Question 1

What does the marginal propensity to consume measure and how is it related to the consumption function?

Accepted Answer

The marginal propensity to consume, or M

Question 2

$$\begin{array} { | l | l | l | l | l | l | } 
\hline \begin{array} { l } 
\text { Real } \
\text { GDP }
\end{array} & C & I & G & X & M \
\hline 100 & 75 & 25 & 95 & 10 & 1 \
\hline 200 & 150 & 25 & 95 & 10 & 2 \
\hline 300 & 225 & 25 & 95 & 10 & 3 \
\hline 400 & 300 & 25 & 95 & 10 & 4 \
\hline 500 & 375 & 25 & 95 & 10 & 5 \
\hline 600 & 450 & 25 & 95 & 10 & 6 \
\hline 700 & 525 & 25 & 95 & 10 & 7 \
\hline 800 & 600 & 25 & 95 & 10 & 8 \
\hline 900 & 675 & 25 & 95 & 10 & 9 \
\hline 1000 & 750 & 25 & 95 & 10 & 10 \
\hline
\end{array}$$
-In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. What is the marginal propensity to consume?

Accepted Answer

A)  0.75 
B)  0.20 
C)  0.25 
D)  0.80 
A)  0.75 
B)  0.20 
C)  0.25 
D)  0.80

Question 3

If there are no taxes or imports and MPC = 0.67, the multiplier is

Accepted Answer

A)  6. 
B)  3. 
C)  0.33. 
D)  1.5. 
A)  6. 
B)  3. 
C)  0.33. 
D)  1.5.

Question 4

An increase in the price level decreases planned expenditure because

Accepted Answer

A)  the real interest rate rises, increasing consumption expenditure. 
B)  real wealth decreases, thus decreasing expenditure. 
C)  domestic prices rise relative to foreign prices, increasing net exports. 
D)  current prices rise relative to future prices, increasing expenditure. 
A)  the real interest rate rises, increasing consumption expenditure. 
B)  real wealth decreases, thus decreasing expenditure. 
C)  domestic prices rise relative to foreign prices, increasing net exports. 
D)  current prices rise relative to future prices, increasing expenditure.

Question 5

When the consumption function becomes steeper,

Accepted Answer

A)  the MPC rises. 
B)  the saving function also become steeper. 
C)  less of every dollar is consumed. 
D)  the MPC falls. 
A)  the MPC rises. 
B)  the saving function also become steeper. 
C)  less of every dollar is consumed. 
D)  the MPC falls.

Question 6

A change in the real interest rate creates a movement along the consumption function.

Accepted Answer

A) True 
 B)False

Question 7

In an article regarding Bangladeshʹs economy, the author suggests that the government ...ʺ[g]ive double tax breaks on investment dollars. Give a tax break to R&D [research and development]. Give a tax break on donations to educational institutions.ʺ
The increase in investment is considered__________ and will generate a larger increase in __________.

Accepted Answer

A)  induced expenditure; autonomous expenditure 
B)  autonomous expenditure; induced expenditure 
C)  autonomous expenditure; multiplier spending. 
D)  equilibrium spending; autonomous expenditure 
A)  induced expenditure; autonomous expenditure 
B)  autonomous expenditure; induced expenditure 
C)  autonomous expenditure; multiplier spending. 
D)  equilibrium spending; autonomous expenditure

Question 8

The multiplier effect exists because a change in autonomous expenditure

Accepted Answer

A)  prompts further exports. 
B)  leads to changes in income, which generate further spending. 
C)  will undergo its complete effect in one round. 
D)  leaves the economy in the form of imports. 
A)  prompts further exports. 
B)  leads to changes in income, which generate further spending. 
C)  will undergo its complete effect in one round. 
D)  leaves the economy in the form of imports.

Question 9

When aggregate planned expenditure is less than real GDP, unplanned

Accepted Answer

A)  consumption expenditure occurs. 
B)  exports are made. 
C)  investment occurs. 
D)  government expenditures are made. 
A)  consumption expenditure occurs. 
B)  exports are made. 
C)  investment occurs. 
D)  government expenditures are made.

Question 10

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

Accepted Answer

A)  0.80. 
B)  0.85. 
C)  0.75. 
D)  0.90. 
A)  0.80. 
B)  0.85. 
C)  0.75. 
D)  0.90.

Question 11

If there are no taxes or imports and MPC = 0.5, the multiplier equals

Accepted Answer

A)  0.5. 
B)  2.0. 
C)  6.0. 
D)  5.0. 
A)  0.5. 
B)  2.0. 
C)  6.0. 
D)  5.0.

Question 12

The sum of the components of aggregate expenditure that vary with real GDP is called

Accepted Answer

A)  autonomous consumption. 
B)  induced expenditures. 
C)  autonomous expenditures. 
D)  the MPC. 
A)  autonomous consumption. 
B)  induced expenditures. 
C)  autonomous expenditures. 
D)  the MPC.

Question 13

The marginal propensity to save is .

Accepted Answer

A)  equal to 1 plus the slope of the consumption function 
B)  equal to the inverse of the marginal propensity to consume 
C)  always greater than the marginal propensity to consume 
D)  equal to the slope of the saving function 
A)  equal to 1 plus the slope of the consumption function 
B)  equal to the inverse of the marginal propensity to consume 
C)  always greater than the marginal propensity to consume 
D)  equal to the slope of the saving function

Question 14

___________consumption is consumption that will occur___________ the level of GDP and disposable income.

Accepted Answer

A)  Induced; independent of 
B)  Autonomous; independent of 
C)  Autonomous; depending on 
D)  None of the above answers is correct. 
A)  Induced; independent of 
B)  Autonomous; independent of 
C)  Autonomous; depending on 
D)  None of the above answers is correct.

Question 15

ʺDissavingʺ occurs when

Accepted Answer

A)  the consumption function is below the 45-degree line drawn from the origin. 
B)  saving is positive. 
C)  income exceeds consumption expenditure. 
D)  saving is negative. 
A)  the consumption function is below the 45-degree line drawn from the origin. 
B)  saving is positive. 
C)  income exceeds consumption expenditure. 
D)  saving is negative.

Question 16

Saving equals

Accepted Answer

A)  disposable income minus consumption expenditure. 
B)  disposable income plus consumption expenditure. 
C)  disposable income minus taxes. 
D)  consumption expenditure minus disposable income. 
A)  disposable income minus consumption expenditure. 
B)  disposable income plus consumption expenditure. 
C)  disposable income minus taxes. 
D)  consumption expenditure minus disposable income.

Question 17

The marginal propensity to save is

Accepted Answer

A)  total saving divided by the change in disposable income. 
B)  the change in saving divided by the change in consumption expenditure. 
C)  total saving divided by total disposable income. 
D)  the change in saving divided by the change in disposable income. 
A)  total saving divided by the change in disposable income. 
B)  the change in saving divided by the change in consumption expenditure. 
C)  total saving divided by total disposable income. 
D)  the change in saving divided by the change in disposable income.

Question 18

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 ...
The decrease in exports will cause __________and the price level will__________ .

Accepted Answer

A)  an upward shift in the AE curve; increase as the AD curve shifts rightward in the long run 
B)  a leftward shift in the AD curve; rise in the long run as goods become more scarce 
C)  a downward shift in the AE curve; decrease as the AD curve shifts leftward in the short run 
D)  a leftward shift in the AD curve; fall in the short run and rise in the long run 
A)  an upward shift in the AE curve; increase as the AD curve shifts rightward in the long run 
B)  a leftward shift in the AD curve; rise in the long run as goods become more scarce 
C)  a downward shift in the AE curve; decrease as the AD curve shifts leftward in the short run 
D)  a leftward shift in the AD curve; fall in the short run and rise in the long run

Question 19

A fall in the price level shifts the aggregate expenditure curve upward and increases the quantity of real GDP demanded.

Accepted Answer

A) True 
 B)False

Question 20

A decrease in autonomous consumption will

Accepted Answer

A)  shift the aggregate expenditure function downward. 
B)  decrease the marginal propensity to consume. 
C)  change the slope of the aggregate expenditure curve 
D)  decrease the marginal propensity to save. 
A)  shift the aggregate expenditure function downward. 
B)  decrease the marginal propensity to consume. 
C)  change the slope of the aggregate expenditure curve 
D)  decrease the marginal propensity to save.

What does the marginal propensity to consume measure and how is it related to the consumption function?

If there are no taxes or imports and MPC = 0.67, the multiplier is

An increase in the price level decreases planned expenditure because

When the consumption function becomes steeper,

A change in the real interest rate creates a movement along the consumption function.

The multiplier effect exists because a change in autonomous expenditure

When aggregate planned expenditure is less than real GDP, unplanned

Disposable income (dollars) Consumption expenditure (dollars) 0 100 100 180 300 340 500 500 700 660 900 820 -In the above table, the marginal propensity to consume equals

If there are no taxes or imports and MPC = 0.5, the multiplier equals

The sum of the components of aggregate expenditure that vary with real GDP is called

The marginal propensity to save is .

_consumption is consumption that will occur_ the level of GDP and disposable income.

ʺDissavingʺ occurs when

Saving equals

The marginal propensity to save is

A fall in the price level shifts the aggregate expenditure curve upward and increases the quantity of real GDP demanded.

A decrease in autonomous consumption will

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 does the marginal propensity to consume measure and how is it related to the consumption function?

If there are no taxes or imports and MPC = 0.67, the multiplier is

An increase in the price level decreases planned expenditure because

When the consumption function becomes steeper,

A change in the real interest rate creates a movement along the consumption function.

The multiplier effect exists because a change in autonomous expenditure

When aggregate planned expenditure is less than real GDP, unplanned

Disposable income (dollars) Consumption expenditure (dollars) 0 100 100 180 300 340 500 500 700 660 900 820 -In the above table, the marginal propensity to consume equals

If there are no taxes or imports and MPC = 0.5, the multiplier equals

The sum of the components of aggregate expenditure that vary with real GDP is called

The marginal propensity to save is .

___________consumption is consumption that will occur___________ the level of GDP and disposable income.

ʺDissavingʺ occurs when

Saving equals

The marginal propensity to save is

A fall in the price level shifts the aggregate expenditure curve upward and increases the quantity of real GDP demanded.

A decrease in autonomous consumption will

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

_consumption is consumption that will occur_ the level of GDP and disposable income.