Question 1

Exhibit 8-2 Consumption function   As shown in Exhibit 8-2, the marginal propensity to consume (MPC)is:

Accepted Answer

A) 0.25. 
B) 0.50. 
C) 0.75. 
D) 0.90. 
A) 0.25. 
B) 0.50. 
C) 0.75. 
D) 0.90.

Question 2

When economists say that private investment is "autonomous," they mean that it:

Accepted Answer

A) will never change. 
B) is not dependent on the current level of disposable income. 
C) is determined by the "animal spirits" of business decision makers. 
D) is determined by the level of saving. 
A) will never change. 
B) is not dependent on the current level of disposable income. 
C) is determined by the "animal spirits" of business decision makers. 
D) is determined by the level of saving.

Question 3

If autonomous consumption is greater than zero and the marginal propensity to consume is greater than zero, but less than one, the consumption function will first be above and then below the 45 degree line.

Accepted Answer

A) True 
 B)False

Question 4

A downward shift in the consumption function can be caused by:

Accepted Answer

A) expectations of higher inflation. 
B) an increase in wealth. 
C) a lower price level. 
D) none of these. 
A) expectations of higher inflation. 
B) an increase in wealth. 
C) a lower price level. 
D) none of these.

Question 5

According to the Keynesian view, the prolonged unemployment of the Great Depression:

Accepted Answer

A) was surprising because Keynesians believed that wage rates would decline and direct the economy to full employment. 
B) was surprising because Keynesians believed that lower interest rates would direct the economy to full employment. 
C) resulted because the total expenditures on goods and services were less than the full-employment rate of output. 
D) resulted because the federal government ran large budget deficits during the 1930s. 
A) was surprising because Keynesians believed that wage rates would decline and direct the economy to full employment. 
B) was surprising because Keynesians believed that lower interest rates would direct the economy to full employment. 
C) resulted because the total expenditures on goods and services were less than the full-employment rate of output. 
D) resulted because the federal government ran large budget deficits during the 1930s.

Question 6

Exhibit 8-7 Aggregate expenditures function   As shown in Exhibit 8-7, this economy is in macro equilibrium at:

Accepted Answer

A) $8 trillion. 
B) $12 trillion. 
C) $16 trillion. 
D) None of these. 
A) $8 trillion. 
B) $12 trillion. 
C) $16 trillion. 
D) None of these.

Question 7

The marginal propensity to consume (MPC)is computed as the change in consumption divided by the change in:

Accepted Answer

A) GDP. 
B) disposable personal income. 
C) saving. 
D) none of these. 
A) GDP. 
B) disposable personal income. 
C) saving. 
D) none of these.

Question 8

Exhibit 8-6 Aggregate expenditures function   As shown in Exhibit 8-6, dissaving occurs:

Accepted Answer

A) at $5 trillion. 
B) between 0 and $4 trillion. 
C) where disposable income is greater than $4 trillion. 
D) at $8 trillion. 
A) at $5 trillion. 
B) between 0 and $4 trillion. 
C) where disposable income is greater than $4 trillion. 
D) at $8 trillion.

Question 9

Exhibit 8-15 Disposable income and consumption data  
In Exhibit 8-15, the MPS when Y increases from $5,000 to $6,000 is:

Accepted Answer

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

Question 10

If, for a given disposable income level, the disposable income line lies above the consumption curve, saving:

Accepted Answer

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

Question 11

The marginal propensity to save is:

Accepted Answer

A) the change in saving divided by the change in disposable income. 
B) the change in disposable income divided by the change in saving. 
C) saving divided by disposable income. 
D) disposable income divided by saving. 
E) saving divided by consumption. 
A) the change in saving divided by the change in disposable income. 
B) the change in disposable income divided by the change in saving. 
C) saving divided by disposable income. 
D) disposable income divided by saving. 
E) saving divided by consumption.

Question 12

As shown in Exhibit 8-3, the marginal propensity to save (MPS)is:

Accepted Answer

A) 0.40. 
B) 0.50. 
C) 0.67. 
D) 0.75. 
A) 0.40. 
B) 0.50. 
C) 0.67. 
D) 0.75.

Question 13

As shown in Exhibit 8-2, the break-even income is:

Accepted Answer

A) $2 trillion. 
B) $4 trillion. 
C) $6 trillion. 
D) $8 trillion. 
A) $2 trillion. 
B) $4 trillion. 
C) $6 trillion. 
D) $8 trillion.

Question 14

Exhibit 8-4 Disposable income and consumption data    
Note: All amounts are in billions of dollars per year. As shown in Exhibit 8-4, if disposable income is $600, saving is:

Accepted Answer

A) zero. 
B) - $100 billion. 
C) $100 billion. 
D) - $50 billion. 
E) $50 billion. 
A) zero. 
B) - $100 billion. 
C) $100 billion. 
D) - $50 billion. 
E) $50 billion.

Question 15

The relationship between consumer expenditures and disposable income is the:

Accepted Answer

A) savings function. 
B) the tax rate function. 
C) disposable income function. 
D) consumption function. 
A) savings function. 
B) the tax rate function. 
C) disposable income function. 
D) consumption function.

Question 16

The Keynesian model of macro equilibrium provided an explanation for the:

Accepted Answer

A) high rates of both unemployment and inflation experienced during the 2110s. 
B) prolonged high rates of unemployment experienced during the 1930s. 
C) low interest rates of the 1950s and 1960s. 
D) budget surpluses and rapid growth of the U.S. economy during the 1990s. 
A) high rates of both unemployment and inflation experienced during the 2110s. 
B) prolonged high rates of unemployment experienced during the 1930s. 
C) low interest rates of the 1950s and 1960s. 
D) budget surpluses and rapid growth of the U.S. economy during the 1990s.

Question 17

Which of the following would shift the investment demand curve leftward?

Accepted Answer

A) An increase in business taxes. 
B) A decrease in business taxes. 
C) A tax credit for new investment. 
D) Firms are operating their plants at full capacity. 
A) An increase in business taxes. 
B) A decrease in business taxes. 
C) A tax credit for new investment. 
D) Firms are operating their plants at full capacity.

Question 18

Exhibit 8-1 Disposable income and consumption data   In Exhibit 8-1, when disposable income is increased from $2,000 to $3,000 to $4,000,

Accepted Answer

A) total consumption increases by $1,000. 
B) the marginal propensity to consume remains constant. 
C) the marginal propensity to consume increases from 0.6 to 0.7. 
D) the marginal propensity to consume decreases from 0.8 to 0.7. 
E) the marginal propensity to consume decreases from 0.7 to 0.6. 
A) total consumption increases by $1,000. 
B) the marginal propensity to consume remains constant. 
C) the marginal propensity to consume increases from 0.6 to 0.7. 
D) the marginal propensity to consume decreases from 0.8 to 0.7. 
E) the marginal propensity to consume decreases from 0.7 to 0.6.

Question 19

Exhibit 8-10 Consumption function   In Exhibit 8-10, the level of autonomous consumption for consumption function C is:

Accepted Answer

A) $100. 
B) $150. 
C) $50. 
D) $0. 
E) $200. 
A) $100. 
B) $150. 
C) $50. 
D) $0. 
E) $200.

Question 20

The marginal propensity to consume is:

Accepted Answer

A) the change in disposable income divided by the change in consumption. 
B) consumption spending divided by disposable income. 
C) disposable income divided by consumption spending. 
D) the change in consumption divided by the change in disposable income. 
E) the change in consumption divided by disposable income. 
A) the change in disposable income divided by the change in consumption. 
B) consumption spending divided by disposable income. 
C) disposable income divided by consumption spending. 
D) the change in consumption divided by the change in disposable income. 
E) the change in consumption divided by disposable income.

Exam 8: The Keynesian Model

Exhibit 8-2 Consumption function As shown in Exhibit 8-2, the marginal propensity to consume (MPC)is:

When economists say that private investment is "autonomous," they mean that it:

If autonomous consumption is greater than zero and the marginal propensity to consume is greater than zero, but less than one, the consumption function will first be above and then below the 45 degree line.

A downward shift in the consumption function can be caused by:

According to the Keynesian view, the prolonged unemployment of the Great Depression:

Exhibit 8-7 Aggregate expenditures function As shown in Exhibit 8-7, this economy is in macro equilibrium at:

The marginal propensity to consume (MPC)is computed as the change in consumption divided by the change in:

Exhibit 8-6 Aggregate expenditures function As shown in Exhibit 8-6, dissaving occurs:

Exhibit 8-15 Disposable income and consumption data In Exhibit 8-15, the MPS when Y increases from $5,000 to $6,000 is:

If, for a given disposable income level, the disposable income line lies above the consumption curve, saving:

The marginal propensity to save is:

As shown in Exhibit 8-3, the marginal propensity to save (MPS)is:

As shown in Exhibit 8-2, the break-even income is:

Exhibit 8-4 Disposable income and consumption data Note: All amounts are in billions of dollars per year. As shown in Exhibit 8-4, if disposable income is $600, saving is:

The relationship between consumer expenditures and disposable income is the:

The Keynesian model of macro equilibrium provided an explanation for the:

Which of the following would shift the investment demand curve leftward?

Exhibit 8-1 Disposable income and consumption data In Exhibit 8-1, when disposable income is increased from $2,000 to $3,000 to $4,000,

Exhibit 8-10 Consumption function In Exhibit 8-10, the level of autonomous consumption for consumption function C is:

The marginal propensity to consume is:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

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