Question 1

Households in America tend to consume more and more as they grow older.

Accepted Answer

A) True 
 B)False

Question 2

Changes in autonomous consumption will affect the slope of the consumption function.

Accepted Answer

A) True 
 B)False

Question 3

The figure given below represents the consumption function of a country.
Figure 9.3
  
-Refer to Figure 9.3. If the marginal propensity to consume is equal to 0.3, then:

Accepted Answer

A)  autonomous consumption would decrease. 
B)  the total amount of dissaving would increase. 
C)  consumption spending would equal disposable income at an income level greater than $400. 
D)  consumption spending would equal disposable income at an income level less than $400. 
E)  consumption spending would equal disposable income at the same income level of $400. 
A)  autonomous consumption would decrease. 
B)  the total amount of dissaving would increase. 
C)  consumption spending would equal disposable income at an income level greater than $400. 
D)  consumption spending would equal disposable income at an income level less than $400. 
E)  consumption spending would equal disposable income at the same income level of $400.

Question 4

The part of the disposable income that is not consumed by households is:

Accepted Answer

A)  given away in the form of taxes. 
B)  given away as charity. 
C)  saved. 
D)  deducted as a depreciation cost. 
E)  spent on imports. 
A)  given away in the form of taxes. 
B)  given away as charity. 
C)  saved. 
D)  deducted as a depreciation cost. 
E)  spent on imports.

Question 5

The figure given below shows the aggregate expenditures function of an economy.
Figure 9.5
  
-Refer to Figure 9.5. Which of the following statements is true?

Accepted Answer

A)  Autonomous net exports equal the distance between A and C. 
B)  Autonomous consumption is equal to the distance between A and C. 
C)  There is a deficit in the merchandise and services account. 
D)  Exports exceed imports for the country in question. 
E)  Autonomous consumption is equal to the distance between 0 and C. 
A)  Autonomous net exports equal the distance between A and C. 
B)  Autonomous consumption is equal to the distance between A and C. 
C)  There is a deficit in the merchandise and services account. 
D)  Exports exceed imports for the country in question. 
E)  Autonomous consumption is equal to the distance between 0 and C.

Question 6

The figure given below shows the consumption function of a household.
Figure 9.2
  
-In Figure 9.2, a decrease in disposable income would be illustrated by:

Accepted Answer

A)  shifting the whole consumption function upward. 
B)  shifting the whole consumption function downward. 
C)  moving along the consumption function to the left. 
D)  moving along the consumption function to the right. 
E)  moving from point A to point D. 
A)  shifting the whole consumption function upward. 
B)  shifting the whole consumption function downward. 
C)  moving along the consumption function to the left. 
D)  moving along the consumption function to the right. 
E)  moving from point A to point D.

Question 7

Table 9.2
 $$\begin{array} { | l c | } 
\hline \text { Cost of machine } & \$ 300,000 \
\hline \text { Arnual autput from mechine } & \$ 35,000 \
\hline \text { Arnual interett rate on loans } & 9 \% \
\hline
\end{array}$$
-Refer to Table 9.2. If a firm purchases the machine by taking out a one-year loan, what happens to the firm's rate of return on the investment if the interest rate increases to 10 percent?

Accepted Answer

A)  It increases to 1.5 percent 
B)  It increases to 0.15 percent 
C)  It decreases to 1.5 percent 
D)  It decreases to 1.7 percent 
E)  It decreases to 0.17 percent 
A)  It increases to 1.5 percent 
B)  It increases to 0.15 percent 
C)  It decreases to 1.5 percent 
D)  It decreases to 1.7 percent 
E)  It decreases to 0.17 percent

Question 8

Suppose that the consumption function crosses the 45-degree line at a disposable income level of $800. Assume further that saving equals $200 when disposable income is $1,300. This implies that the MPC must equal 0.6.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the Kwik Print Company considers an investment project that involves the purchase of a copier with an expected output of $4,000. If the firm has to borrow $3,000 and the rate of return is 11.1 percent, then the interest rate associated with the loan must be 20 percent.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following factors will not affect the profit expectations of business firms and change the level of investment?

Accepted Answer

A)  Entry of new firms into the market 
B)  Introduction of new taxes 
C)  Announcement of new government subsidies 
D)  The current level of GDP 
E)  The marginal propensity to consume 
A)  Entry of new firms into the market 
B)  Introduction of new taxes 
C)  Announcement of new government subsidies 
D)  The current level of GDP 
E)  The marginal propensity to consume

Question 11

Which of the following would cause a change in imports?

Accepted Answer

A)  A change in foreign income 
B)  A change in foreign consumption 
C)  A change in domestic tastes for foreign products 
D)  A change in foreign tastes for domestic products 
E)  A change in domestic investment spending 
A)  A change in foreign income 
B)  A change in foreign consumption 
C)  A change in domestic tastes for foreign products 
D)  A change in foreign tastes for domestic products 
E)  A change in domestic investment spending

Question 12

When government spending is added to consumption and planned investment, the slope of the aggregate expenditure function increases.

Accepted Answer

A) True 
 B)False

Question 13

An MPI of 0.4 indicates that for every 100 percent increase in domestic income:

Accepted Answer

A)  there is a 40 percent increase in investment. 
B)  there is a 60 percent increase in investment. 
C)  there is a 40 percent decline in imports. 
D)  there is a 60 percent increase in imports. 
E)  there is a 40 percent increase in imports. 
A)  there is a 40 percent increase in investment. 
B)  there is a 60 percent increase in investment. 
C)  there is a 40 percent decline in imports. 
D)  there is a 60 percent increase in imports. 
E)  there is a 40 percent increase in imports.

Question 14

Other things equal, an increase in the consumer confidence index tends to raise the average propensity to consume.

Accepted Answer

A) True 
 B)False

Question 15

If capacity utilization by businesses remains constant, investment spending is likely to be the most volatile component of aggregate expenditures in the United States.

Accepted Answer

A) True 
 B)False

Question 16

As capacity utilization in an economy rises:

Accepted Answer

A)  firms sell their fixed assets to remain solvent. 
B)  the gap between the potential output and actual output widens. 
C)  firms reduce their demand for labor. 
D)  employment of inputs by firms declines. 
E)  firms add more factories and machines and increase output. 
A)  firms sell their fixed assets to remain solvent. 
B)  the gap between the potential output and actual output widens. 
C)  firms reduce their demand for labor. 
D)  employment of inputs by firms declines. 
E)  firms add more factories and machines and increase output.

Question 17

The net export function illustrates that:

Accepted Answer

A)  net exports are a positive function of domestic income. 
B)  net exports are independent of domestic income. 
C)  net exports are a negative function of domestic income. 
D)  imports are independent of domestic income. 
E)  exports are independent of foreign income. 
A)  net exports are a positive function of domestic income. 
B)  net exports are independent of domestic income. 
C)  net exports are a negative function of domestic income. 
D)  imports are independent of domestic income. 
E)  exports are independent of foreign income.

Question 18

Any increase in autonomous consumption is associated with:

Accepted Answer

A)  an equivalent increase in autonomous saving. 
B)  an equivalent decrease in autonomous saving. 
C)  an equivalent increase in the slope of the saving function. 
D)  an equivalent decrease in the slope of the saving function. 
E)  an equivalent movement along the saving function. 
A)  an equivalent increase in autonomous saving. 
B)  an equivalent decrease in autonomous saving. 
C)  an equivalent increase in the slope of the saving function. 
D)  an equivalent decrease in the slope of the saving function. 
E)  an equivalent movement along the saving function.

Question 19

The figure given below shows the consumption function of a household.
Figure 9.2
  
-In Figure 9.2, consumption equals disposable income:

Accepted Answer

A)  at point A only. 
B)  at point B only. 
C)  at point C only. 
D)  at points A and C only. 
E)  at all points on the consumption function. 
A)  at point A only. 
B)  at point B only. 
C)  at point C only. 
D)  at points A and C only. 
E)  at all points on the consumption function.

Question 20

A key assumption of the Keynesian model of macroeconomics is a fixed _____.

Accepted Answer

A)  interest rate 
B)  price level 
C)  exchange rate 
D)  real GDP 
E)  unemployment level 
A)  interest rate 
B)  price level 
C)  exchange rate 
D)  real GDP 
E)  unemployment level

Exam 9: Aggregate Expenditures

Households in America tend to consume more and more as they grow older.

Changes in autonomous consumption will affect the slope of the consumption function.

The figure given below represents the consumption function of a country. Figure 9.3 -Refer to Figure 9.3. If the marginal propensity to consume is equal to 0.3, then:

The part of the disposable income that is not consumed by households is:

The figure given below shows the aggregate expenditures function of an economy. Figure 9.5 -Refer to Figure 9.5. Which of the following statements is true?

The figure given below shows the consumption function of a household. Figure 9.2 -In Figure 9.2, a decrease in disposable income would be illustrated by:

Table 9.2 Cost of machine \ 300,000 Arnual autput from mechine \ 35,000 Arnual interett rate on loans 9\% -Refer to Table 9.2. If a firm purchases the machine by taking out a one-year loan, what happens to the firm's rate of return on the investment if the interest rate increases to 10 percent?

Suppose that the consumption function crosses the 45-degree line at a disposable income level of $800. Assume further that saving equals $200 when disposable income is $1,300. This implies that the MPC must equal 0.6.

Suppose the Kwik Print Company considers an investment project that involves the purchase of a copier with an expected output of $4,000. If the firm has to borrow $3,000 and the rate of return is 11.1 percent, then the interest rate associated with the loan must be 20 percent.

Which of the following factors will not affect the profit expectations of business firms and change the level of investment?

Which of the following would cause a change in imports?

When government spending is added to consumption and planned investment, the slope of the aggregate expenditure function increases.

An MPI of 0.4 indicates that for every 100 percent increase in domestic income:

Other things equal, an increase in the consumer confidence index tends to raise the average propensity to consume.

If capacity utilization by businesses remains constant, investment spending is likely to be the most volatile component of aggregate expenditures in the United States.

As capacity utilization in an economy rises:

The net export function illustrates that:

Any increase in autonomous consumption is associated with:

The figure given below shows the consumption function of a household. Figure 9.2 -In Figure 9.2, consumption equals disposable income:

A key assumption of the Keynesian model of macroeconomics is a fixed _____.

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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