Question 1

An unexpected decrease in nonlabor income will have a negative effect on a household's consumption.

Accepted Answer

A) True 
 B)False

Question 2

If it becomes more expensive for firms to hold excess capital and labor, the multiplier will

Accepted Answer

A)  decrease. 
B)  remain unchanged. 
C)  increase. 
D)  either increase or decrease depending on the value of the MPC.

Question 3

Which of the following is true of a change in nonlabor income?

Accepted Answer

A)  There is no substitution effect because a change in nonlabor income does not change the trade-off between work and leisure. 
B)  There is no income effect because a change in nonlabor income does not change the trade-off between work and leisure. 
C)  There is no substitution effect because a change in nonlabor income does not change a household's permanent income. 
D)  There is no income effect because a change in nonlabor income does not change a household's permanent income.

Question 4

A rise in the interest rate

Accepted Answer

A)  decreases the opportunity cost of consuming today. 
B)  increases the opportunity cost of consuming in the future. 
C)  increases the opportunity cost of consuming today. 
D)  decreases the opportunity cost of consuming in the future.

Question 5

Generally speaking, ________ starts out negative, turns positive, then approaches zero near the end of life.

Accepted Answer

A)  wealth 
B)  income 
C)  consumption 
D)  all of the above

Question 6

Investment affects output, but output does not affect investment.

Accepted Answer

A) True 
 B)False

Question 7

Mickey got a raise from $14 an hour to $20 an hour. As a result of the wage increase, Mickey desires to work more hours and take less hours of leisure. For Mickey

Accepted Answer

A)  the substitution effect dominates the income effect. 
B)  the income effect dominates the substitution effect. 
C)  the substitution effect must equal the income effect. 
D)  the substitution effect must be zero.

Question 8

A change in tax rates ________ affect individual's behavior regarding consumption and saving if the change is permanent.

Accepted Answer

A)  is likely to 
B)  will definitely 
C)  will negatively 
D)  will not

Question 9

If the wage rate increases, the substitution effect is for a person to work less and the income effect is for a person to take less leisure.

Accepted Answer

A) True 
 B)False

Question 10

According to the life-cycle theory of consumption, people tend to consume more than they earn during their ________ years.

Accepted Answer

A)  main working 
B)  early 
C)  later 
D)  both B and C

Question 11

In general, the relationship between ________ and ________ depends on the state of the economy at the time of the output change.

Accepted Answer

A)  saving; output 
B)  output; unemployment 
C)  output; GDP 
D)  inflation; output

Question 12

Which of the following is true of a change in dividend payments?

Accepted Answer

A)  There is no substitution effect because a change in dividend payments does not change the trade-off between work and leisure. 
B)  There is no income effect because a change in dividend payments does not change the trade-off between work and leisure. 
C)  There is no substitution effect because a change in dividend payments does not change a household's permanent income. 
D)  There is no income effect because a change in dividend payments does not change a household's permanent income.

Question 13

At ________ levels of output, the economy can expand with little or no increase in the overall price level because firms likely hold excess labor and capital, and production can be increased without causing input prices to increase.

Accepted Answer

A)  high 
B)  low 
C)  full employment 
D)  full capacity

Question 14

The real wage rate is the nominal wage rate adjusted for inflation since some base year.

Accepted Answer

A) True 
 B)False

Question 15

Labor productivity will decrease if a firm

Accepted Answer

A)  pays efficiency wages. 
B)  improves employee benefits. 
C)  boosts employee morale. 
D)  holds excess labor.

Question 16

The labor supply will generally decrease when the income tax rate ________ (if the substitution effect dominates) or transfer payments ________.

Accepted Answer

A)  increases; increase 
B)  increases; decrease 
C)  decreases; increase 
D)  decreases; decrease

Question 17

Generally speaking, when aggregate output does ________, investment does ________.

Accepted Answer

A)  poorly; well 
B)  poorly; poorly 
C)  well; poorly 
D)  not change; well

Question 18

Which of the following types of expenditures is more volatile than plant and equipment investment?

Accepted Answer

A)  consumption of durable goods 
B)  consumption of services 
C)  housing investment 
D)  consumption of nondurable goods

Question 19

If the substitution effect is greater than the income effect, a decrease in interest rates will

Accepted Answer

A)  increase saving and decrease consumption spending by households. 
B)  decrease saving and increase consumption spending by households. 
C)  decrease both saving and consumption spending by households. 
D)  increase both saving and consumption spending by households.

Question 20

Expenditures on services fluctuate less than expenditures on durable goods.

Accepted Answer

A) True 
 B)False

Exam 30: Household and Firm Behavior in the Macroeconomy: a Further Look

An unexpected decrease in nonlabor income will have a negative effect on a household's consumption.

If it becomes more expensive for firms to hold excess capital and labor, the multiplier will

Which of the following is true of a change in nonlabor income?

A rise in the interest rate

Generally speaking, ________ starts out negative, turns positive, then approaches zero near the end of life.

Investment affects output, but output does not affect investment.

Mickey got a raise from $14 an hour to $20 an hour. As a result of the wage increase, Mickey desires to work more hours and take less hours of leisure. For Mickey

A change in tax rates ________ affect individual's behavior regarding consumption and saving if the change is permanent.

If the wage rate increases, the substitution effect is for a person to work less and the income effect is for a person to take less leisure.

According to the life-cycle theory of consumption, people tend to consume more than they earn during their ________ years.

In general, the relationship between and depends on the state of the economy at the time of the output change.

Which of the following is true of a change in dividend payments?

At ________ levels of output, the economy can expand with little or no increase in the overall price level because firms likely hold excess labor and capital, and production can be increased without causing input prices to increase.

The real wage rate is the nominal wage rate adjusted for inflation since some base year.

Labor productivity will decrease if a firm

The labor supply will generally decrease when the income tax rate (if the substitution effect dominates) or transfer payments .

Generally speaking, when aggregate output does , investment does .

Which of the following types of expenditures is more volatile than plant and equipment investment?

If the substitution effect is greater than the income effect, a decrease in interest rates will

Expenditures on services fluctuate less than expenditures on durable goods.