Question 1

Which of the following is an example of a transfer payment?

Accepted Answer

A)  Your grandma buys you a new watch for graduation. 
B)  A military contractor pays to move its employee from the East Coast to the West Coast. 
C)  The county office gives its low-income residents food stamps. 
D)  The government floats bonds for a new highway. 
A)  Your grandma buys you a new watch for graduation. 
B)  A military contractor pays to move its employee from the East Coast to the West Coast. 
C)  The county office gives its low-income residents food stamps. 
D)  The government floats bonds for a new highway.

Question 2

"Men are disposed, as a rule, and on the average, to increase their consumption as their income increases, but not by as much as the increase in their incomes." Which of the following is consistent with this statement by J.M. Keynes?

Accepted Answer

A)  The slope of the consumption function is positive and less than 1. 
B)  The slope of the consumption function is greater than that of the 45-degree line. 
C)  The slope of the consumption function is negative. 
D)  The slope of the consumption function is equal to 1. 
A)  The slope of the consumption function is positive and less than 1. 
B)  The slope of the consumption function is greater than that of the 45-degree line. 
C)  The slope of the consumption function is negative. 
D)  The slope of the consumption function is equal to 1.

Question 3

Figure 8-1
 
 
Given the scatter diagram in Figure 8-1, what is the MPC (your best estimate)?

Accepted Answer

A)  1/2 
B)  1/3 
C)  2/3 
D)  1 
A)  1/2 
B)  1/3 
C)  2/3 
D)  1

Question 4

Inventories are included in GDP because

Accepted Answer

A)  they are value added to final goods. 
B)  they were produced and are sold in their final form. 
C)  they will depreciate. 
D)  they are considered government spending. 
A)  they are value added to final goods. 
B)  they were produced and are sold in their final form. 
C)  they will depreciate. 
D)  they are considered government spending.

Question 5

A savings account is an example of consumer income.

Accepted Answer

A) True 
 B)False

Question 6

Define the following terms and explain their importance in the study of macroeconomics: 
a. Consumer expenditures 
b. Investment spending 
c. National income 
d. Transfer payments

Accepted Answer

a. Consumer expenditures are the total a

Question 7

Households can finance their consumer spending from current

Accepted Answer

A)  income. 
B)  wealth. 
C)  debt. 
D)  income and current wealth. 
A)  income. 
B)  wealth. 
C)  debt. 
D)  income and current wealth.

Question 8

We should expect the consumption function to shift downward if

Accepted Answer

A)  real interest rates rise. 
B)  price levels fall. 
C)  consumers become more optimistic about future incomes. 
D)  consumers become more pessimistic about future incomes. 
A)  real interest rates rise. 
B)  price levels fall. 
C)  consumers become more optimistic about future incomes. 
D)  consumers become more pessimistic about future incomes.

Question 9

Residential construction (new houses and apartments) are included in which component of GDP?

Accepted Answer

A)  Government purchases 
B)  Retail spending 
C)  Investment spending 
D)  Net exports 
A)  Government purchases 
B)  Retail spending 
C)  Investment spending 
D)  Net exports

Question 10

The marginal propensity to consume (MPC) is calculated by which formula?

Accepted Answer

A)  MPC = change in DI divided by change in C 
B)  MPC = change in GDP divided by change in DI 
C)  MPC = change in C divided by change in DI 
D)  MPC = change in C divided by change in GDP 
A)  MPC = change in DI divided by change in C 
B)  MPC = change in GDP divided by change in DI 
C)  MPC = change in C divided by change in DI 
D)  MPC = change in C divided by change in GDP

Question 11

The tax cuts of 2008 and 2009 reduced the disposable income of U.S. consumers.

Accepted Answer

A) True 
 B)False

Question 12

A decrease in disposable income causes a shift in the consumption function.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is an example of wealth?

Accepted Answer

A)  A yearly salary of $40,000 
B)  A mutual fund balance of $1,000 
C)  Rental payments of $3,000 per month 
D)  Stock dividends of $500 per quarter 
A)  A yearly salary of $40,000 
B)  A mutual fund balance of $1,000 
C)  Rental payments of $3,000 per month 
D)  Stock dividends of $500 per quarter

Question 14

Aggregate demand is defined as the total spending

Accepted Answer

A)  of all consumers, business firms, government agencies, and foreigners on final goods and services produced in the United States. 
B)  by all consumers, business firms, government agencies, and foreigners in the United States. 
C)  consumers, businesses, government agencies, and foreigners wish to make in one year. 
D)  of consumers, businesses, and government agencies on final output. 
A)  of all consumers, business firms, government agencies, and foreigners on final goods and services produced in the United States. 
B)  by all consumers, business firms, government agencies, and foreigners in the United States. 
C)  consumers, businesses, government agencies, and foreigners wish to make in one year. 
D)  of consumers, businesses, and government agencies on final output.

Question 15

If you suddenly have the misfortune of screening positive for lung cancer, then your consumption function will most likely

Accepted Answer

A)  shift upward. 
B)  shift downward. 
C)  not shift, your disposable income does not change. 
D)  not shift, but force you to increase your expenditures along the consumption function. 
A)  shift upward. 
B)  shift downward. 
C)  not shift, your disposable income does not change. 
D)  not shift, but force you to increase your expenditures along the consumption function.

Question 16

Both President Bush and President Obama wanted tax cuts to stimulate consumer spending during the 2007-2009 recession.

Accepted Answer

A) True 
 B)False

Question 17

Investment spending, in economic terms, includes spending toward physical capital, machinery, new factories, and new housing.

Accepted Answer

A) True 
 B)False

Question 18

In economic analysis, which of the following is considered an injection?

Accepted Answer

A)  Saving 
B)  Taxes 
C)  Imports 
D)  Exports 
A)  Saving 
B)  Taxes 
C)  Imports 
D)  Exports

Question 19

In 1975, Congress passed a tax rebate to spur consumer spending. Consumers

Accepted Answer

A)  spent the entire amount of the tax savings, boosting the economy, as planned. 
B)  did not spend any of the amount of the tax savings. 
C)  saved a substantial share of the tax savings and spent the rest. 
D)  saved a small portion of the tax savings, and spent the rest. 
A)  spent the entire amount of the tax savings, boosting the economy, as planned. 
B)  did not spend any of the amount of the tax savings. 
C)  saved a substantial share of the tax savings and spent the rest. 
D)  saved a small portion of the tax savings, and spent the rest.

Question 20

Which of the following observations concerning GDP calculations is true?

Accepted Answer

A)  Goods and services produced by governments are valued at market price. 
B)  Inventories are treated as if they are yet to be sold. 
C)  Goods produced but not sold during the year are counted in that year's GDP. 
D)  Goods that firms add to their inventories do not count in the GDP. 
A)  Goods and services produced by governments are valued at market price. 
B)  Inventories are treated as if they are yet to be sold. 
C)  Goods produced but not sold during the year are counted in that year's GDP. 
D)  Goods that firms add to their inventories do not count in the GDP.

Exam 24: Aggregate Demand and the Powerful Consumer

Which of the following is an example of a transfer payment?

"Men are disposed, as a rule, and on the average, to increase their consumption as their income increases, but not by as much as the increase in their incomes." Which of the following is consistent with this statement by J.M. Keynes?

Figure 8-1 Given the scatter diagram in Figure 8-1, what is the MPC (your best estimate)?

Inventories are included in GDP because

A savings account is an example of consumer income.

Define the following terms and explain their importance in the study of macroeconomics: a. Consumer expenditures b. Investment spending c. National income d. Transfer payments

Households can finance their consumer spending from current

We should expect the consumption function to shift downward if

Residential construction (new houses and apartments) are included in which component of GDP?

The marginal propensity to consume (MPC) is calculated by which formula?

The tax cuts of 2008 and 2009 reduced the disposable income of U.S. consumers.

A decrease in disposable income causes a shift in the consumption function.

Which of the following is an example of wealth?

Aggregate demand is defined as the total spending

If you suddenly have the misfortune of screening positive for lung cancer, then your consumption function will most likely

Both President Bush and President Obama wanted tax cuts to stimulate consumer spending during the 2007-2009 recession.

Investment spending, in economic terms, includes spending toward physical capital, machinery, new factories, and new housing.

In economic analysis, which of the following is considered an injection?

In 1975, Congress passed a tax rebate to spur consumer spending. Consumers

Which of the following observations concerning GDP calculations is true?

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Us Economy

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