Question 1

The consumption function relates consumption expenditure to

Accepted Answer

A)  the interest rate. 
B)  disposable income. 
C)  saving. 
D)  the price level. 
A)  the interest rate. 
B)  disposable income. 
C)  saving. 
D)  the price level.

Question 2

The difference between planned and unplanned spending is

Accepted Answer

A)  always negative. 
B)  inventories. 
C)  unplanned changes in inventories. 
D)  always positive. 
A)  always negative. 
B)  inventories. 
C)  unplanned changes in inventories. 
D)  always positive.

Question 3

When Audrey's disposable income is $40,000, her consumption expenditure is $39,000. When her disposable income is $50,000, Audrey's consumption expenditure is $47,000. What is Audrey's marginal propensity to consume?

Accepted Answer

The marginal propensity to consume is th

Question 4

-In the above figure, the marginal propensity to consume equals

Accepted Answer

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

Question 5

If firms set prices and then keep them fixed for a period of time, their fixed prices imply that

Accepted Answer

A)  the aggregate price level is fixed and that aggregate demand determines the quantity of goods and services sold. 
B)  prices are set by aggregate demand and supply. 
C)  the aggregate price level adjusts continuously. 
D)  the aggregate price level is fixed and that aggregate supply determines the quantity of goods and services sold. 
A)  the aggregate price level is fixed and that aggregate demand determines the quantity of goods and services sold. 
B)  prices are set by aggregate demand and supply. 
C)  the aggregate price level adjusts continuously. 
D)  the aggregate price level is fixed and that aggregate supply determines the quantity of goods and services sold.

Question 6

List and explain factors that influence consumption expenditure.

Accepted Answer

Disposable income is an important factor

Question 7

The multiplier effect

Accepted Answer

A)  generates instability in autonomous expenditure. 
B)  promotes stability of the general price level. 
C)  magnifies small changes in spending into larger changes in real GDP. 
D)  increases the MPC. 
A)  generates instability in autonomous expenditure. 
B)  promotes stability of the general price level. 
C)  magnifies small changes in spending into larger changes in real GDP. 
D)  increases the MPC.

Question 8

-In the figure above, if income taxes increase,

Accepted Answer

A)  the AE curve becomes steeper. 
B)  the AE curve becomes flatter. 
C)  there is a movement leftward along the unchanged AE curve. 
D)  there is a movement rightward along the unchanged AE curve. 
A)  the AE curve becomes steeper. 
B)  the AE curve becomes flatter. 
C)  there is a movement leftward along the unchanged AE curve. 
D)  there is a movement rightward along the unchanged AE curve.

Question 9

What is the marginal propensity to consume?

Accepted Answer

A)  the change in consumption expenditure divided by the change in disposable income 
B)  the percentage of disposable income that is consumed 
C)  one minus the fraction of total disposable income that is saved 
D)  the percentage of total income that is consumed 
A)  the change in consumption expenditure divided by the change in disposable income 
B)  the percentage of disposable income that is consumed 
C)  one minus the fraction of total disposable income that is saved 
D)  the percentage of total income that is consumed

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 "... factories have been exposed to ... competition from China, India and other Asian mass producers." As a result, "the main export industry has seen a 30 per cent reduction in volume ..." www.ft.com, 3/13/2006
The decrease in exports will cause ________ and the price level will ________.

Accepted Answer

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

Question 11

With a steep short-run aggregate supply curve

Accepted Answer

A)  an increase in government expenditure will not have an impact on the price level. 
B)  fiscal policy will be an effective tool to reduce unemployment without raising prices too much. 
C)  an increase in taxes that does not change potential GDP will not decrease real GDP by much. 
D)  there is a large change in real GDP whenever the price level rises. 
A)  an increase in government expenditure will not have an impact on the price level. 
B)  fiscal policy will be an effective tool to reduce unemployment without raising prices too much. 
C)  an increase in taxes that does not change potential GDP will not decrease real GDP by much. 
D)  there is a large change in real GDP whenever the price level rises.

Question 12

An increase in the price level decreases planned expenditure because

Accepted Answer

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

Question 13

The marginal propensity to consume is

Accepted Answer

A)  the slope of the savings function. 
B)  never greater than 1. 
C)  the percentage or fraction of income that is consumed. 
D)  the percentage change in disposable income. 
A)  the slope of the savings function. 
B)  never greater than 1. 
C)  the percentage or fraction of income that is consumed. 
D)  the percentage change in disposable income.

Question 14

When the aggregate demand curve shifts, the steeper the SAS curve the ________ will be a change in the price level and the ________ will be the multiplier.

Accepted Answer

A)  larger; larger 
B)  larger; smaller 
C)  smaller; larger 
D)  smaller; smaller 
A)  larger; larger 
B)  larger; smaller 
C)  smaller; larger 
D)  smaller; smaller

Question 15

The short-run impact changes in autonomous spending have on real GDP and the price level depends on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 16

When aggregate planned expenditure is less than real GDP, unplanned

Accepted Answer

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

Question 17

Suppose disposable income increases from $7 trillion to $8 trillion. At the same time, consumption expenditure increases from $6.8 trillion to ________. Thus the MPC must equal ________.

Accepted Answer

A)  $7.8 trillion; 0.80 
B)  $7.6 trillion; 0.80 
C)  $7.4 trillion; 0.40 
D)  $8 trillion; 1.00 
A)  $7.8 trillion; 0.80 
B)  $7.6 trillion; 0.80 
C)  $7.4 trillion; 0.40 
D)  $8 trillion; 1.00

Question 18

What is the consumption function? What factor leads to a movement along the consumption function?

Accepted Answer

The consumption function is the relation

Question 19

-In the above figure, at point d firms would find themselves with inventories ________ their target level and so they would ________ production.

Accepted Answer

A)  increasing above; increase 
B)  increasing above; decrease 
C)  decreasing below; increase 
D)  decreasing below; decrease 
A)  increasing above; increase 
B)  increasing above; decrease 
C)  decreasing below; increase 
D)  decreasing below; decrease

Question 20

In the Keynesian model of aggregate expenditure, we assume that firms will

Accepted Answer

A)  not change prices. 
B)  change prices only when inventory levels rise. 
C)  raise prices when inventory levels fall. 
D)  change prices immediately after a fluctuation in aggregate demand, to maintain profits. 
A)  not change prices. 
B)  change prices only when inventory levels rise. 
C)  raise prices when inventory levels fall. 
D)  change prices immediately after a fluctuation in aggregate demand, to maintain profits.

The consumption function relates consumption expenditure to

The difference between planned and unplanned spending is

When Audrey's disposable income is $40,000, her consumption expenditure is $39,000. When her disposable income is $50,000, Audrey's consumption expenditure is $47,000. What is Audrey's marginal propensity to consume?

-In the above figure, the marginal propensity to consume equals

If firms set prices and then keep them fixed for a period of time, their fixed prices imply that

List and explain factors that influence consumption expenditure.

The multiplier effect

-In the figure above, if income taxes increase,

What is the marginal propensity to consume?

With a steep short-run aggregate supply curve

An increase in the price level decreases planned expenditure because

The marginal propensity to consume is

When the aggregate demand curve shifts, the steeper the SAS curve the will be a change in the price level and the will be the multiplier.

The short-run impact changes in autonomous spending have on real GDP and the price level depends on aggregate supply.

When aggregate planned expenditure is less than real GDP, unplanned

Suppose disposable income increases from $7 trillion to $8 trillion. At the same time, consumption expenditure increases from $6.8 trillion to . Thus the MPC must equal .

What is the consumption function? What factor leads to a movement along the consumption function?

-In the above figure, at point d firms would find themselves with inventories their target level and so they would production.

In the Keynesian model of aggregate expenditure, we assume that firms 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

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 11: Expenditure Multipliers

The consumption function relates consumption expenditure to

The difference between planned and unplanned spending is

When Audrey's disposable income is $40,000, her consumption expenditure is $39,000. When her disposable income is $50,000, Audrey's consumption expenditure is $47,000. What is Audrey's marginal propensity to consume?

-In the above figure, the marginal propensity to consume equals

If firms set prices and then keep them fixed for a period of time, their fixed prices imply that

List and explain factors that influence consumption expenditure.

The multiplier effect

-In the figure above, if income taxes increase,

What is the marginal propensity to consume?

With a steep short-run aggregate supply curve

An increase in the price level decreases planned expenditure because

The marginal propensity to consume is

When the aggregate demand curve shifts, the steeper the SAS curve the ________ will be a change in the price level and the ________ will be the multiplier.

The short-run impact changes in autonomous spending have on real GDP and the price level depends on aggregate supply.

When aggregate planned expenditure is less than real GDP, unplanned

Suppose disposable income increases from $7 trillion to $8 trillion. At the same time, consumption expenditure increases from $6.8 trillion to ________. Thus the MPC must equal ________.

What is the consumption function? What factor leads to a movement along the consumption function?

-In the above figure, at point d firms would find themselves with inventories ________ their target level and so they would ________ production.

In the Keynesian model of aggregate expenditure, we assume that firms 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

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

When the aggregate demand curve shifts, the steeper the SAS curve the will be a change in the price level and the will be the multiplier.

Suppose disposable income increases from $7 trillion to $8 trillion. At the same time, consumption expenditure increases from $6.8 trillion to . Thus the MPC must equal .

-In the above figure, at point d firms would find themselves with inventories their target level and so they would production.