Question 1

Marginal propensity to consume:

Accepted Answer

A)  is the change in production resulting from a given change in disposable income. 
B)  shows the amount households want to spend on goods and services at different levels of disposable income. 
C)  is the change in consumption resulting from a given change in disposable income. 
D)  is the change in saving resulting from a given change in disposable income.

Question 2

The hands-off view of the classical school rests on which of the following two simple propositions about markets?

Accepted Answer

A)  Demand creates its own supply and markets are basically competitive. 
B)  Competitive markets are efficient and both prices and nominal wages are flexible. 
C)  Market failure occurs and prices are rigid. 
D)  Wages are sticky downwards and market failure is inevitable.

Question 3

A $1 million increase in investment spending will raise equilibrium output (real GDP) by:

Accepted Answer

A)  less than $1 million. 
B)  exactly $1 million. 
C)  between $0.5 and $1.5 million. 
D)  more than $1 million.

Question 4

In the aggregate demand-output model, if an economy operates above equilibrium GDP, there will be:

Accepted Answer

A)  unplanned inventory depletion. 
B)  an increase in GDP. 
C)  a decrease in employment. 
D)  an increase in employment.

Question 5

A contraction in an aggregate demand can cause:

Accepted Answer

A)  an increase in employment. 
B)  a decrease in unemployment. 
C)  an increase in real GDP. 
D)  a recession.

Question 6

When OPEC caused the price of oil to rise in the early 1970s, the:

Accepted Answer

A)  aggregate supply curve shifted to the right. 
B)  aggregate supply curve shifted to the left. 
C)  aggregate demand curve shifted to the right. 
D)  aggregate demand curve shifted to the left.

Question 7

The consumption function:

Accepted Answer

A)  is the relationship between consumption and disposable income. 
B)  shows how consumption is determined by changes in the level of disposable income. 
C)  is an aggregate expenditure. 
D)  is a sum of individual demand curves.

Question 8

When one observes consumption and investment patterns over time, one finds that:

Accepted Answer

A)  like consumption, investment is fairly stable over time. 
B)  like consumption, investment is fairly erratic over time. 
C)  unlike consumption, which is fairly stable over time, investment is subject to erratic fluctuations. 
D)  unlike consumption, which is subject to erratic fluctuations, investment is fairly stable over time.

Question 9

Real investment spending is _____ real personal consumption.

Accepted Answer

A)  equal to 
B)  greater than 
C)  stable compared to 
D)  highly volatile compared to

Question 10

In the aggregate demand-output model, if an economy operates above equilibrium GDP, there will be:

Accepted Answer

A)  unplanned inventory depletion. 
B)  an increase in GDP. 
C)  an increase in employment. 
D)  a decrease in GDP.

Question 11

Gradual adjustment of prices and wages to an increase in the aggregate demand curve implies that the aggregate supply curve is:

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  upward sloping but not vertical. 
D)  downward sloping.

Question 12

The most volatile component of aggregate expenditures is:

Accepted Answer

A)  personal consumption. 
B)  investment demand. 
C)  government expenditure. 
D)  net exports.

Question 13

A lower interest rate makes more investment projects feasible, meaning that:

Accepted Answer

A)  there is a direct relationship between the rate of interest and the quantity of investment spending. 
B)  there is an inverse relationship between the rate of interest and the quantity of investment spending. 
C)  there is no relationship between the rate of interest and the quantity of investment spending. 
D)  the demand curve for investment spending is horizontal.

Question 14

The aggregate supply curve will shift to the right when the:

Accepted Answer

A)  amount of labour in the society decreases. 
B)  capital stock of the society shrinks. 
C)  amount of natural resources in the society gets smaller. 
D)  amount of labour in the society increases.

Exam 15: A Simple Model of the Macro Economy

Marginal propensity to consume:

The hands-off view of the classical school rests on which of the following two simple propositions about markets?

A $1 million increase in investment spending will raise equilibrium output (real GDP) by:

In the aggregate demand-output model, if an economy operates above equilibrium GDP, there will be:

A contraction in an aggregate demand can cause:

When OPEC caused the price of oil to rise in the early 1970s, the:

The consumption function:

When one observes consumption and investment patterns over time, one finds that:

Real investment spending is _____ real personal consumption.

In the aggregate demand-output model, if an economy operates above equilibrium GDP, there will be:

Gradual adjustment of prices and wages to an increase in the aggregate demand curve implies that the aggregate supply curve is:

The most volatile component of aggregate expenditures is:

A lower interest rate makes more investment projects feasible, meaning that:

The aggregate supply curve will shift to the right when the: