will cause a decrease in U.S.gross exports?

A)An increase in foreign consumer income.
B)A decrease in foreign business purchases of U.S.output.
C)An increase in foreign wealth.
D)None of the choices are correct.

Question 48

If consumption and investment spending decline,then state and local government spending is likely to

A)Decline,leading to more economic instability.
B)Increase,leading to more economic instability.
C)Decline,leading to less economic instability.
D)Increase,leading to less economic instability.

Question 49

If tax policies become less favorable,then

A)The AD curve will not be affected.
B)There will be a movement to the right along the AD curve.
C)The AD curve will shift to the left.
D)The AD curve will shift to the right.

Question 50

If the investment demand curve shifts to the left,then

A)The AD curve will shift to the left.
B)The AD curve will shift to the right.
C)The AD curve will not be affected.
D)There will be upward movement along the AD curve.

Question 51

Which of the following will not cause an increase in U.S.gross exports?

A)An increase in foreign business investment.
B)An increase in foreign wealth.
C)An increase in foreign consumer income.
D)A decrease in U.S.imports.

Question 52

Which of the following will cause an increase in U.S.gross exports?

A)An increase in foreign consumer income.
B)A decrease in foreign business investment.
C)An increase in U.S.consumer income.
D)An increase in U.S.imports.

Question 53

The investment demand curve would shift to the left because of

A)The discovery of more efficient production methods.
B)Expectations of a recession.
C)Higher interest rates.
D)A lower current income level for the economy.

Question 54

Income transfers,such as unemployment insurance,welfare benefits,and food stamps,

A)Help stabilize aggregate demand.
B)Destabilize aggregate demand.
C)Have almost no impact on aggregate demand.
D)Shift aggregate demand to the left during a recession.

Question 55

Which of the following will cause the aggregate demand curve to shift to the left?

A)A decrease in consumer and business confidence because of a terrorist attack.
B)A decrease in the interest rate.
C)A decrease in business taxes.
D)An improvement in technology.

Question 56

Which of the following is not considered to be an important determinant of investment?

A)Current disposable income.
B)Expectations.
C)Interest rates.
D)Technological change.

Question 57

With respect to the aggregate demand curve,improved consumer confidence would

A)Shift the curve rightward.
B)Shift the curve leftward.
C)Move the economy down along the curve.
D)Move the economy up along the curve.

Question 58

Gross exports for the United States depend most directly on the

A)Level of U.S.GDP.
B)Spending behavior of U.S.consumers.
C)Spending behavior of U.S.government agencies.
D)Spending behavior of foreign consumers and businesses.

Question 59

State and local purchases of goods and services account for approximately _______ percent of total government purchases.

A)25
B)50
C)67
D)75

Question 60

Which of the following will cause the investment demand curve to shift to the right?

A)A decrease in interest rates.
B)A decrease in the cost of labor.
C)An increase in disposable income.
D)An improvement in technology.

Question 61

When aggregate expenditures fall below the full-employment level of output,which of the following types of unemployment is most likely to increase?

A)Cyclical.
B)Seasonal.
C)Frictional.
D)Structural.

Question 62

Which of the following is not a component of aggregate demand?

A)Consumption.
B)Investment.
C)Productivity.
D)Net exports.

Question 63

A recessionary gap implies that

A)Aggregate demand is less than aggregate supply at the full-employment price level.
B)The unemployment rate is falling.
C)Aggregate demand exceeds aggregate supply at the full-employment price level.
D)Inventories are being depleted faster than producers desire.

Question 64

$$\begin{array}{l}\begin{array} { | c | c | } \hline \begin{array} { c } \text { Disposable Income } \\\text { (Billions of dollars per year) }\end{array} & \begin{array} { c } \text { Total Consumption } \\\text { (Billions of dollars per year) }\end{array} \\\hline \$ 0 & \$ 50 \\\hline 200 & 210 \\\hline\end{array}\\\text { Table } 9.1\end{array}$$ At which income level does consumption equal income in Table 9.1?

A)$150 billion.
B)$600 billion.
C)$900 billion.
D)$250 billion.

Question 65

Which of the following most likely occurs when an inflationary gap exists?

A)A bidding war for available goods and services.
B)More layoffs.
C)Rising inventories.
D)Excessive saving.

Question 66

A recessionary gap

A)Would cause a depletion of inventories.
B)Would occur if total output were less than aggregate demand.
C)Is the amount by which the rate of actual spending falls short of full-employment GDP.
D)Is the amount by which total spending exceeds GDP.

Question 67

Keynes was concerned that at macroeconomic equilibrium in a laissez faire free market economy,full employment

A)And price stability might not continue simultaneously.
B)Would continue but price stability might not.
C)Might not continue but price stability would.
D)None of the choices are correct.

Question 68

According to Keynes,cyclical unemployment is caused by too

A)Much aggregate demand.
B)Little aggregate demand.
C)Much aggregate supply.
D)Little aggregate supply.

Question 69

Which of the following is true when an economy produces at full employment,but consumers,government,businesses,and the foreign sector do not buy all the output?

A)Inventories are depleted.
B)There is a recessionary gap.
C)Unemployment falls.
D)The price level rises.

Question 70

Which of the following lists all the components that are included in aggregate demand?

A)Consumption,government spending,net exports,and investment.
B)Government spending,saving,consumption,and investment.
C)Investment,imports,exports,consumption,and taxes.
D)Net exports,government spending,consumption,and transfer payments.

Question 71

$$\begin{array}{l}\begin{array} { | c | c | } \hline \begin{array} { c } \text { Disposable Income } \\\text { (Billions of dollars per year) }\end{array} & \begin{array} { c } \text { Total Consumption } \\\text { (Billions of dollars per year) }\end{array} \\\hline \$ 0 & \$ 50 \\\hline 200 & 210 \\\hline\end{array}\\\text { Table } 9.1\end{array}$$ What is the rate of saving when income equals $1,000 billion in Table 9.1?

A)$100 billion.
B)$150 billion.
C)$250 billion.
D)Zero.

Question 72

Which of the following occurs when the spending on final goods and services exceeds full-employment GDP?

A)Inventory accumulation.
B)Unemployment.
C)Inflationary gap.
D)Recessionary gap.

Question 73

Keynes was concerned that at macroeconomic equilibrium the economy would experience

A)Full employment and price stability.
B)Full employment but not price stability.
C)Price stability but not full employment.
D)Neither full employment nor price stability.

Question 74

Demand-pull inflation is caused by

A)An increase in aggregate supply.
B)An increase in resource costs as an economy's production capacity is approached.
C)An increase in inventories.
D)Excessive aggregate demand in relation to an economy's production capacity.

Question 75

$$\begin{array}{l}\begin{array} { | c | c | } \hline \begin{array} { c } \text { Disposable Income } \\\text { (Billions of dollars per year) }\end{array} & \begin{array} { c } \text { Total Consumption } \\\text { (Billions of dollars per year) }\end{array} \\\hline \$ 0 & \$ 50 \\\hline 200 & 210 \\\hline\end{array}\\\text { Table } 9.1\end{array}$$ What is the marginal propensity to save in Table 9.1?

A)0.05.
B)0.80.
C)0.20.
D)0.24.

Question 76

$$\begin{array}{l}\begin{array} { | c | c | } \hline \begin{array} { c } \text { Disposable Income } \\\text { (Billions of dollars per year) }\end{array} & \begin{array} { c } \text { Total Consumption } \\\text { (Billions of dollars per year) }\end{array} \\\hline \$ 0 & \$ 50 \\\hline 200 & 210 \\\hline\end{array}\\\text { Table } 9.1\end{array}$$ Which of the following represents the consumption function consistent with the data in Table 9.1?

A)C = $160 billion + 0.91Y_D.
B)C = $160 billion + 0.80Y_D.
C)C = $50 billion + 0.76Y_D.
D)C = $50 billion + 0.80Y_D.

Question 77

The economy will not reach and maintain its goals of full employment and price stability unless the economy is

A)At full employment and the price level is stable.
B)Above full employment and the price level is stable.
C)Below full employment and the price level is stable.
D)None of the choices are correct.

Question 78

$$\begin{array}{l}\begin{array} { | c | c | } \hline \begin{array} { c } \text { Disposable Income } \\\text { (Billions of dollars per year) }\end{array} & \begin{array} { c } \text { Total Consumption } \\\text { (Billions of dollars per year) }\end{array} \\\hline \$ 0 & \$ 50 \\\hline 200 & 210 \\\hline\end{array}\\\text { Table } 9.1\end{array}$$ What is the marginal propensity to consume in Table 9.1?

A)0.15.
B)0.80.
C)0.85.
D)0.90.

Question 79

Which of the following is eliminated when output equals full-employment GDP?

A)Cyclical unemployment.
B)Demand-pull inflation.
C)The need for autonomous consumption.
D)Net exports.

Question 80

$$\begin{array}{l}\begin{array} { | c | c | } \hline \begin{array} { c } \text { Disposable Income } \\\text { (Billions of dollars per year) }\end{array} & \begin{array} { c } \text { Total Consumption } \\\text { (Billions of dollars per year) }\end{array} \\\hline \$ 0 & \$ 50 \\\hline 200 & 210 \\\hline\end{array}\\\text { Table } 9.1\end{array}$$ What is the rate of saving when income equals $300 billion in Table 9.1?

A)Zero.
B)$50 billion.
C)$10 billion.
D)-$290 billion.