Question 1

What is the marginal propensity to consume? Why it is an important concept?

Accepted Answer

The marginal propensity to consume, MPC,

Question 2

Which of the following statements is FALSE?

Accepted Answer

A)  Saving = disposable income - consumption expenditure. 
B)  Consumption expenditure + saving = disposable income. 
C)  Disposable income - saving = consumption expenditure. 
D)  Consumption expenditure = saving - disposable income. 
A)  Saving = disposable income - consumption expenditure. 
B)  Consumption expenditure + saving = disposable income. 
C)  Disposable income - saving = consumption expenditure. 
D)  Consumption expenditure = saving - disposable income.

Question 3

According to the Keynesian theory, the typical firm

Accepted Answer

A)  lowers its prices if sales exceed production. 
B)  does not change its prices immediately when aggregate demand fluctuates. 
C)  lowers its prices when inventories are decreasing. 
D)  changes its prices frequently in response to fluctuations in aggregate demand. 
A)  lowers its prices if sales exceed production. 
B)  does not change its prices immediately when aggregate demand fluctuates. 
C)  lowers its prices when inventories are decreasing. 
D)  changes its prices frequently in response to fluctuations in aggregate demand.

Question 4

Actual expenditure might differ from planned expenditure because

Accepted Answer

A)  actual net exports differ from planned net exports. 
B)  actual government expenditure differ from planned government expenditure. 
C)  actual consumption expenditure differs from planned consumption expenditure. 
D)  actual investment differs from planned investment. 
A)  actual net exports differ from planned net exports. 
B)  actual government expenditure differ from planned government expenditure. 
C)  actual consumption expenditure differs from planned consumption expenditure. 
D)  actual investment differs from planned investment.

Question 5

What effect does an increase in the MPC have on the slope of the AE curve?

Accepted Answer

An increase in the M

Question 6

The aggregate demand curve slopes downward because of

Accepted Answer

A)  wealth and substitution effects. 
B)  the multiplier. 
C)  import and taxation effects. 
D)  the MPC. 
A)  wealth and substitution effects. 
B)  the multiplier. 
C)  import and taxation effects. 
D)  the MPC.

Question 7

An increase in the price level results in a

Accepted Answer

A)  downward shift in the AE curve and a movement up along the AD curve. 
B)  downward shift in the AD curve and a movement down along the AE curve. 
C)  leftward movement along both the AE and AD curves. 
D)  downward shift in both the AE and AD curves. 
A)  downward shift in the AE curve and a movement up along the AD curve. 
B)  downward shift in the AD curve and a movement down along the AE curve. 
C)  leftward movement along both the AE and AD curves. 
D)  downward shift in both the AE and AD curves.

Question 8

The software and related services sector has a multiplier effect on the Indian economy with every one-rupee input spent by theʺ information technology sectorʺ producing an increase in real GDP by two rupees.
According to the story, if__________ in the software and related services sector increases by $15 billion, real GDP will increase by__________ .

Accepted Answer

A)  consumption; $2 billion. 
B)  investment; $2 billion. 
C)  consumption; $30 billion. 
D)  investment; $30 billion. 
A)  consumption; $2 billion. 
B)  investment; $2 billion. 
C)  consumption; $30 billion. 
D)  investment; $30 billion.

Question 9

Autonomous consumption is that portion of consumption expenditure that is not influenced by

Accepted Answer

A)  the legal authorities. 
B)  preferences. 
C)  prices. 
D)  income. 
A)  the legal authorities. 
B)  preferences. 
C)  prices. 
D)  income.

Question 10

Mauritius, an island off the coast of Africa, competes with other countries producing goods with low-skilled labor. In 2006, it was reported that its ʺ... factories have been exposed to ... competition from China, India and other Asian mass producers.ʺ As a result, ʺthe main export industry has seen a 30 per cent reduction in volume ...ʺ
The story describes

Accepted Answer

A)  a decrease in induced expenditure. 
B)  a decrease in autonomous expenditure. 
C)  an unplanned decrease in inventories. 
D)  an increase in equilibrium expenditure. 
A)  a decrease in induced expenditure. 
B)  a decrease in autonomous expenditure. 
C)  an unplanned decrease in inventories. 
D)  an increase in equilibrium expenditure.

Question 11

The MPC is the fraction of

Accepted Answer

A)  total disposable income that is consumed. 
B)  a change in disposable income that is consumed. 
C)  a change in disposable income that is saved. 
D)  total disposable income that is not consumed. 
A)  total disposable income that is consumed. 
B)  a change in disposable income that is consumed. 
C)  a change in disposable income that is saved. 
D)  total disposable income that is not consumed.

Question 12

ʺWhen the price level increases, aggregate planned expenditure increases and equilibrium expenditure increases.ʺ Is the preceding statement correct or incorrect? Briefly explain your answer.

Accepted Answer

The statement is incorrect. An increase

Question 13

Autonomous expenditure is not influenced by

Accepted Answer

A)  real GDP. 
B)  the interest rate. 
C)  any other variable. 
D)  the price level. 
A)  real GDP. 
B)  the interest rate. 
C)  any other variable. 
D)  the price level.

Question 14

The marginal propensity to import reflects the relationship between changes in imports and changes in

Accepted Answer

A)  investment spending. 
B)  real GDP. 
C)  exports. 
D)  consumption expenditure. 
A)  investment spending. 
B)  real GDP. 
C)  exports. 
D)  consumption expenditure.

Question 15

$$\begin{array} { | l | l | } 
\hline \begin{array} { l } 
\text { Disposable income } \
\text { (dollars) }
\end{array} & \begin{array} { l } 
\text { Consumption } \
\text { expenditure (dollars) }
\end{array} \
\hline 0 & 100 \
\hline 100 & 180 \
\hline 300 & 340 \
\hline 500 & 500 \
\hline 700 & 660 \
\hline 900 & 820 \
\hline
\end{array}$$
-In the above table, savings equal zero when disposable income equals

Accepted Answer

A)  $200. 
B)  $300. 
C)  0. 
D)  $500. 
A)  $200. 
B)  $300. 
C)  0. 
D)  $500.

Question 16

The size of the multiplier

Accepted Answer

A)  is unaffected by the amount of time that elapses. 
B)  is constant in the long run. 
C)  decreases in the long run. 
D)  increases in the long run. 
A)  is unaffected by the amount of time that elapses. 
B)  is constant in the long run. 
C)  decreases in the long run. 
D)  increases in the long run.

Question 17

The marginal propensity to consume is equal to

Accepted Answer

A)  the desired amount of consumption expenditure as a proportion of disposable income. 
B)  the change in consumption expenditure from a change in disposable income. 
C)  what people spend out of total disposable income. 
D)  the average, after-tax consumption amount. 
A)  the desired amount of consumption expenditure as a proportion of disposable income. 
B)  the change in consumption expenditure from a change in disposable income. 
C)  what people spend out of total disposable income. 
D)  the average, after-tax consumption amount.

Question 18

If wealth increases, the consumption function shifts upward.

Accepted Answer

A) True 
 B)False

Question 19

In general, an increase in autonomous expenditure that is NOT created by a change in the price level results in a

Accepted Answer

A)  movement upward along the AD curve. 
B)  leftward shift of the AD curve. 
C)  rightward shift of the AD curve. 
D)  movement downward along the AD curve. 
A)  movement upward along the AD curve. 
B)  leftward shift of the AD curve. 
C)  rightward shift of the AD curve. 
D)  movement downward along the AD curve.

Question 20

Equilibrium expenditure occurs where the aggregate expenditure curve crosses the

Accepted Answer

A)  vertical axis. 
B)  horizontal axis. 
C)  45-degree line. 
D)  consumption function. 
A)  vertical axis. 
B)  horizontal axis. 
C)  45-degree line. 
D)  consumption function.

What is the marginal propensity to consume? Why it is an important concept?

Which of the following statements is FALSE?

According to the Keynesian theory, the typical firm

Actual expenditure might differ from planned expenditure because

What effect does an increase in the MPC have on the slope of the AE curve?

The aggregate demand curve slopes downward because of

An increase in the price level results in a

Autonomous consumption is that portion of consumption expenditure that is not influenced by

The MPC is the fraction of

ʺWhen the price level increases, aggregate planned expenditure increases and equilibrium expenditure increases.ʺ Is the preceding statement correct or incorrect? Briefly explain your answer.

Autonomous expenditure is not influenced by

The marginal propensity to import reflects the relationship between changes in imports and changes in

Disposable income (dollars) Consumption expenditure (dollars) 0 100 100 180 300 340 500 500 700 660 900 820 -In the above table, savings equal zero when disposable income equals

The size of the multiplier

The marginal propensity to consume is equal to

If wealth increases, the consumption function shifts upward.

In general, an increase in autonomous expenditure that is NOT created by a change in the price level results in a

Equilibrium expenditure occurs where the aggregate expenditure curve crosses the

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

Exam 11: Expenditure Multipliers: the Keynesian Model

What is the marginal propensity to consume? Why it is an important concept?

Which of the following statements is FALSE?

According to the Keynesian theory, the typical firm

Actual expenditure might differ from planned expenditure because

What effect does an increase in the MPC have on the slope of the AE curve?

The aggregate demand curve slopes downward because of

An increase in the price level results in a

Autonomous consumption is that portion of consumption expenditure that is not influenced by

The MPC is the fraction of

ʺWhen the price level increases, aggregate planned expenditure increases and equilibrium expenditure increases.ʺ Is the preceding statement correct or incorrect? Briefly explain your answer.

Autonomous expenditure is not influenced by

The marginal propensity to import reflects the relationship between changes in imports and changes in

Disposable income (dollars) Consumption expenditure (dollars) 0 100 100 180 300 340 500 500 700 660 900 820 -In the above table, savings equal zero when disposable income equals

The size of the multiplier

The marginal propensity to consume is equal to

If wealth increases, the consumption function shifts upward.

In general, an increase in autonomous expenditure that is NOT created by a change in the price level results in a

Equilibrium expenditure occurs where the aggregate expenditure curve crosses the

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters