Question 1

As disposable income rises:

Accepted Answer

A)  consumption falls as a percentage of disposable income. 
B)  the average propensity to consume increases. 
C)  saving falls as a percentage of disposable income. 
D)  the average propensity to consume remains unchanged. 
E)  consumption rises as a percentage of disposable income. 
A)  consumption falls as a percentage of disposable income. 
B)  the average propensity to consume increases. 
C)  saving falls as a percentage of disposable income. 
D)  the average propensity to consume remains unchanged. 
E)  consumption rises as a percentage of disposable income.

Question 2

If a household experiences a $880 increase in consumption with a $1,100 increase in disposable income, what is the slope of that household's saving function?

Accepted Answer

A)  0.20 
B)  2.0 
C)  0.80 
D)  0.08 
E)  0.25 
A)  0.20 
B)  2.0 
C)  0.80 
D)  0.08 
E)  0.25

Question 3

The figure given below represents the consumption function of a country.
Figure 9.3
  
-Refer to Figure 9.3. When disposable income is $800, consumption spending must equal:

Accepted Answer

A)  $200. 
B)  $700. 
C)  $600. 
D)  $800. 
E)  $400. 
A)  $200. 
B)  $700. 
C)  $600. 
D)  $800. 
E)  $400.

Question 4

The figure given below represents the saving function of an economy.
Figure 9.1
  
-Refer to Figure 9.1. When disposable income equals zero:

Accepted Answer

A)  autonomous consumption equals zero. 
B)  the maximum amount of saving equals $10 billion. 
C)  autonomous income equals $10 billion. 
D)  autonomous consumption equals $10 billion. 
E)  consumption is negative. 
A)  autonomous consumption equals zero. 
B)  the maximum amount of saving equals $10 billion. 
C)  autonomous income equals $10 billion. 
D)  autonomous consumption equals $10 billion. 
E)  consumption is negative.

Question 5

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, how much interest will the firm have to pay?

Accepted Answer

A)  $301,500 
B)  $30,150 
C)  $270,000 
D)  $27,000 
E)  $9,000 
A)  $301,500 
B)  $30,150 
C)  $270,000 
D)  $27,000 
E)  $9,000

Question 6

The sum of consumption and saving is called _____.

Accepted Answer

A)  net investment 
B)  net income 
C)  personal income 
D)  disposable income 
E)  transfer income 
A)  net investment 
B)  net income 
C)  personal income 
D)  disposable income 
E)  transfer income

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 is the firm's profit from the investment?

Accepted Answer

A)  $25,500 
B)  $35,000 
C)  $8,000 
D)  $0 
E)  $6,525 
A)  $25,500 
B)  $35,000 
C)  $8,000 
D)  $0 
E)  $6,525

Question 8

Dissaving occurs when:

Accepted Answer

A)  disposable income is greater than consumption. 
B)  consumption is greater than disposable income. 
C)  consumption is equal to disposable income. 
D)  consumption is greater than personal income. 
E)  consumption is less than personal income. 
A)  disposable income is greater than consumption. 
B)  consumption is greater than disposable income. 
C)  consumption is equal to disposable income. 
D)  consumption is greater than personal income. 
E)  consumption is less than personal income.

Question 9

Which of the following statements concerning the effects of demographics on consumption is not true?

Accepted Answer

A)  The size of the population affects the slope of the consumption function. 
B)  The age of the population affects the slope of the consumption function. 
C)  Other things equal, the level of consumption will rise with increases in population. 
D)  Younger households tend to have higher MPCs than older households. 
E)  Older households tend to have higher MPSs than younger households. 
A)  The size of the population affects the slope of the consumption function. 
B)  The age of the population affects the slope of the consumption function. 
C)  Other things equal, the level of consumption will rise with increases in population. 
D)  Younger households tend to have higher MPCs than older households. 
E)  Older households tend to have higher MPSs than younger households.

Question 10

Consumption, saving, and wealth all represent stock concepts because they are measured over a period of time.

Accepted Answer

A) True 
 B)False

Question 11

The figure given below shows the aggregate expenditures function of an economy.
Figure 9.5
  
-Refer to Figure 9.5. The amount of government spending is indicated by the distance _____.

Accepted Answer

A)  Y1Y2 
B)  DE 
C)  Y2Y3 
D)  BC 
E)  AB 
A)  Y1Y2 
B)  DE 
C)  Y2Y3 
D)  BC 
E)  AB

Question 12

The figure given below shows the consumption functions of an economy.
Figure 9.4
  
-Refer to Figure 9.4. The shift of the consumption function from C1 to C2 has caused autonomous saving to:

Accepted Answer

A)  decrease by the distance between H and B. 
B)  increase by the distance between C and B. 
C)  decrease by the distance between C and B. 
D)  increase by the distance between H and G. 
E)  decrease by the distance between D and E. 
A)  decrease by the distance between H and B. 
B)  increase by the distance between C and B. 
C)  decrease by the distance between C and B. 
D)  increase by the distance between H and G. 
E)  decrease by the distance between D and E.

Question 13

The 45-degree line used in a consumption function represents:

Accepted Answer

A)  the saving function. 
B)  all points at which saving equals disposable income. 
C)  all points at which consumption equals saving. 
D)  all points at which all disposable income is consumed. 
E)  the aggregate income of the economy. 
A)  the saving function. 
B)  all points at which saving equals disposable income. 
C)  all points at which consumption equals saving. 
D)  all points at which all disposable income is consumed. 
E)  the aggregate income of the economy.

Question 14

If it is assumed that there are absolutely no taxes in an economy, then aggregate consumption will be drawn as a function of:

Accepted Answer

A)  disposable income. 
B)  real GDP. 
C)  government expenditure. 
D)  private income. 
E)  government transfers. 
A)  disposable income. 
B)  real GDP. 
C)  government expenditure. 
D)  private income. 
E)  government transfers.

Question 15

In most derivations of the aggregate expenditures model, investment is assumed to be independent of real GDP. What would be the effect on the aggregate expenditures (AE) function if investment spending were positively related to income?

Accepted Answer

A)  The intercept of the AE function would rise. 
B)  The slope of the AE function would become flatter. 
C)  Both the slope and the intercept of the AE function would increase. 
D)  The slope of the AE function would become steeper. 
E)  The intercept of the AE function would increase, and its slope would become flatter. 
A)  The intercept of the AE function would rise. 
B)  The slope of the AE function would become flatter. 
C)  Both the slope and the intercept of the AE function would increase. 
D)  The slope of the AE function would become steeper. 
E)  The intercept of the AE function would increase, and its slope would become flatter.

Question 16

Suppose that the U.S. trade balance is positive. Hence, when the net export function is added to C+I+G, the slope of the U.S. aggregate expenditures function will become steeper.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is a determinant of investment?

Accepted Answer

A)  Technological change 
B)  Net exports 
C)  Demographics 
D)  Nominal GDP 
E)  Population 
A)  Technological change 
B)  Net exports 
C)  Demographics 
D)  Nominal GDP 
E)  Population

Question 18

The table given below reports the consumption expenditure of a nation at different levels of disposable income.
Table 9.1
 $\begin{array}{|c|c|}
\hline \text { Disposable Income }\left(Y_{2}\right) & \text { Consumption }(C) \
\hline \$ {0}& \$ 4,500 \
\hline \$ 10,000 & \$ 12,000 \
\hline \$ 15,000 & \$ 15,750 \
\hline \$ 25,000 & \$ 23,250 \
\hline \$ 30,000 & \$ 27,000 \
\hline \$ 35,000 & \$ 30,750 \
\hline \$ 40,000 & \$ 34,500 \
\hline \$ 50,000 & \$ 42,000 \
\hline
\end{array}$
-Refer to Table 9.1. At an income level of $45,000, the average propensity to save would equal:

Accepted Answer

A)  0.15. 
B)  0.75. 
C)  0.25. 
D)  0.20. 
E)  0.80. 
A)  0.15. 
B)  0.75. 
C)  0.25. 
D)  0.20. 
E)  0.80.

Question 19

According to the permanent income hypothesis, when income rises above the permanent income level, the household saves at a lower rate than the long-run MPS.

Accepted Answer

A) True 
 B)False

Question 20

The sum of money spent by a person to purchase of a new home is considered as a part of investment spending.

Accepted Answer

A) True 
 B)False

As disposable income rises:

If a household experiences a $880 increase in consumption with a $1,100 increase in disposable income, what is the slope of that household's saving function?

The figure given below represents the consumption function of a country. Figure 9.3 -Refer to Figure 9.3. When disposable income is $800, consumption spending must equal:

The figure given below represents the saving function of an economy. Figure 9.1 -Refer to Figure 9.1. When disposable income equals zero:

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, how much interest will the firm have to pay?

The sum of consumption and saving is called _____.

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 is the firm's profit from the investment?

Dissaving occurs when:

Which of the following statements concerning the effects of demographics on consumption is not true?

Consumption, saving, and wealth all represent stock concepts because they are measured over a period of time.

The figure given below shows the aggregate expenditures function of an economy. Figure 9.5 -Refer to Figure 9.5. The amount of government spending is indicated by the distance _____.

The figure given below shows the consumption functions of an economy. Figure 9.4 -Refer to Figure 9.4. The shift of the consumption function from C₁ to C₂ has caused autonomous saving to:

The 45-degree line used in a consumption function represents:

If it is assumed that there are absolutely no taxes in an economy, then aggregate consumption will be drawn as a function of:

In most derivations of the aggregate expenditures model, investment is assumed to be independent of real GDP. What would be the effect on the aggregate expenditures (AE) function if investment spending were positively related to income?

Suppose that the U.S. trade balance is positive. Hence, when the net export function is added to C+I+G, the slope of the U.S. aggregate expenditures function will become steeper.

Which of the following is a determinant of investment?

According to the permanent income hypothesis, when income rises above the permanent income level, the household saves at a lower rate than the long-run MPS.

The sum of money spent by a person to purchase of a new home is considered as a part of investment spending.

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

Filters

Exam 9: Aggregate Expenditures

As disposable income rises:

If a household experiences a $880 increase in consumption with a $1,100 increase in disposable income, what is the slope of that household's saving function?

The figure given below represents the consumption function of a country. Figure 9.3 -Refer to Figure 9.3. When disposable income is $800, consumption spending must equal:

The figure given below represents the saving function of an economy. Figure 9.1 -Refer to Figure 9.1. When disposable income equals zero:

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, how much interest will the firm have to pay?

The sum of consumption and saving is called _____.

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 is the firm's profit from the investment?

Dissaving occurs when:

Which of the following statements concerning the effects of demographics on consumption is not true?

Consumption, saving, and wealth all represent stock concepts because they are measured over a period of time.

The figure given below shows the aggregate expenditures function of an economy. Figure 9.5 -Refer to Figure 9.5. The amount of government spending is indicated by the distance _____.

The figure given below shows the consumption functions of an economy. Figure 9.4 -Refer to Figure 9.4. The shift of the consumption function from C1 to C2 has caused autonomous saving to:

The 45-degree line used in a consumption function represents:

If it is assumed that there are absolutely no taxes in an economy, then aggregate consumption will be drawn as a function of:

In most derivations of the aggregate expenditures model, investment is assumed to be independent of real GDP. What would be the effect on the aggregate expenditures (AE) function if investment spending were positively related to income?

Suppose that the U.S. trade balance is positive. Hence, when the net export function is added to C+I+G, the slope of the U.S. aggregate expenditures function will become steeper.

Which of the following is a determinant of investment?

According to the permanent income hypothesis, when income rises above the permanent income level, the household saves at a lower rate than the long-run MPS.

The sum of money spent by a person to purchase of a new home is considered as a part of investment spending.

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

Filters

The figure given below shows the consumption functions of an economy. Figure 9.4 -Refer to Figure 9.4. The shift of the consumption function from C₁ to C₂ has caused autonomous saving to: