Question 1

When the U.S. government removes investment tax credits:

Accepted Answer

A)  consumption spending falls. 
B)  the return on investment increases. 
C)  capacity utilization in the economy expands. 
D)  the cost of capital increases. 
E)  technological innovation advances more rapidly. 
A)  consumption spending falls. 
B)  the return on investment increases. 
C)  capacity utilization in the economy expands. 
D)  the cost of capital increases. 
E)  technological innovation advances more rapidly. D

Question 2

_____ is the primary determinant of consumption and is usually measured in terms of current disposable income.

Accepted Answer

A)  Household income 
B)  Wealth 
C)  Expectation 
D)  Interest rate 
E)  Tax liability 
A)  Household income 
B)  Wealth 
C)  Expectation 
D)  Interest rate 
E)  Tax liability A

Question 3

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. A

Question 4

An increase in disposable income will cause autonomous consumption to rise.

Accepted Answer

A) True 
 B)False

Question 5

The net export function is negatively sloped because exports are inversely related to domestic income.

Accepted Answer

A) True 
 B)False

Question 6

Once macroeconomic equilibrium has been established in an economy, there is no tendency for real GDP to change, even if there is a change in autonomous expenditure.

Accepted Answer

A) True 
 B)False

Question 7

What would be the impact of an increase in foreign income on the net export function?

Accepted Answer

A)  The net export function would shift upward. 
B)  The net export function would shift downward. 
C)  The slope of the net export function would increase. 
D)  The slope of the net export function would decrease. 
E)  There would be a movement up along the net export function. 
A)  The net export function would shift upward. 
B)  The net export function would shift downward. 
C)  The slope of the net export function would increase. 
D)  The slope of the net export function would decrease. 
E)  There would be a movement up along the net export function.

Question 8

In the table given below Y represents the aggregate expenditure of the economy on C = consumption, I = investment, G = government projects, and X = net exports.?
  
-Refer to Table 9.3. The intercept of the C+ I+ G+ X function is at an aggregate expenditures level of:

Accepted Answer

A)  $125. 
B)  $150. 
C)  $275. 
D)  $315. 
E)  $335. 
A)  $125. 
B)  $150. 
C)  $275. 
D)  $315. 
E)  $335.

Question 9

The figure given below represents the saving function of an economy.?Figure 9.1
  
-Refer to Figure 9.1. An increase in autonomous consumption would be illustrated by:

Accepted Answer

A)  an upward shift of the saving function. 
B)  a downward shift of the saving function. 
C)  a downward shift of the corresponding consumption function. 
D)  a movement to the right along the saving function. 
E)  a movement to the left along the saving function. 
A)  an upward shift of the saving function. 
B)  a downward shift of the saving function. 
C)  a downward shift of the corresponding consumption function. 
D)  a movement to the right along the saving function. 
E)  a movement to the left along the saving function.

Question 10

Autonomous consumption is defined as:

Accepted Answer

A)  the level of consumption that depends only on the exchange rate. 
B)  the consumption expenditures incurred by the government. 
C)  the level of consumption that does not depend on income. 
D)  an equilibrium condition that needs to be met for the aggregate expenditure model to work. 
E)  the part of consumption that is related to investment. 
A)  the level of consumption that depends only on the exchange rate. 
B)  the consumption expenditures incurred by the government. 
C)  the level of consumption that does not depend on income. 
D)  an equilibrium condition that needs to be met for the aggregate expenditure model to work. 
E)  the part of consumption that is related to investment.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

A change in the marginal propensity to save can be graphically represented by:

Accepted Answer

A)  a movement along the investment function. 
B)  a movement along the saving function. 
C)  a parallel shift of the consumption function. 
D)  a parallel shift of the saving function. 
E)  a change in the slope of the saving function. 
A)  a movement along the investment function. 
B)  a movement along the saving function. 
C)  a parallel shift of the consumption function. 
D)  a parallel shift of the saving function. 
E)  a change in the slope of the saving function.

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 $40 increase in investment. 
C)  there is a 40 percent decline in imports. 
D)  there is a $40 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 $40 increase in investment. 
C)  there is a 40 percent decline in imports. 
D)  there is a $40 increase in imports. 
E)  there is a 40 percent increase in imports.

Question 14

The figure given below shows the aggregate expenditures function of an economy.?Figure 9.5
  
-Refer to figure 9.5. The slope of the aggregate expenditures function (AE) is flatter than the C+I+G function because:

Accepted Answer

A)  the marginal propensity to consume is ususally less than 1. 
B)  the marginal propensity to import is greater than 1. 
C)  the slope of the net exports function is negative. 
D)  investment(I) and government spending(G) are assumed to be autonomous. 
E)  there is a leakage from the aggregate expenditures function in the form of savings. 
A)  the marginal propensity to consume is ususally less than 1. 
B)  the marginal propensity to import is greater than 1. 
C)  the slope of the net exports function is negative. 
D)  investment(I) and government spending(G) are assumed to be autonomous. 
E)  there is a leakage from the aggregate expenditures function in the form of savings.

Question 15

Other things equal, a decrease in the cost of capital would be associated with an upward shift of the investment function and, hence, with a rise in aggregate expenditures.

Accepted Answer

A) True 
 B)False

Question 16

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 17

As a function of real GDP (real GDP being measured on the horizontal axis), autonomous investment is represented by a(n):

Accepted Answer

A)  U-shaped curve. 
B)  vertical line. 
C)  positively sloped line. 
D)  negatively sloped line. 
E)  horizontal line. 
A)  U-shaped curve. 
B)  vertical line. 
C)  positively sloped line. 
D)  negatively sloped line. 
E)  horizontal line.

Question 18

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 19

When we assume that investment is autonomous we imply that:

Accepted Answer

A)  it is a fixed constant amount. 
B)  it is independent of current real GDP. 
C)  it is a positive function of interest rates. 
D)  it is actually zero. 
E)  it has no impact on consumption. 
A)  it is a fixed constant amount. 
B)  it is independent of current real GDP. 
C)  it is a positive function of interest rates. 
D)  it is actually zero. 
E)  it has no impact on consumption.

Question 20

Suppose the marginal propensity to import for country A is 0.4. Calculate the change in the total value of imports of the country if national income increases by $100,000.

Accepted Answer

A)  $16,000 
B)  $20,000 
C)  $60,000 
D)  $40,000 
E)  $25,000 
A)  $16,000 
B)  $20,000 
C)  $60,000 
D)  $40,000 
E)  $25,000

Exam 9: Aggregate Expenditures

When the U.S. government removes investment tax credits:

_____ is the primary determinant of consumption and is usually measured in terms of current disposable income.

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

An increase in disposable income will cause autonomous consumption to rise.

The net export function is negatively sloped because exports are inversely related to domestic income.

Once macroeconomic equilibrium has been established in an economy, there is no tendency for real GDP to change, even if there is a change in autonomous expenditure.

What would be the impact of an increase in foreign income on the net export function?

In the table given below Y represents the aggregate expenditure of the economy on C = consumption, I = investment, G = government projects, and X = net exports.? -Refer to Table 9.3. The intercept of the C+ I+ G+ X function is at an aggregate expenditures level of:

The figure given below represents the saving function of an economy.?Figure 9.1 -Refer to Figure 9.1. An increase in autonomous consumption would be illustrated by:

Autonomous consumption is defined as:

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

A change in the marginal propensity to save can be graphically represented by:

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

The figure given below shows the aggregate expenditures function of an economy.?Figure 9.5 -Refer to figure 9.5. The slope of the aggregate expenditures function (AE) is flatter than the C+I+G function because:

Other things equal, a decrease in the cost of capital would be associated with an upward shift of the investment function and, hence, with a rise in aggregate expenditures.

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

As a function of real GDP (real GDP being measured on the horizontal axis), autonomous investment is represented by a(n):

As capacity utilization in an economy rises:

When we assume that investment is autonomous we imply that:

Suppose the marginal propensity to import for country A is 0.4. Calculate the change in the total value of imports of the country if national income increases by $100,000.

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

An Introduction to the Foreign Exchapterange 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

Exchapterange Rates and Financial Links Between Countries

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