Question 1

The marginal propensity to consume is the slope of the consumption function.

Accepted Answer

A) True 
 B)False

Question 2

Assume there is no government or foreign sector. If the multiplier is 4, a $10 billion increase in planned investment will cause equilibrium output to increase by:

Accepted Answer

A)  $60 billion. 
B)  $40 billion. 
C)  $10 billion. 
D)  $2.5 billion. 
A)  $60 billion. 
B)  $40 billion. 
C)  $10 billion. 
D)  $2.5 billion.

Question 3

Suppose consumption is $10,000 when income is $9,000 and the marginal propensity to save equals 0.1. When income increases to $9,500, consumption will be:

Accepted Answer

A)  $10,500. 
B)  $10,050. 
C)  $10,450. 
D)  $8,500. 
A)  $10,500. 
B)  $10,050. 
C)  $10,450. 
D)  $8,500.

Question 4

Assume that the consumption function is C = 100 + 0.8Y, income (Y) is $1,000 billion, and investment I is $50 billion, then the unplanned inventory change will be $ _______ billion.

Accepted Answer

A)  - 50 
B)  0 
C)  50 
D)  100 
A)  - 50 
B)  0 
C)  50 
D)  100

Question 5

Disposable income:

Accepted Answer

A)  increases when income increases. 
B)  decreases when saving increases. 
C)  increases when net taxes increase. 
D)  all of the above 
A)  increases when income increases. 
B)  decreases when saving increases. 
C)  increases when net taxes increase. 
D)  all of the above

Question 6

Recall Application 4, "The Locomotive Effect: Why Do Foreign Demand Affects a Country's Output," to answer the following questions:
-According to the application, what took over the US's role as the locomotive for global growth in 2007 when the US economy was slowing down?

Accepted Answer

A)  growth in other parts of the world such as Zimbabwe and Somalia 
B)  growth in other parts of the world such as China and India 
C)  a higher price of oil worldwide 
D)  growth in other parts of the world such as Japan 
A)  growth in other parts of the world such as Zimbabwe and Somalia 
B)  growth in other parts of the world such as China and India 
C)  a higher price of oil worldwide 
D)  growth in other parts of the world such as Japan

Question 7

The marginal propensity to import is the fraction of additional:

Accepted Answer

A)  imports that is earned as income. 
B)  consumption that is imported. 
C)  imports that is consumed. 
D)  income that is spent on imports. 
A)  imports that is earned as income. 
B)  consumption that is imported. 
C)  imports that is consumed. 
D)  income that is spent on imports.

Question 8

If the consumption function is C = 100 + 0.75Y, then the multiplier is:

Accepted Answer

A)  .75. 
B)  .25. 
C)  4. 
D)  5. 
A)  .75. 
B)  .25. 
C)  4. 
D)  5.

Question 9

If the consumption function is C = 80 + 0.6Y, then the proportion of each additional dollar that is saved is:

Accepted Answer

A)  0.4 
B)  1/0.6 = 1.5 
C)  - 0.4 
D)  0.6 
A)  0.4 
B)  1/0.6 = 1.5 
C)  - 0.4 
D)  0.6

Question 10

What effect does an introduction of an income tax rate have on the size of the government spending multiplier? Explain.

Accepted Answer

The introduction of an income tax rate w

Question 11

The Tiny Tots Toy Company manufactures only sleds. In 2010, Tiny Tots manufactured 11,000 sleds, but sold only 8,000 sleds. In 2010, Tiny Tots' change in inventory was:

Accepted Answer

A)  1,000 sleds. 
B)  3,000 sleds. 
C)  - 3,000 sleds. 
D)  8,000 sleds. 
A)  1,000 sleds. 
B)  3,000 sleds. 
C)  - 3,000 sleds. 
D)  8,000 sleds.

Question 12

A $100 million increase in government spending causes:

Accepted Answer

A)  a larger change in equilibrium output in a closed economy than in an open economy. 
B)  an equal amount of change in equilibrium output in an open and a closed economy. 
C)  a larger change in equilibrium output in a closed economy than in an open economy if the marginal propensity to import is zero. 
D)  a larger change in equilibrium output in an open economy than in a closed economy. 
A)  a larger change in equilibrium output in a closed economy than in an open economy. 
B)  an equal amount of change in equilibrium output in an open and a closed economy. 
C)  a larger change in equilibrium output in a closed economy than in an open economy if the marginal propensity to import is zero. 
D)  a larger change in equilibrium output in an open economy than in a closed economy.

Question 13

Taxes and transfer payments that stabilize GDP without requiring policymakers to take explicit actions are known as _______.

Accepted Answer

A)  full- employment budgets 
B)  automatic stabilizers 
C)  cyclical deficits 
D)  fiscal drags 
A)  full- employment budgets 
B)  automatic stabilizers 
C)  cyclical deficits 
D)  fiscal drags

Question 14

Assume there is no government or foreign sector. If the marginal propensity to save is 0.1, a $20 billion decrease in investment will cause equilibrium output to decrease by:

Accepted Answer

A)  $20 billion. 
B)  $2 billion. 
C)  $1 billion. 
D)  $200 billion. 
A)  $20 billion. 
B)  $2 billion. 
C)  $1 billion. 
D)  $200 billion.

Question 15

Nobel laureate Franco Modigliani found that increases in wealth cause:

Accepted Answer

A)  increases in the marginal propensity to consume. 
B)  decreases in the marginal propensity to consume. 
C)  increases in autonomous consumption. 
D)  decreases in autonomous consumption. 
A)  increases in the marginal propensity to consume. 
B)  decreases in the marginal propensity to consume. 
C)  increases in autonomous consumption. 
D)  decreases in autonomous consumption.

Question 16

We define equilibrium as the point where:

Accepted Answer

A)  planned spending equals depreciation. 
B)  planned spending equals output. 
C)  planned spending equals C+ I + G. 
D)  investment equals depreciation. 
A)  planned spending equals depreciation. 
B)  planned spending equals output. 
C)  planned spending equals C+ I + G. 
D)  investment equals depreciation.

Question 17

An increase in consumer confidence will

Accepted Answer

A)  shift the consumption function upwards. 
B)  cause the consumption function to be steeper. 
C)  shift the consumption function downwards. 
D)  cause the consumption function to be flatter. 
A)  shift the consumption function upwards. 
B)  cause the consumption function to be steeper. 
C)  shift the consumption function downwards. 
D)  cause the consumption function to be flatter.

Question 18

The larger the marginal propensity to import, the larger the multiplier in an open economy.

Accepted Answer

A) True 
 B)False

Question 19

The tax multiplier is negative because an increase in taxes _______ disposable income, which then _______consumption and GDP.

Accepted Answer

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

Question 20

Midwest State University in Nebraska is trying to convince Nebraska taxpayers that the tax dollars spent at Midwest State University are well spent. One of the university's arguments is that for every $1 spent by Midwest State University, an additional $5 of expenditures are generated within Nebraska. Midwest State University is arguing that the mpc in this economy is:

Accepted Answer

A)  0.2. 
B)  0.8. 
C)  0.75. 
D)  5. 
A)  0.2. 
B)  0.8. 
C)  0.75. 
D)  5.

The marginal propensity to consume is the slope of the consumption function.

Assume there is no government or foreign sector. If the multiplier is 4, a $10 billion increase in planned investment will cause equilibrium output to increase by:

Suppose consumption is $10,000 when income is $9,000 and the marginal propensity to save equals 0.1. When income increases to $9,500, consumption will be:

Assume that the consumption function is C = 100 + 0.8Y, income (Y) is $1,000 billion, and investment I is $50 billion, then the unplanned inventory change will be $ _______ billion.

Disposable income:

Recall Application 4, "The Locomotive Effect: Why Do Foreign Demand Affects a Country's Output," to answer the following questions: -According to the application, what took over the US's role as the locomotive for global growth in 2007 when the US economy was slowing down?

The marginal propensity to import is the fraction of additional:

If the consumption function is C = 100 + 0.75Y, then the multiplier is:

If the consumption function is C = 80 + 0.6Y, then the proportion of each additional dollar that is saved is:

What effect does an introduction of an income tax rate have on the size of the government spending multiplier? Explain.

The Tiny Tots Toy Company manufactures only sleds. In 2010, Tiny Tots manufactured 11,000 sleds, but sold only 8,000 sleds. In 2010, Tiny Tots' change in inventory was:

A $100 million increase in government spending causes:

Taxes and transfer payments that stabilize GDP without requiring policymakers to take explicit actions are known as _______.

Assume there is no government or foreign sector. If the marginal propensity to save is 0.1, a $20 billion decrease in investment will cause equilibrium output to decrease by:

Nobel laureate Franco Modigliani found that increases in wealth cause:

We define equilibrium as the point where:

An increase in consumer confidence will

The larger the marginal propensity to import, the larger the multiplier in an open economy.

The tax multiplier is negative because an increase in taxes _ disposable income, which then _consumption and GDP.

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 11: The Income-Expenditure Model

The marginal propensity to consume is the slope of the consumption function.

Assume there is no government or foreign sector. If the multiplier is 4, a $10 billion increase in planned investment will cause equilibrium output to increase by:

Suppose consumption is $10,000 when income is $9,000 and the marginal propensity to save equals 0.1. When income increases to $9,500, consumption will be:

Assume that the consumption function is C = 100 + 0.8Y, income (Y) is $1,000 billion, and investment I is $50 billion, then the unplanned inventory change will be $ _______ billion.

Disposable income:

Recall Application 4, "The Locomotive Effect: Why Do Foreign Demand Affects a Country's Output," to answer the following questions: -According to the application, what took over the US's role as the locomotive for global growth in 2007 when the US economy was slowing down?

The marginal propensity to import is the fraction of additional:

If the consumption function is C = 100 + 0.75Y, then the multiplier is:

If the consumption function is C = 80 + 0.6Y, then the proportion of each additional dollar that is saved is:

What effect does an introduction of an income tax rate have on the size of the government spending multiplier? Explain.

The Tiny Tots Toy Company manufactures only sleds. In 2010, Tiny Tots manufactured 11,000 sleds, but sold only 8,000 sleds. In 2010, Tiny Tots' change in inventory was:

A $100 million increase in government spending causes:

Taxes and transfer payments that stabilize GDP without requiring policymakers to take explicit actions are known as _______.

Assume there is no government or foreign sector. If the marginal propensity to save is 0.1, a $20 billion decrease in investment will cause equilibrium output to decrease by:

Nobel laureate Franco Modigliani found that increases in wealth cause:

We define equilibrium as the point where:

An increase in consumer confidence will

The larger the marginal propensity to import, the larger the multiplier in an open economy.

The tax multiplier is negative because an increase in taxes _______ disposable income, which then _______consumption and GDP.

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

The tax multiplier is negative because an increase in taxes _ disposable income, which then _consumption and GDP.