Question 1

In Canada,as in many other countries,the largest component of domestic investment expenditure is

Accepted Answer

A) residential housing. 
B) inventories. 
C) financial assets. 
D) plant and equipment. 
E) savings.

Question 2

FIGURE 21-1 Refer to Figure 21-1.The marginal propensity to consume is equal to

Accepted Answer

A) EF/Y2Y3. 
B) EF/DF. 
C) ED/CF. 
D) DF/Y2Y3. 
E) ED/Y2Y3.

Question 3

Suppose disposable income for an entire economy rises from $400 billion to $440 billion and desired saving rises from $50 billion to $60 billion.We can conclude that the marginal propensity to save for this economy is

Accepted Answer

A) 0.10. 
B) 0.20. 
C) 0.25. 
D) 0.75. 
E) 1.0.

Question 4

Consider desired investment in the simple macro model.Other things being equal,higher real interest rates tend to

Accepted Answer

A) reduce every component of desired investment expenditure except residential housing. 
B) reduce every component of desired investment expenditure except inventories. 
C) reduce every component of desired investment expenditure except plant and equipment. 
D) increase every component of desired investment expenditure. 
E) reduce every component of desired investment expenditure.

Question 5

FIGURE 21-2 Refer to Figure 21-2.The slope of the consumption function in the figure is equal to

Accepted Answer

A) the marginal propensity to consume. 
B) the average propensity to consume. 
C) the marginal propensity to save. 
D) the average propensity to save. 
E) the slope of the 45-degree line.

Question 6

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3 Refer to Table 21-3.At the equilibrium level of national income,desired investment ($billions)is

Accepted Answer

A) $100. 
B) $4000. 
C) $3900. 
D) $400. 
E) $1000.

Question 7

Consider a simple macro model with a constant price level and demand-determined output.Using this model,if economists want to estimate the effect of a given change in desired investment on equilibrium national income,they would multiply the change in desired investment by the

Accepted Answer

A) average propensity to save. 
B) marginal propensity to save. 
C) equilibrium level of national income. 
D) simple multiplier. 
E) reciprocal of the marginal propensity to spend.

Question 8

FIGURE 21-3 Refer to Figure 21-3.A shift in the aggregate expenditure function downward from AE1 to AE0 could be caused by

Accepted Answer

A) a rise in the multiplier. 
B) a fall in the marginal propensity to consume. 
C) a rise in the marginal propensity to consume. 
D) an increase in autonomous desired saving. 
E) a decrease in autonomous desired saving.

Question 9

FIGURE 21-3 Refer to Figure 21-3.If national income is Y3 and the aggregate expenditure function is AE1,

Accepted Answer

A) the economy is in equilibrium. 
B) there is unintended inventory accumulation and income will rise. 
C) there is unintended inventory accumulation and income will fall. 
D) there is unintended inventory decumulation and income will rise. 
E) there is unintended inventory decumulation and income will fall.

Question 10

Consider the consumption function in our macro model.Which of the following statements is correct? The consumption function

Accepted Answer

A) and the aggregate expenditure function describe the same functional relationship. 
B) describes the relationship between desired consumption expenditure and the factors that determine it,like national income. 
C) refers to the relationship between consumption expenditure and relative prices. 
D) refers to the relationship between an individual's consumption and his/her wealth. 
E) is relatively unimportant in macroeconomics,because consumption is such a small component of aggregate expenditure.

Question 11

If the Jones family's disposable income increases from $1200 to $1700 and their desired saving increases from -$100 to +$100,then the family's

Accepted Answer

A) average propensity to consume is 0.60. 
B) average propensity to consume is 0.40. 
C) marginal propensity to consume is 0.40. 
D) marginal propensity to consume is 0.60. 
E) marginal propensity to save is 1.

Question 12

On a graph of a consumption function,what is the significance of the 45-degree line?

Accepted Answer

A) It connects all points where desired consumption equals desired expenditure. 
B) It connects all points where desired consumption equals actual disposable income. 
C) It shows the slope of the average consumption function,against which we measure other consumption functions. 
D) It connects all points where desired consumption equals desired saving. 
E) Desired consumption is zero at all points along the 45-degree line.

Question 13

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3 Refer to Table 21-3.The equilibrium level of national income ($billions)will be

Accepted Answer

A) $3000. 
B) $3600. 
C) $3900. 
D) $4000. 
E) $4400.

Question 14

FIGURE 21-3 Refer to Figure 21-3.Assuming AE0 is the prevailing aggregate expenditure function,the distance 0A is a measure of

Accepted Answer

A) aggregate expenditure at equilibrium national income. 
B) autonomous desired expenditures. 
C) induced expenditures. 
D) desired saving. 
E) desired investment.

Question 15

In a simple macro model with demand-determined output,the equilibrium level of national income is at an income

Accepted Answer

A) to the left of the point where the AE curve intersects the 45-degree line. 
B) where the AE curve intersects the 45-degree line. 
C) to the right of the point where the AE curve intersects the 45-degree line. 
D) where saving equals consumption. 
E) where saving equals income.

Question 16

FIGURE 21-3 Refer to Figure 21-3.A shift in the aggregate expenditure function from AE0 to AE1 could be caused by

Accepted Answer

A) a rise in the multiplier. 
B) a fall in the marginal propensity to consume. 
C) a rise in the marginal propensity to consume. 
D) an increase in desired investment expenditures. 
E) a decrease in desired investment expenditures.

Question 17

When would we expect to see undesired or unplanned inventory decumulation?

Accepted Answer

A) when consumption exceeds investment 
B) when investment exceeds consumption 
C) when autonomous expenditure exceeds induced expenditure 
D) when desired aggregate expenditure exceeds actual aggregate expenditure 
E) when actual aggregate expenditure exceeds desired aggregate expenditure

Question 18

Consider a simple macro model with demand-determined output.If z is the marginal propensity to spend out of national income,Y is national income and A is autonomous expenditure,then the simple multiplier is equal to

Accepted Answer

A) z. 
B) 1 - z. 
C) 1/z. 
D) 1/(1 - z). 
E) Y/(1 - z).

Question 19

Consider a simple macro model with demand-determined output.Using such a model,if economists want to estimate the effect of a given change in desired investment on equilibrium national income,they would multiply the change in desired investment by the reciprocal of one minus

Accepted Answer

A) the average propensity to save. 
B) the marginal propensity to save. 
C) the equilibrium level of national income. 
D) the marginal propensity not to spend. 
E) the marginal propensity to spend.

Question 20

Consider the simplest macro model in which aggregate output is demand-determined.If autonomous consumption increases by $2 billion causing equilibrium national income to rise by $6 billion,the marginal propensity to spend must be

Accepted Answer

A) 1.0. 
B) 0.5. 
C) 0.2. 
D) 0.67. 
E) 3.0.

Exam 21: The Simplest Short-Run Macro Model