Question 1

Suppose the economy is in equilibrium. Now, suppose there is an increase in investment. As the economy adjusts to this increase in investment, we know that:

Accepted Answer

A)  the multiplier will increase. 
B)  consumption will fall. 
C)  saving will fall. 
D)  none of the above 
A)  the multiplier will increase. 
B)  consumption will fall. 
C)  saving will fall. 
D)  none of the above

Question 2

Firms react to unplanned increases in inventories by:

Accepted Answer

A)  increasing output. 
B)  reducing output. 
C)  increasing planned investment. 
D)  increasing consumption. 
A)  increasing output. 
B)  reducing output. 
C)  increasing planned investment. 
D)  increasing consumption.

Question 3

Assume that consumption is represented by the following: C = 200 + 0.75Y. Also assume that investment (I) equals 300.
(a) Given the information, calculate the equilibrium level of income.
(b) Given the information, calculate the level of consumption and saving that occurs at the equilibrium level of income.
(c) Now suppose that individuals decide to increase their saving so that autonomous consumption falls by 100. The consumption function is now C = 100 + 0.75Y. Calculate the new equilibrium level of income, the new level of consumption, and the new level of saving.
(d) Based on your analysis in Part (c), did the level of saving change as a result of this increased desire to save? Explain.

Accepted Answer

(a) Y = 2,000.
(b) C = 1,700 and S = 300

Question 4

Recall Application 4, "The Locomotive Effect: Why Do Foreign Demand Affects a Country's Output," to answer the following questions:
-From the 1990s until 2001, the US economy's share of the world economy increased.

Accepted Answer

A) True 
 B)False

Question 5

Define the consumption function. What does the slope of the consumption function measure?

Accepted Answer

The consumption function can be expresse

Question 6

Because the marginal propensity to consume is positive, the consumption function is:

Accepted Answer

A)  horizontal. 
B)  upward sloping. 
C)  downward sloping. 
D)  vertical. 
A)  horizontal. 
B)  upward sloping. 
C)  downward sloping. 
D)  vertical.

Question 7

Recall Application 4, "The Locomotive Effect: Why Do Foreign Demand Affects a Country's Output," to answer the
following questions:
-According to the application, economic growth in the US will

Accepted Answer

A)  increase other countries' exports. 
B)  decrease other countries' imports. 
C)  have no effect on other countries' exports or imports. 
D)  increase other countries' imports 
A)  increase other countries' exports. 
B)  decrease other countries' imports. 
C)  have no effect on other countries' exports or imports. 
D)  increase other countries' imports

Question 8

A decrease in the government spending will cause a:

Accepted Answer

A)  shift in the aggregate demand curve upward and to the right. 
B)  shift in the aggregate demand curve downward and to the left. 
C)  movement along the aggregate demand curve upwards. 
D)  movement along the aggregate demand curve downwards. 
A)  shift in the aggregate demand curve upward and to the right. 
B)  shift in the aggregate demand curve downward and to the left. 
C)  movement along the aggregate demand curve upwards. 
D)  movement along the aggregate demand curve downwards.

Question 9

In the most basic model of the economy, equilibrium output is achieved when:

Accepted Answer

A)  C+I expenditures are less than output. 
B)  C+ I expenditures exceed output. 
C)  C+I expenditures equals output. 
D)  all of the above are correct. 
A)  C+I expenditures are less than output. 
B)  C+ I expenditures exceed output. 
C)  C+I expenditures equals output. 
D)  all of the above are correct.

Question 10

The slope of the consumption function equals _______ while the slope of the 45 degree line equals _______.

Accepted Answer

A)  one; zero 
B)  the MPC; zero 
C)  the MPC; one. 
D)  MPS; MPC 
A)  one; zero 
B)  the MPC; zero 
C)  the MPC; one. 
D)  MPS; MPC

Question 11

Explain how the multiplier process works if there is an increase in investment spending. As the marginal propensity to consume increases, what happens to the size of the multiplier? Why?

Accepted Answer

The initial change in planned investment

Question 12

Firms react to unplanned inventory reductions by:

Accepted Answer

A)  reducing output. 
B)  reducing planned investment. 
C)  increasing consumption. 
D)  increasing output. 
A)  reducing output. 
B)  reducing planned investment. 
C)  increasing consumption. 
D)  increasing output.

Question 13

The multiplier in an open economy will decrease if:

Accepted Answer

A)  the marginal propensity to import increases. 
B)  the marginal propensity to consume increases. 
C)  either the marginal propensity to import or the marginal propensity to save decreases. 
D)  the marginal propensity to import decreases. 
A)  the marginal propensity to import increases. 
B)  the marginal propensity to consume increases. 
C)  either the marginal propensity to import or the marginal propensity to save decreases. 
D)  the marginal propensity to import decreases.

Question 14

The fraction of additional income that is saved is called:

Accepted Answer

A)  the marginal propensity of income. 
B)  the marginal propensity to consume. 
C)  the marginal propensity to save. 
D)  average consumption. 
A)  the marginal propensity of income. 
B)  the marginal propensity to consume. 
C)  the marginal propensity to save. 
D)  average consumption.

Question 15

Figure 11.3
-Refer to Figure 11.3 to answer the following questions. Suppose the economy is initially at point a. An increase in investments, holding everything else constant, will bring the economy back to equilibrium at point:

Accepted Answer

A)  a. 
B)  b. 
C)  c. 
D)  d. 
A)  a. 
B)  b. 
C)  c. 
D)  d.

Question 16

With the equation M=my, where M is the level of imports and y is real GDP, "m" is the

Accepted Answer

A)  marginal propensity to import. 
B)  marginal propensity to export. 
C)  net exports. 
D)  marginal propensity to consume. 
A)  marginal propensity to import. 
B)  marginal propensity to export. 
C)  net exports. 
D)  marginal propensity to consume.

Question 17

Suppose consumption is $10,000 when income is $9,000 and the marginal propensity to save equals 0.2. When income increases to $9,500, consumption will be:

Accepted Answer

A)  $10,800. 
B)  $9,800. 
C)  $10,400. 
D)  $10,200. 
A)  $10,800. 
B)  $9,800. 
C)  $10,400. 
D)  $10,200.

Question 18

If an economy's marginal propensity to consume is 0.6 and the marginal propensity to import is 0.1, then an increase in government spending of $1,000 will increase income by:

Accepted Answer

A)  $2,000. 
B)  $1,250. 
C)  $2,500. 
D)  $1,667. 
A)  $2,000. 
B)  $1,250. 
C)  $2,500. 
D)  $1,667.

Question 19

An increase in the price level will cause a:

Accepted Answer

A)  shift in the aggregate demand curve downwards. 
B)  shift in the aggregate demand curve upwards. 
C)  movement along the aggregate demand curve upwards. 
D)  movement along the aggregate demand curve downwards. 
A)  shift in the aggregate demand curve downwards. 
B)  shift in the aggregate demand curve upwards. 
C)  movement along the aggregate demand curve upwards. 
D)  movement along the aggregate demand curve downwards.

Question 20

Figure 11.4
-Refer to Figure 11.4. Between expenditure lines C+I+G0 and C+I+G1, the equilibrium output increased by:

Accepted Answer

A)  $600. 
B)  $400. 
C)  $1400. 
D)  $200. 
A)  $600. 
B)  $400. 
C)  $1400. 
D)  $200.

Suppose the economy is in equilibrium. Now, suppose there is an increase in investment. As the economy adjusts to this increase in investment, we know that:

Firms react to unplanned increases in inventories by:

Recall Application 4, "The Locomotive Effect: Why Do Foreign Demand Affects a Country's Output," to answer the following questions: -From the 1990s until 2001, the US economy's share of the world economy increased.

Define the consumption function. What does the slope of the consumption function measure?

Because the marginal propensity to consume is positive, the consumption function is:

Recall Application 4, "The Locomotive Effect: Why Do Foreign Demand Affects a Country's Output," to answer the following questions: -According to the application, economic growth in the US will

A decrease in the government spending will cause a:

In the most basic model of the economy, equilibrium output is achieved when:

The slope of the consumption function equals _ while the slope of the 45 degree line equals _.

Explain how the multiplier process works if there is an increase in investment spending. As the marginal propensity to consume increases, what happens to the size of the multiplier? Why?

Firms react to unplanned inventory reductions by:

The multiplier in an open economy will decrease if:

The fraction of additional income that is saved is called:

Figure 11.3 -Refer to Figure 11.3 to answer the following questions. Suppose the economy is initially at point a. An increase in investments, holding everything else constant, will bring the economy back to equilibrium at point:

With the equation M=my, where M is the level of imports and y is real GDP, "m" is the

Suppose consumption is $10,000 when income is $9,000 and the marginal propensity to save equals 0.2. When income increases to $9,500, consumption will be:

If an economy's marginal propensity to consume is 0.6 and the marginal propensity to import is 0.1, then an increase in government spending of $1,000 will increase income by:

An increase in the price level will cause a:

Figure 11.4 -Refer to Figure 11.4. Between expenditure lines C+I+G₀and C+I+G₁, the equilibrium output increased by:

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

Suppose the economy is in equilibrium. Now, suppose there is an increase in investment. As the economy adjusts to this increase in investment, we know that:

Firms react to unplanned increases in inventories by:

Recall Application 4, "The Locomotive Effect: Why Do Foreign Demand Affects a Country's Output," to answer the following questions: -From the 1990s until 2001, the US economy's share of the world economy increased.

Define the consumption function. What does the slope of the consumption function measure?

Because the marginal propensity to consume is positive, the consumption function is:

Recall Application 4, "The Locomotive Effect: Why Do Foreign Demand Affects a Country's Output," to answer the following questions: -According to the application, economic growth in the US will

A decrease in the government spending will cause a:

In the most basic model of the economy, equilibrium output is achieved when:

The slope of the consumption function equals _______ while the slope of the 45 degree line equals _______.

Explain how the multiplier process works if there is an increase in investment spending. As the marginal propensity to consume increases, what happens to the size of the multiplier? Why?

Firms react to unplanned inventory reductions by:

The multiplier in an open economy will decrease if:

The fraction of additional income that is saved is called:

Figure 11.3 -Refer to Figure 11.3 to answer the following questions. Suppose the economy is initially at point a. An increase in investments, holding everything else constant, will bring the economy back to equilibrium at point:

With the equation M=my, where M is the level of imports and y is real GDP, "m" is the

Suppose consumption is $10,000 when income is $9,000 and the marginal propensity to save equals 0.2. When income increases to $9,500, consumption will be:

If an economy's marginal propensity to consume is 0.6 and the marginal propensity to import is 0.1, then an increase in government spending of $1,000 will increase income by:

An increase in the price level will cause a:

Figure 11.4 -Refer to Figure 11.4. Between expenditure lines C+I+G0 and C+I+G1, the equilibrium output increased by:

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 slope of the consumption function equals _ while the slope of the 45 degree line equals _.

Figure 11.4 -Refer to Figure 11.4. Between expenditure lines C+I+G₀and C+I+G₁, the equilibrium output increased by: