Question 1

What is the difference between income and wealth?

Accepted Answer

Income is money earn

Question 2

Suppose policy makers want to increase GDP by $450 billion. If the marginal propensity to consume is 0.9, by how much must taxes decrease to achieve this target?

Accepted Answer

The tax multiplier w

Question 3

Let "C =Ca + by" define the consumption function. The term "
Ca " is known as

Accepted Answer

A)  autonomous consumption. 
B)  induced consumption. 
C)  the marginal propensity to consume. 
D)  the marginal propensity to save. 
A)  autonomous consumption. 
B)  induced consumption. 
C)  the marginal propensity to consume. 
D)  the marginal propensity to save.

Question 4

An increase in the price level shifts the planned expenditures curve upward.

Accepted Answer

A) True 
 B)False

Question 5

Let "C = Ca + by" define the consumption function. The term "b" is known as

Accepted Answer

A)  autonomous consumption. 
B)  induced consumption. 
C)  the marginal propensity to consume. 
D)  the marginal propensity to save. 
A)  autonomous consumption. 
B)  induced consumption. 
C)  the marginal propensity to consume. 
D)  the marginal propensity to save.

Question 6

The relationship between the level of saving and the level of consumption is called the savings function.

Accepted Answer

A) True 
 B)False

Question 7

Recall the Application about Austrian economist Henry Hazlitt and the Broken Window Fallacy to answer the following question(s). Hazlitt questioned whether a hoodlum breaking a store window was actually good for society.
-According to this Application, the argument that the broken window is good for society only works

Accepted Answer

A)  if the economy is operating below full employment where resources are underemployed. 
B)  if the economy is operating at full employment where resources are fully employed. 
C)  if the economy is operating above full employment where too few resources ae available. 
D)  in theory, but never in reality. 
A)  if the economy is operating below full employment where resources are underemployed. 
B)  if the economy is operating at full employment where resources are fully employed. 
C)  if the economy is operating above full employment where too few resources ae available. 
D)  in theory, but never in reality.

Question 8

The income-expenditure model focuses on changes in price levels.

Accepted Answer

A) True 
 B)False

Question 9

An increase in consumer spending based on an increase in income is reflected by

Accepted Answer

A)  an upward rotation of the consumption function. 
B)  an increase in the MPC. 
C)  a downward shift in the consumption function. 
D)  a movement up along the consumption function. 
A)  an upward rotation of the consumption function. 
B)  an increase in the MPC. 
C)  a downward shift in the consumption function. 
D)  a movement up along the consumption function.

Question 10

-Refer to Figure 11.4. Which diagram illustrates the effect of an increase in the income tax rate?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 11

Recall the Application about Austrian economist Henry Hazlitt and the Broken Window Fallacy to answer the following question(s). Hazlitt questioned whether a hoodlum breaking a store window was actually good for society.
-According to the Application, the argument that the broken window is good for society

Accepted Answer

A)  works in the Keynesian world when the economy is operating below full employment. 
B)  works in the classical world when the economy is operating at full employment. 
C)  works in both the Keynesian and classical worlds regardless of where the economy is operating relative to full employment. 
D)  never works in the Keynesian or classical worlds regardless of where the economy is operating relative to full employment. 
A)  works in the Keynesian world when the economy is operating below full employment. 
B)  works in the classical world when the economy is operating at full employment. 
C)  works in both the Keynesian and classical worlds regardless of where the economy is operating relative to full employment. 
D)  never works in the Keynesian or classical worlds regardless of where the economy is operating relative to full employment.

Question 12

The fraction of additional income spent on imports is called the

Accepted Answer

A)  import function. 
B)  marginal propensity to import. 
C)  marginal propensity to export. 
D)  trade balance. 
A)  import function. 
B)  marginal propensity to import. 
C)  marginal propensity to export. 
D)  trade balance.

Question 13

An increase in the level of U.S. exports ________ the demand for goods and service produced in the United States.

Accepted Answer

A)  decreases 
B)  increases 
C)  increases or decreases 
D)  does not affect 
A)  decreases 
B)  increases 
C)  increases or decreases 
D)  does not affect

Question 14

Recall the Application about the impact that home equity values have on consumer spending and wealth to answer the following question(s). From 1997 to mid-2006, housing prices rose nationally by approximately 90 percent and consumer wealth increased by $6.5 trillion, but in the summer of 2006, housing prices began to fall. Home equity is the single largest component of net wealth for most families in the United States, and changes in the value of home equity affect consumer spending.
-According to this Application, the decrease in consumer wealth due to decreases in the value of home equity has

Accepted Answer

A)  decreased consumer spending. 
B)  increased consumer saving. 
C)  decreased the marginal propensity to save. 
D)  increased short-run aggregate supply. 
A)  decreased consumer spending. 
B)  increased consumer saving. 
C)  decreased the marginal propensity to save. 
D)  increased short-run aggregate supply.

Question 15

Consumers will spend a higher proportion of a one-time bonus than they would of a permanent salary increase.

Accepted Answer

A) True 
 B)False

Question 16

Suppose autonomous consumption increases. Explain how this event will lead to a rise in equilibrium output, and illustrate using a graph of the income-expenditure model.

Accepted Answer

An increase in autonomous consumption wi

Question 17

An increase in consumer confidence will

Accepted Answer

A)  not change autonomous consumption and rotate the consumption function upward. 
B)  not change autonomous consumption and rotate the consumption function downward. 
C)  increase autonomous consumption and shift the consumption function upward. 
D)  decrease autonomous consumption and shift the consumption function downward. 
A)  not change autonomous consumption and rotate the consumption function upward. 
B)  not change autonomous consumption and rotate the consumption function downward. 
C)  increase autonomous consumption and shift the consumption function upward. 
D)  decrease autonomous consumption and shift the consumption function downward.

Question 18

The consumption function shows the relationship between consumer spending and price level.

Accepted Answer

A) True 
 B)False

Question 19

In the simple Keynesian cross model with no government or foreign sectors, at the equilibrium level of output

Accepted Answer

A)  saving is equal to zero. 
B)  saving is less than investment. 
C)  saving is equal to investment. 
D)  saving is greater than investment. 
A)  saving is equal to zero. 
B)  saving is less than investment. 
C)  saving is equal to investment. 
D)  saving is greater than investment.

Question 20

Suppose the United States is in the midst of a recession. What will happen to the value of the mpi?

Accepted Answer

A)  It will increase. 
B)  It will decrease. 
C)  It will not change. 
D)  It will fall to zero. 
A)  It will increase. 
B)  It will decrease. 
C)  It will not change. 
D)  It will fall to zero.

What is the difference between income and wealth?

Suppose policy makers want to increase GDP by $450 billion. If the marginal propensity to consume is 0.9, by how much must taxes decrease to achieve this target?

Let "C =Ca + by" define the consumption function. The term " Ca " is known as

An increase in the price level shifts the planned expenditures curve upward.

Let "C = Ca + by" define the consumption function. The term "b" is known as

The relationship between the level of saving and the level of consumption is called the savings function.

The income-expenditure model focuses on changes in price levels.

An increase in consumer spending based on an increase in income is reflected by

-Refer to Figure 11.4. Which diagram illustrates the effect of an increase in the income tax rate?

The fraction of additional income spent on imports is called the

An increase in the level of U.S. exports ________ the demand for goods and service produced in the United States.

Consumers will spend a higher proportion of a one-time bonus than they would of a permanent salary increase.

Suppose autonomous consumption increases. Explain how this event will lead to a rise in equilibrium output, and illustrate using a graph of the income-expenditure model.

An increase in consumer confidence will

The consumption function shows the relationship between consumer spending and price level.

In the simple Keynesian cross model with no government or foreign sectors, at the equilibrium level of output

Suppose the United States is in the midst of a recession. What will happen to the value of the mpi?

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's 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

What is the difference between income and wealth?

Suppose policy makers want to increase GDP by $450 billion. If the marginal propensity to consume is 0.9, by how much must taxes decrease to achieve this target?

Let "C =Ca + by" define the consumption function. The term " Ca " is known as

An increase in the price level shifts the planned expenditures curve upward.

Let "C = Ca + by" define the consumption function. The term "b" is known as

The relationship between the level of saving and the level of consumption is called the savings function.

The income-expenditure model focuses on changes in price levels.

An increase in consumer spending based on an increase in income is reflected by

-Refer to Figure 11.4. Which diagram illustrates the effect of an increase in the income tax rate?

The fraction of additional income spent on imports is called the

An increase in the level of U.S. exports ________ the demand for goods and service produced in the United States.

Consumers will spend a higher proportion of a one-time bonus than they would of a permanent salary increase.

Suppose autonomous consumption increases. Explain how this event will lead to a rise in equilibrium output, and illustrate using a graph of the income-expenditure model.

An increase in consumer confidence will

The consumption function shows the relationship between consumer spending and price level.

In the simple Keynesian cross model with no government or foreign sectors, at the equilibrium level of output

Suppose the United States is in the midst of a recession. What will happen to the value of the mpi?

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's 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