Question 1

Which one of the following changes is consistent with a change in an economy's consumption function from C = $500 billion + 0.80Y to C = $700 billion + 0.80Y?

Accepted Answer

A) An increase in disposable income taxes. 
B) An increase in interest rates 
C) A decrease in permanent disposable income. 
D) An increase in wealth. 
E) An increase in savings. 
A) An increase in disposable income taxes. 
B) An increase in interest rates 
C) A decrease in permanent disposable income. 
D) An increase in wealth. 
E) An increase in savings.

Question 2

Real disposable income is held constant when constructing a consumption function.

Accepted Answer

A) True 
 B)False

Question 3

Exhibit 8-7 Aggregate expenditures function   As shown in Exhibit 8-7, autonomous consumption is:

Accepted Answer

A) 0. 
B) $2 trillion. 
C) $4 trillion. 
D) $6 trillion. 
E) $8 trillion. 
A) 0. 
B) $2 trillion. 
C) $4 trillion. 
D) $6 trillion. 
E) $8 trillion.

Question 4

The consumption function shows the relationship between consumption and:

Accepted Answer

A) interest rates. 
B) saving. 
C) price level changes. 
D) disposable income. 
A) interest rates. 
B) saving. 
C) price level changes. 
D) disposable income.

Question 5

Exhibit 8-11 Consumption function   In Exhibit 8-11, the value of the marginal propensity to consume is:

Accepted Answer

A) high for C' than for C. 
B) lower for C" than for C. 
C) lower for C" than for C'. 
D) the same for C, C', and C". 
A) high for C' than for C. 
B) lower for C" than for C. 
C) lower for C" than for C'. 
D) the same for C, C', and C".

Question 6

At the point where the disposable income line intersects the consumption function, saving:

Accepted Answer

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

Question 7

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

Accepted Answer

A) A decrease in business taxes. 
B) A tax credit for new investment. 
C) Firms move from unused capacity to full capacity. 
D) All of these. 
A) A decrease in business taxes. 
B) A tax credit for new investment. 
C) Firms move from unused capacity to full capacity. 
D) All of these.

Question 8

The relationship between MPC and MPS is:

Accepted Answer

A) 1 + MPC = MPS. 
B) 1 - MPC = MPS. 
C) 1 + MPS = MPC. 
D) MPC - MPS = 1. 
A) 1 + MPC = MPS. 
B) 1 - MPC = MPS. 
C) 1 + MPS = MPC. 
D) MPC - MPS = 1.

Question 9

The marginal propensity to consume (MPC)is the slope of the:

Accepted Answer

A) GDP curve. 
B) disposable income curve. 
C) consumption function. 
D) autonomous consumption curve. 
A) GDP curve. 
B) disposable income curve. 
C) consumption function. 
D) autonomous consumption curve.

Question 10

An increase in consumer wealth shifts the consumption function downward.

Accepted Answer

A) True 
 B)False

Question 11

If Y = $500 billion, autonomous consumption = $400 billion, and the marginal propensity to save = 0.20, then saving will equal:

Accepted Answer

A) - $300 billion. 
B) $300 billion. 
C) $0. 
D) $80 billion. 
E) - $80 billion. 
A) - $300 billion. 
B) $300 billion. 
C) $0. 
D) $80 billion. 
E) - $80 billion.

Question 12

The consumption function shows the relationship between consumer expenditures and:

Accepted Answer

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

Question 13

Exhibit 8-10 Consumption function   In Exhibit 8-10, when disposable income is equal to $600, saving equals:

Accepted Answer

A) $0. 
B) $100. 
C) - $100. 
D) $50. 
E) $20. 
A) $0. 
B) $100. 
C) - $100. 
D) $50. 
E) $20.

Question 14

The slope of the consumption function is called the:

Accepted Answer

A) autonomous consumption rate. 
B) marginal consumption rate. 
C) average propensity to consume. 
D) marginal propensity to consume. 
A) autonomous consumption rate. 
B) marginal consumption rate. 
C) average propensity to consume. 
D) marginal propensity to consume.

Question 15

The popular theory prior to the Great Depression that the economy will automatically adjust to achieve full employment in the long run is:

Accepted Answer

A) supply-side economics. 
B) Keynesian economics. 
C) classical economics. 
D) mercantilism 
A) supply-side economics. 
B) Keynesian economics. 
C) classical economics. 
D) mercantilism

Question 16

The relationship between consumption and disposable income is the:

Accepted Answer

A) spending function. 
B) consumption function. 
C) autonomous consumption. 
D) household consumer spending 
E) household spending function. 
A) spending function. 
B) consumption function. 
C) autonomous consumption. 
D) household consumer spending 
E) household spending function.

Question 17

The Keynesian theory focuses on aggregate supply, while the classical theory focused on aggregate demand.

Accepted Answer

A) True 
 B)False

Question 18

The ratio of a change in consumption to a change in disposable income is the:

Accepted Answer

A) consumption function. 
B) propensity to consume. 
C) average propensity to consume. 
D) extra propensity to consume. 
E) marginal propensity to consume. 
A) consumption function. 
B) propensity to consume. 
C) average propensity to consume. 
D) extra propensity to consume. 
E) marginal propensity to consume.

Question 19

Exhibit 8-5 Consumption function   As shown in Exhibit 8-5, saving occurs:

Accepted Answer

A) at 0 disposable income. 
B) between $0 and $2 trillion disposable income. 
C) at $2 trillion disposable income. 
D) at a disposable income greater than $2 trillion. 
A) at 0 disposable income. 
B) between $0 and $2 trillion disposable income. 
C) at $2 trillion disposable income. 
D) at a disposable income greater than $2 trillion.

Question 20

\If the interest rate increases, then the:

Accepted Answer

A) economy will move to a new point along the existing consumption function. 
B) consumption function will shift up. 
C) consumption function will shift down. 
D) investment demand curve will shift up. 
E) economy will move to a new point along the existing investment demand curve. 
A) economy will move to a new point along the existing consumption function. 
B) consumption function will shift up. 
C) consumption function will shift down. 
D) investment demand curve will shift up. 
E) economy will move to a new point along the existing investment demand curve.

Exam 8: The Keynesian Model

Which one of the following changes is consistent with a change in an economy's consumption function from C = $500 billion + 0.80Y to C = $700 billion + 0.80Y?

Real disposable income is held constant when constructing a consumption function.

Exhibit 8-7 Aggregate expenditures function As shown in Exhibit 8-7, autonomous consumption is:

The consumption function shows the relationship between consumption and:

Exhibit 8-11 Consumption function In Exhibit 8-11, the value of the marginal propensity to consume is:

At the point where the disposable income line intersects the consumption function, saving:

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

The relationship between MPC and MPS is:

The marginal propensity to consume (MPC)is the slope of the:

An increase in consumer wealth shifts the consumption function downward.

If Y = $500 billion, autonomous consumption = $400 billion, and the marginal propensity to save = 0.20, then saving will equal:

The consumption function shows the relationship between consumer expenditures and:

Exhibit 8-10 Consumption function In Exhibit 8-10, when disposable income is equal to $600, saving equals:

The slope of the consumption function is called the:

The popular theory prior to the Great Depression that the economy will automatically adjust to achieve full employment in the long run is:

The relationship between consumption and disposable income is the:

The Keynesian theory focuses on aggregate supply, while the classical theory focused on aggregate demand.

The ratio of a change in consumption to a change in disposable income is the:

Exhibit 8-5 Consumption function As shown in Exhibit 8-5, saving occurs:

\If the interest rate increases, then the:

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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