macro ch 11

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Name Test Bank Chapter 11: Income and Expenditure Description Question pool for Chapter 11: Income and Expenditure Instructions

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Question 1

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Question The changes in the economy of Ft. Myers, Florida, between 2003 and 2008 provides an example of: Answer the risk associated with an agricultural economy. positive and negative multiplier effects. how public assistance programs can stimulate the economy. the benefits of government budget surpluses. Add Question Here

Question 2

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Question The real estate market in Ft. Myers, Florida, collapsed by 2008 because: Answer houses were over-priced. most Floridians prefer to rent apartments rather than buy houses. hurricanes damaged so much property. climate change has made much of the retiree population leave Florida. Add Question Here

Question 3

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Question The marginal propensity to consume is: Answer increasing if the marginal propensity to save is increasing. the proportion of total disposable income that the average family consumes. the change in consumer spending divided by the change in aggregate disposable income. the change in consumer spending less the change in aggregate disposable income. Add Question Here

Question 4

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Question The marginal propensity to consume is equal to: Answer the proportion of consumer spending as a function of aggregate disposable income. the change in saving divided by the change in aggregate disposable income. the change in consumer spending divided by the change in aggregate disposable income. the change in saving divided by the change in consumer spending. Add Question Here

Question 5

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Question The MPS plus the MPC must equal: Answer zero. one. income. saving. Add Question Here

Question 6

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Question If the MPS = .1, then the value of the multiplier equals: Answer 1. 5. 9. 10. Add Question Here

Question 7

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Question If the multiplier equals 4, then the marginal propensity to save must be equal to: Answer 1/4. 1/2. 3/4. the marginal propensity to consume. Add Question Here

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Question 8

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Question Suppose that the marginal propensity to consume is 0.8, and investment spending increases by $100 billion. The increase in aggregate demand is: Answer $100 billion, the amount of investment spending. $125 billion, composed of $100 billion in investment spending and $25 billion in consumption. $80 billion, composed of $100 billion in investment spending and a decrease in consumption of $20 billion. $500 billion, composed of $100 billion in investment spending and $400 billion in consumption. Add Question Here

Question 9

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Question If the marginal propensity to save is 0.3, the size of the multiplier is: Answer 3.3. 2.3. 1.3. 0.7. Add Question Here

Question 10

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Question The marginal propensity to save is: Answer savings divided by aggregate income. the fraction of an additional dollar of disposable income that is saved. 1 + MPC. savings divided by aggregate income or 1 + MPC. Add Question Here

Question 11

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Question The multiplier is: Answer 1/[1–MPC]. MPS/MPC. 1/[MPC]. 1[1+MPC]. Add Question Here

Question 12

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Question If the MPC is 0.8, then the multiplier is: Answer 4. 5. 8. 10. Add Question Here

Question 13

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Question The marginal propensity to consume (MPC) is equal to the change in: Answer consumer spending divided by the change in disposable income. consumer spending divided by the change in investment spending. consumer spending divided by the change in gross domestic product. disposable income divided by the change in consumer spending. Add Question Here

Question 14

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Question If disposable income increases by $5 billion and consumer spending increases by $4 billion, the marginal propensity to consume is equal to: Answer 20. 0.8. 1.25. 9. Add Question Here

Question 15

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Question Suppose the marginal propensity to consume is equal to 0.90 and investment spending increases by $50 billion. Assuming no taxes and no trade, by how much will real GDP change? Answer $450 billion increase $90 billion increase $500 billion increase $500 billion decrease Add Question Here

Question 16

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The spending multiplier is equal to: Answer MPC/MPS. 1/(1 – MPS). MPC + MPS. 1/(1 – MPC). Add Question Here

Question 17

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Question Suppose that a financial crisis decreases investment spending by $100 billion and the marginal propensity to consume is 0.80. Assuming no taxes and no trade, by how much will real GDP change? Answer $500 billion decrease $200 billion decrease $800 billion decrease $400 billion increase Add Question Here

Question 18

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Question The MPC is the: Answer change in saving divided by the change in disposable income. change in disposable income divided by the change in consumption. change in disposable income divided by the change in saving. change in consumption divided by the change in disposable income. Add Question Here

Question 19

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Question If your disposable income increases from $10,000 to $15,000 and your consumption increases from $9,000 to $12,000, your MPC is: Answer 0.2. 0.4. 0.6. 0.8. Add Question Here

Question 20

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Question If your disposable personal income increases from $10,000 to $15,000 and your consumption increases from $9,000 to $13,000, your MPC is: Answer 0.2. 0.4. 0.6. 0.8. Add Question Here

Question 21

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Question The MPC plus the MPS must: Answer equal each other. equal 1. be less than 1. be greater than 1. Add Question Here

Question 22

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Question The value of MPC is: Answer equal to 1. greater than 1. greater than 0 and less than 1. less than 0 and greater than –1. Add Question Here

Question 23

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Question An increase in the MPC: Answer increases the multiplier. shifts the autonomous investment line upward. decreases the multiplier. shifts the autonomous investment line downward. Add Question Here

Question 24

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Question Figure: Consumption and Real GDP

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Reference: Ref 11-01

(Figure: Consumption and Real GDP) The slope of the consumption function is called the: Answer marginal propensity to save. average propensity to consume. marginal propensity to consume. marginal consumption increment. Add Question Here

Question 25

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Question Figure: Consumption and Real GDP

Reference: Ref 11-01

(Figure: Consumption and Real GDP) The marginal propensity to consume in this example is: Answer 0. 0.5 1.0. 2.0. Add Question Here

Question 26

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Question Figure: Consumption and Real GDP

Reference: Ref 11-01

(Figure: Consumption and Real GDP) If real GDP is $4 trillion, consumption is _______ trillion. Answer $0.75 $1 $3 $4 Add Question Here

Question 27

Multiple Choice Question Figure: Consumption and Real GDP

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Reference: Ref 11-01

(Figure: Consumption and Real GDP) If real GDP were $12 trillion, consumption would be _______ trillion. Answer $5 $7 $9 $11 Add Question Here

Question 28

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Question Figure: Consumption and Real GDP

Reference: Ref 11-01

(Figure: Consumption and Real GDP) If real GDP is $8 trillion, consumption is _______ trillion and saving is _______ trillion. Answer $4; $4 $5; $3 $6; $2 $7; $1 Add Question Here

Question 29

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Question Which of the following most accurately depicts the formula for the expenditure multiplier? Answer

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Question 30

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Question If MPC =.9, the multiplier is: Answer 10. 90. 9. 1 Add Question Here

Question 31

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Question The _______ the _______ , the _______ the multiplier. Answer smaller; level of wealth; greater greater; MPS; greater

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greater; MPC; smaller greater; MPC; greater Add Question Here

Question 32

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Question Suppose investment spending increases by $50 billion, and as a result the equilibrium income increases by $200 billion. The investment multiplier is: Answer 8. 10. 4. 1/4. Add Question Here

Question 33

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Question Suppose investment spending increases by $50 billion, and as a result the equilibrium income increases by $200 billion. The value of the MPC is: Answer 0.8. 0.4. 0.75. 4. Add Question Here

Question 34

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Question If the multiplier is 4, and investment spending falls by $100 billion, the change in equilibrium income will be: Answer –$400 billion. $400 billion. $25 billion. –$25 billion. Add Question Here

Question 35

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Question Suppose the government increases its spending by $100 billion as a stimulus package. If the MPC is 0.6, then equilibrium income will: Answer decrease by $250 billion. increase by $250 billion. increase by $600 billion. decrease by $400 billion. Add Question Here

Question 36

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Question According to the National Bureau of Economic Research, the U.S. economy is going through a severe recession. Most households are trying to save more of their income than before. This increase in private spending will lead to: Answer an increase in aggregate income as more saving means more funds for business investment. a fall in aggregate income as more saving means people will spend less. no change in aggregate income because there is no saving multiplier. an increase in aggregate income as an increase in saving will make people wealthier. Add Question Here

Question 37

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Question If the size of MPS is small, it will: Answer make the multiplier smaller. make the multiplier larger. not affect the value of the multiplier. increase the interest rate. Add Question Here

Question 38

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Question You and a co-worker have been trying to develop a linear equation that describes the local household consumption function. Your coworker has sent you a very short email that simply says he has finished the project and the consumption function is: C = 100 + .75(YD). Your job is to explain this result to your supervisor. According to this consumption function, what is the marginal propensity to consume? Answer 100 0.75 4 0.25 Add Question Here

Question 39

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Question You and a co-worker have been trying to develop a linear equation that describes the local household consumption function. Your coworker has sent you a very short email that simply says he has finished the project and the consumption function is: C = 100 + .75(YD). Your job is to explain this result to your supervisor. According to this consumption function, how much consumption spending would

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occur if a household had disposable income of $1000? Answer

$750 $4000 $850 $350 Add Question Here

Question 40

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Question Suppose the marginal propensity to consume changes from 0.75 to 0.90. How will this affect the consumption function? Answer The slope will get steeper. Autonomous consumption will increase. The function will exhibit a parallel shift upward. The slope will get steeper and autonomous consumption will increase. Add Question Here

Question 41

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Question Figure: Consumption and Disposable Personal Income

Reference: Ref 11-02

(Figure: Consumption and Disposable Personal Income) When disposable personal income is $1,200 billion, consumption is _______ billion. Answer $600 $800 $1,200 $2,000 Add Question Here

Question 42

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Question Figure: Consumption and Disposable Personal Income

Reference: Ref 11-02

(Figure: Consumption and Disposable Personal Income) When disposable personal income is $2,000 billion, consumption is _______ billion. Answer $400 $1,000 $1,200 $1,600 Add Question Here

Question 43

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Question Figure: Consumption and Disposable Personal Income

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Reference: Ref 11-02

(Figure: Consumption and Disposable Personal Income) The slope of the consumption function is: Answer 0.25. 0.50. 0.60. 0.67. Add Question Here

Question 44

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Question Table: Income and Consumption

Reference: Ref 11-03

(Table: Income and Consumption) When disposable personal income is $200, the MPC is: Answer 0.00. 0.20. 0.80. 1.40. Add Question Here

Question 45

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Question Table: Income and Consumption

Reference: Ref 11-03

(Table: Income and Consumption) When disposable personal income is $300, the MPC is: Answer 0.80. 0.92. 0.95. 1.00. Add Question Here

Question 46

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Question Table: Income and Consumption

Reference: Ref 11-03

(Table: Income and Consumption) When disposable personal income is $400, the level of personal saving is: Answer –$40. –$20. $0. $20. Add Question Here

Question 47

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Question The most important determinant of consumer spending is: Answer the government budget deficit or surplus. the price of gasoline. the trade deficit. disposable income. Add Question Here

Question 48

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Question Scenario: Consumption Spending Suppose that the consumption function is: C = $500 + 0.8 × YD where YD is disposable income. Reference: Ref 11-04

(Scenario: Consumption Spending) Autonomous consumption is: Answer $500. 0. 0.8 of disposable income. $1,300, if disposable income is $1,000. Add Question Here

Question 49

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Question Scenario: Consumption Spending Suppose that the consumption function is: C = $500 + 0.8 × YD where YD is disposable income. Reference: Ref 11-04

(Scenario: Consumption Spending) The marginal propensity to consume is: Answer $500. 0. 0.8. 0.2. Add Question Here

Question 50

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Question Scenario: Consumption Spending Suppose that the consumption function is: C = $500 + 0.8 × YD where YD is disposable income. Reference: Ref 11-04

(Scenario: Consumption Spending) The marginal propensity to save is: Answer $500. 0 0.8. 0.2. Add Question Here

Question 51

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Question Scenario: Consumption Spending Suppose that the consumption function is: C = $500 + 0.8 × YD where YD is disposable income. Reference: Ref 11-04

(Scenario: Consumption Spending) If income increases by $2,000, consumption will increase by: Answer $500. $2,000. $1,600. $400 Add Question Here

Question 52

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Question Scenario: Consumption Spending Suppose that the consumption function is: C = $500 + 0.8 × YD where YD is disposable income. Reference: Ref 11-04

(Scenario: Consumption Spending) If disposable income is $1000, saving is: Answer –$500. $1300. –$300. $300. Add Question Here

Question 53

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Question When David has no income, he spends $500. If his income increases to $2,000, he spends $1,900. Which of the following represents his consumption function? Answer C = 1.2 × YD. C = 0.95 × YD. C = $500 + 0.7 × YD. C = $500 + 1,000 × YD. Add Question Here

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Question 54

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Question Consumer spending in the United States normally accounts for approximately ______ of the economy. Answer 1/3. 1/2. 2/3. 3/4. Add Question Here

Question 55

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Question The following is an algebraic representation of the consumption function: C = A + MPC × YD. Which of the following represents the slope of the function? Answer C A MPC YD Add Question Here

Question 56

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Question According to the table below, the MPC and autonomous consumption are ________ and ________, respectively, for Bob.

Answer

0.6; $10,000 0.4; $13,000 0.6; $9,000 0.4; $9,000 Add Question Here

Question 57

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Question The most important factor affecting a household's consumer spending is: Answer its expected future disposable income. its current disposable income. its wealth. the current interest rate. Add Question Here

Question 58

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Question In the consumption function, an individual household's consumer spending: Answer is positively related to its current disposable income. is negatively related to its autonomous consumption and its marginal propensity to consume. is positively related to the interest rate. is determined by the accelerator principle. Add Question Here

Question 59

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Question If the marginal propensity to consume is 0.5, individual autonomous consumption is $10,000, and disposable income is $40,000, then individual consumption spending is: Answer $20,000. $25,000. $30,000. $45,000. Add Question Here

Question 60

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Question For the economy as a whole it holds true that: Answer C = MPC + (A × YD). C = A + (MPC × YD). C = (A + MPC) × YD. C = (A – MPS) + (MPC × YD). Add Question Here

Question 61

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Question The marginal propensity to consume is: Answer the slope of the consumption function. the intercept of the consumption function. the inverse of the consumption function. autonomous.

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Question 62

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Question If the aggregate consumption equals $100,000,000 + .75 × YD, then the marginal propensity to consume is: Answer 0.75. 0.25. $75,000,000. $100,000,000. Add Question Here

Question 63

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Question If the aggregate consumption equals $100,000,000 + .75 × YD, then the marginal propensity to save is: Answer 0.75. 0.25. –$75,000,000. –$100,000,000. Add Question Here

Question 64

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Question If the aggregate consumption equals $100,000,000 + .75 × YD, then autonomous consumption is: Answer 0.75. 0.25. $75,000,000. $100,000,000. Add Question Here

Question 65

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Question The aggregate consumption function: Answer relates household consumption and interest rates. describes what people would like to buy. describes the relationship of spending to family wealth. relates disposable income and total consumer spending. Add Question Here

Question 66

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Question The following is an algebraic representation of the consumption function: C = A + MPC × YD. Which of the following represents autonomous consumption? Answer C A MPC YD Add Question Here

Question 67

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Question David receives a tax refund of $800. He spends $600 and saves $200. David's marginal propensity to consume is: Answer 0.6. 0.75. 0.25. 0.20. Add Question Here

Question 68

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Question If the MPC is greater than zero but less than one, then we can be sure that when disposable income rises by $1 consumption will: Answer not be affected. will rise by more than $1. will rise by less than $1. will rise by exactly $1. Add Question Here

Question 69

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Question If the consumption function were plotted on the vertical axis of a graph, with disposable income on the horizontal axis: Answer the slope of the line would be negative and determined by the marginal propensity to save. the horizontal axis intercept would be determined by the level of autonomous consumption. the slope of the line would be positive and determined by the marginal propensity to consume. the vertical axis intercept would be determined by the current interest rate. Add Question Here

Question 70

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The marginal propensity to consume is: Answer consumption divided by disposable income. a change in consumption divided by a change in disposable income. income divided by consumption. a change in income divided by a change in consumption. Add Question Here

Question 71

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Question If the marginal propensity to save decreases from 0.6 to 0.5: Answer the slope of the consumption function increases from 0.4 to 0.5. the vertical axis intercept changes from 0.6 to 0.5. the slope of the consumption function decreases from 0.6 to 0.5. the horizontal axis intercept changes from 0.4 to 0.5. Add Question Here

Question 72

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Question The consumption function will shift up if: Answer households expect an increase in the minimum wage in the future. households expect a decrease in the minimum wage in the future. the marginal propensity to consume decreases. the marginal propensity to save increases. Add Question Here

Question 73

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Question Other things being equal, expectations of lower disposable income in the future would ________ and shift the consumption function _________. Answer increase autonomous consumption; up decrease the marginal propensity to consume; down decrease autonomous consumption; down increase the marginal propensity to consume; up Add Question Here

Question 74

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Question Assume that currently the marginal propensity to consume is 0.5, aggregate autonomous consumption is $10,000, and aggregate disposable income is $40,000. If disposable income were expected to increase in the future, the aggregate consumption function might take the form of: Answer C = 10,000 + (40,000 × 0.5). C = 12,000 + (40,000 × 0.5). C = 10,000 + (40,000 × 0.7). C = 10,000 + (42,000 × 0.5). Add Question Here

Question 75

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Question When future disposable income rises, then current consumption: Answer falls. rises. is unaffected. is autonomous. Add Question Here

Question 76

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Question Which of the following will shift the aggregate consumption function upward? Answer Disposable income rises. Consumer expectations turn more pessimistic about the future. The stock market is strong and wealth is rising. Disposable income falls. Add Question Here

Question 77

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Question Figure: Consumption Functions

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Reference: Ref 11-05

(Figure: Consumption Functions) Curve C' compared with curve C, would most likely result from a(n): Answer decrease in wealth. higher price level. decrease in expected future disposable income. increase in wealth. Add Question Here

Question 78

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Question Figure: Consumption Functions

Reference: Ref 11-05

(Figure: Consumption Functions) Curve C", compared with curve C, would most likely result from: Answer higher expected future disposable income. higher expected future GDP growth estimates. a drop in wealth. an increase in wealth. Add Question Here

Question 79

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Question An increase in the wealth of households, all other things unchanged, may be expected to result in _______ the aggregate consumption function. Answer no effect on an upward shift in a downward shift of a movement to the right along Add Question Here

Question 80

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Question An upward shift in the aggregate consumption function can be caused by: Answer expectations of higher future incomes. expectations of less income in the future. a stock market crash. a reduction in the wealth of households. Add Question Here

Question 81

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Question A downward shift in the consumption function can be caused by: Answer expectations of higher future incomes. an increase in the MPC. a decline in consumer wealth. an increase in the wealth of households. Add Question Here

Question 82

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Question An upward shift in the consumption function can be caused by: Answer an increase in consumer wealth. a drop in consumer wealth. pessimistic expectations about the future. an increase in disposable personal income. Add Question Here

Question 83

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Question A downward shift in the consumption function can be caused by: Answer a decrease in disposable income. an increase in disposable income. expectations of higher permanent income. a decrease in wealth. Add Question Here

Question 84

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Question If the stock market crashes: Answer the aggregate consumption function will shift up. the aggregate consumption function will shift down. unplanned inventory investment will be negative. GDP will increase. Add Question Here

Question 85

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Question Which of the following is NOT a determinate of consumer spending? Answer current disposable income expected future disposable income wealth investment spending Add Question Here

Question 86

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Question Other things being equal, an increase in aggregate wealth would ________ and shift the consumption function _________. Answer increase autonomous consumption; up decrease the marginal propensity to consume; down decrease autonomous consumption; down increase the marginal propensity to consume; up Add Question Here

Question 87

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Question The aggregate consumption function depends on: Answer disposable income. expected future disposable income. wealth. disposable income, expected future disposable income, and wealth. Add Question Here

Question 88

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Question Wealth affects consumer spending because: Answer wealthier people have higher incomes. wealthier people have better connections to buy in-demand goods. people try to smooth their consumption over their life-cycle. people try to consume as early in their lives as they can. Add Question Here

Question 89

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Question An increase in aggregate wealth: Answer increases the consumption of each individual. increases the aggregate consumption function. decreases the consumption of each individual. decreases the aggregate consumption function. Add Question Here

Question 90

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Question The life-cycle hypothesis of consumer spending says that consumers plan their spending: Answer based only on current disposable income. based on interest rates.

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over their life time. fluctuations in the stock market. Add Question Here

Question 91

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Question The consumption function shifts when: Answer disposable income changes. expected future disposable income changes. people receive a pay raise. disposable income goes down. Add Question Here

Question 92

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Question The life-cycle hypothesis suggests that consumers: Answer spend in response to current income. plan spending over their lifetime. spend more when income rises. save more when incomes rise. Add Question Here

Question 93

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Question Based on the life-cycle hypothesis, people save more: Answer as they get closer to retirement. in their peak earnings years. the older they get. in their old age. Add Question Here

Question 94

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Question Consider the simple economy of Behr, whose government does not tax its citizens. The consumption function of Behr is given by: C = 500 + .80Y, where Y is income. The autonomous consumer spending in this economy is: Answer 1000. 800. 500. not possible to calculate. Add Question Here

Question 95

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Question Consider the simple economy of Behr, whose government does not tax its citizens. The consumption function of Behr is given by: C = 500 + .80Y, where Y is income. The marginal propensity to consume in Behr is: Answer 0.75. 500. 0.80. 1.00. Add Question Here

Question 96

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Question Which one of the following will increase the aggregate consumption function? Answer Increase in aggregate wealth. Increase in aggregate disposable income. Decrease in aggregate wealth. Decrease in expected future disposable income. Add Question Here

Question 97

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Question If the disposable income increases, then: Answer the consumption function will shift upwards. there will be a rightward movement along the consumption function. there will be a leftward movement along the consumption function. the consumption function will shift downwards. Add Question Here

Question 98

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Question If the disposable income increases by $1000 and the consumer spending increases by $800, then the marginal propensity to consume is: Answer 0.80. 1.00. 1.25. 0.75.

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Question 99

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Question If MPC=.75, then the MPS is: Answer 1.75. 0.25. –0.25. 1.25. Add Question Here

Question 100

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Question Table: Disposable Income and Consumption

Reference: Ref 11-06

(Table: Disposable Income and Consumption) Referring to the table provided, the autonomous consumer spending is: Answer 200. 100. 120. 0. Add Question Here

Question 101

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Question Table: Disposable Income and Consumption

Reference: Ref 11-06

(Table: Disposable Income and Consumption) Use the information in the table, the MPC is equal to: Answer .80. 2. 1.20 .60. Add Question Here

Question 102

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Question Consumption function has a slope that is equal to the slope of: Answer the 45-degree line. the aggregate expenditure line. the aggregate demand curve. the short run aggregate supply curve. Add Question Here

Question 103

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Question Consider a simple economy: MPC = 0.75, income =$400 billion and aggregate consumption spending= $400 billion. The autonomous consumption is: Answer 0. $100 billion. $300 billion. $200 billion. Add Question Here

Question 104

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Question Planned investment spending depends on all of the following, EXCEPT: Answer the rate of interest. the expected future level of real GDP. the current productive capacity in the economy. the current level of real GDP. Add Question Here

Question 105

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Question The Accelerator Principle states that: Answer investment spending by the firms is positively related to the expected future growth of real GDP. investment spending by the firms is negatively related to the expected future growth of real GDP. investment spending by the firms is negatively related to the current level of real GDP. investment spending by the firms is positively related to the current level of real GDP. Add Question Here

Question 106

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Question Which one of the following accurately describes actual investment spending? Answer Actual Investment = Planned Investment + Unplanned Investment Actual Investment = Planned Investment – Unplanned Investment Actual Investment = Planned Investment + Unplanned Investment + Inventory Investment Actual Investment = Planned Investment × Unplanned Investment – Inventory Investment Add Question Here

Question 107

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Question Inventory investment is: Answer a part of the planned investment spending and is always positive. a part of the unplanned investment spending and may either be positive or negative. not a part of the investment spending by firms as it can't be properly planned ahead of time. a part of the consumption spending as these are unsold goods. Add Question Here

Question 108

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Question The Federal Reserve, the central bank of the U.S., has been cutting the interest rate in order to stimulate the recessionary economy. Fed's interest cuts are supposed to: Answer lower savings rate in the economy and stop the leakages. increase government spending on the economic infrastructure and thus increase GDP through the multiplier process. increase the cash holding by the general public thus lowering their dependence on credit. increase the investment spending and thus increase GDP via the multiplier. Add Question Here

Question 109

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Question Planned investment spending is: Answer positively related to existing productive capacity and the interest rate. negatively related to existing productive capacity and the interest rate. positively related to the interest rate and expected future GDP. negatively related to the interest rate and expected future GDP. Add Question Here

Question 110

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Question Which of the following is NOT one of the three principle factors upon which investment spending depends? Answer the interest rate the expected future level of real GDP the current level of production capacity the current level of real GDP Add Question Here

Question 111

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Question All of the following factors determine investment spending EXCEPT: Answer expected future real GDP. expectations about the future disposable income. the market interest rate. production capacity. Add Question Here

Question 112

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Question Planned investment spending is: Answer actual investment in a period. investment spending less depreciation in a period. investment spending that businesses plan to undertake during a period. always equal to savings. Add Question Here

Question 113

Multiple Choice Question Planned investment spending depends on: Answer the market interest rate. wealth.

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expected future disposable income. the life-cycle hypothesis. Add Question Here

Question 114

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Question Most recessions originate from: Answer an increase in aggregate demand. a decrease in aggregate demand. an increase in aggregate supply. a decrease in aggregate supply. Add Question Here

Question 115

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Question Investment spending: Answer fluctuates more than consumption. fluctuates less than consumption. changes about the same as changes in consumption. changes about the same as changes in interest rates. Add Question Here

Question 116

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Question An important factor determining investment spending is: Answer company profits. the prices of final products. expected future spending. expected future real GDP. Add Question Here

Question 117

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Question If the Federal Reserve increases interest rates to reduce inflation: Answer planned investment spending is most likely to increase. planned investment spending is most likely to decrease. planned investment spending is most likely to remain the same. unplanned investment in inventories is likely to be negative. Add Question Here

Question 118

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Question The supply of loanable funds increases because people decide to be more thrifty. Which of the following is most likely to occur? Answer Interest rates increase, and investment spending increases. Interest rates increase, and investment spending decreases. Interest rates decrease, and investment spending increases. Interest rates decrease, and investment spending decreases. Add Question Here

Question 119

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Question Which of the following is true regarding the tradeoff a firm makes when it spends money on an investment project? Answer Borrowing money will always be more expensive than using retained earnings. Using retained earnings will always be cheaper than using borrowed money. The tradeoff a firm faces when using retained earnings or borrowed funds is the same. Retained earnings has a higher opportunity cost than does using borrowed money because retained earnings come from past profits. Add Question Here

Question 120

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Question A fall in the market interest rate makes any investment project: Answer less profitable if the funds were borrowed and more profitable if it came from retained earnings. less profitable, regardless of whether the funds were borrowed or came from retained earnings. more profitable, regardless of whether the funds were borrowed or came from retained earnings. more profitable only if the funds were borrowed Add Question Here

Question 121

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Question Planned investment spending: Answer is positively related to the interest rate. is negatively related to the interest rate. is independent of the interest rate. moves in the same direction as does the market interest rate. Add Question Here

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Question 122

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Question The current level of productive capacity ________________ investment spending. Answer has no impact on is positively related to is negatively related to varies directly with Add Question Here

Question 123

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Question Planned investment spending is _______ to the interest rate because ______. Answer positively related; a fall in the market interest rate decreases the supply of loanable funds negatively related; a rise in the market interest rate makes any given investment project less profitable positively related; a fall in the market interest rate decreases the opportunity cost of investing negatively related; a rise in the market interest rate causes consumption to “crowd out” investment Add Question Here

Question 124

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Question If households increase savings in their bank accounts, _______ and the interest rate _______, therefore increasing investment spending. Answer the supply of loanable funds shifts right; rises the demand of loanable funds shifts right; rises the supply of loanable funds shifts right; falls the demand of loanable funds shifts left; falls Add Question Here

Question 125

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Question Other things being equal, investment spending ________ when ________. Answer decreases; firms expect sales to fall increases; firms have excessive production capacity increases; the rate of growth of real GDP is low decreases; the obsolete or worn out physical capital increases Add Question Here

Question 126

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Question Other things being equal, investment spending ________ as long as ________. Answer decreases; technological innovation develops faster than technological obsolescence increases; sales exceed the existing production capacity increases; the rate of growth of real GDP is lower than the marginal propensity to save decreases; the rate of growth of physical capital is positive Add Question Here

Question 127

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Question Retained earnings are: Answer past earnings that firms keep to pay taxes. past earnings firms retain to pay dividends. past earnings firms retain to finance investments. past off-the-book earnings that firms do not pay taxes due on. Add Question Here

Question 128

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Question If a CD store has 10,000 CDs at the start of the period and it has 15,000 CDs at the end of the period, then during the period its inventory investment was: Answer –5,000. 0.67. 1.5. 5,000. Add Question Here

Question 129

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Question If the interest rate rises, then: Answer planned investment spending rises. more investment projects have a rate of return greater than the interest rate. the opportunity cost of investment is greater. excess capacity will increase. Add Question Here

Question 130

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Question Positive unplanned inventory investment occurs when:

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Answer

actual depreciation is less than expected depreciation. actual sales are less than expected sales. actual depreciation is more than expected depreciation. actual sales are more than expected sales. Add Question Here

Question 131

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Question If a firm pays for investment spending out of retained earnings: Answer the interest rate is irrelevant. past profits are adjusted downward. current profits are adjusted downward. the firm forgoes interest it could have received. Add Question Here

Question 132

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Question The higher the current production capacity of the economy: Answer the higher is investment spending. the lower is investment spending. the higher is actual production. the lower is current production. Add Question Here

Question 133

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Question According to the accelerator principle: Answer a higher growth rate of real GDP leads to higher planned investment spending. a higher growth rate of real GDP causes immigration to increase. higher budget deficits lead to even larger deficits. the more money people make, the faster they spend it. Add Question Here

Question 134

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Question If planned investment spending is $2 trillion and inventories decrease by $0.5 trillion then, actual investment spending is: Answer $2.5 trillion. $1.5 trillion. $2 trillion. impossible to determine without more information. Add Question Here

Question 135

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Question Inventory investment can be: Answer negative. zero. positive. either negative, zero, or positive. Add Question Here

Question 136

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Question Actual investment spending equals: Answer planned investment plus unplanned investment. planned investment minus unplanned investment. unplanned investment, even if there is a positive amount of planned investment. unplanned investment minus planned investment Add Question Here

Question 137

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Question Rising inventories typically indicate _______ unplanned inventory investment and a _________ economy. Answer positive; slowing negative; slowing positive; expanding negative; expanding Add Question Here

Question 138

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Question According to the accelerator principle, a _______ rate of growth in real GDP leads to _______. Answer lower; lower unplanned inventory investment higher; higher inventory investment higher; higher planned investment spending lower; higher inventory investment

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Add Question Here

Question 139

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Question In 2005, Airbus Co. purchased raw materials worth $400 million in order to manufacture airplanes for a total value of $900 million. In that year, Airbus Co. sold airplanes for a total value of $800 million. During 2005, Airbus Co. registered inventory investment of: Answer $900 million. $500 million. $400 million. $100 million. Add Question Here

Question 140

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Question Actual investment spending is equal to: Answer the difference between unplanned investment spending and planned investment spending. the difference between planned investment spending and unplanned investment spending. the sum of planned investment spending and unplanned investment spending. the ratio of planned investment spending to unplanned investment spending. Add Question Here

Question 141

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Question If during one month we observe overall inventories rise due to unplanned inventory investment, we can safely conclude that: Answer the economy is slowing down. sales were more than had been forecast. inventory investment is negative. the accelerator principle was contradicted. Add Question Here

Question 142

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Question When planned investment is less than actual investment, then there must be: Answer unplanned inventory investment. unplanned inventory disinvestments. unplanned depreciation. unplanned technological progress. Add Question Here

Question 143

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Question According to the _____, there is a positive relationship between planned investment spending and the expected future growth rate of real GDP. Answer paradox of thrift life-cycle hypothesis multiplier effect accelerator principle Add Question Here

Question 144

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Question Planned investment spending will decrease if: Answer the interest rate rises. firms expect the growth of real GDP to increase. firms are currently producing near full capacity. consumer expectations about future wealth grow more optimistic. Add Question Here

Question 145

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Question According to the accelerator principle: Answer there is a positive relationship between expected future growth and planned investment spending. there is a negative relationship between expected future growth and planned investment spending. there is a positive relationship between unplanned inventory investment and planned investment spending. there is a positive relationship between the interest rate and planned investment spending. Add Question Here

Question 146

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Question Which of the following will cause a decrease in unplanned inventory investment? Answer an increase in interest rates an unexpected increase in consumer spending an increase in the growth rate of real GDP a sudden decrease in consumer wealth Add Question Here

Question 147

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Question Investment equals: Answer planned investment plus unplanned investment. planned investment minus unplanned investment. unplanned investment minus planned investment. planned investment in a free market economy. Add Question Here

Question 148

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Question Negative inventory investment occurs when companies: Answer add to their inventories when sales fall. add to their inventories by increasing production. reduce their inventories by decreasing production. reduce their inventories when sales increase. Add Question Here

Question 149

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Question Rising inventories usually indicate: Answer an unexpectedly growing economy. an unexpectedly slowing economy. an unexpected spurt in sales. an inflationary cycle. Add Question Here

Question 150

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Question Falling inventories indicate ______ unplanned inventory investment and a ______ economy. Answer positive; growing positive; slowing negative; slowing negative; growing Add Question Here

Question 151

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Question In an economy with no international trade, government expenditure, transfers, or taxes, planned aggregate spending is equal to: Answer GDP minus disposable income plus planned investment spending. consumption plus planned investment spending. disposable income plus planned investment spending. GDP minus consumption plus unplanned investment spending. Add Question Here

Question 152

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Question Because in an economy with no international trade, government expenditure, transfers, or taxes, disposable income is equal to GDP, it follows that: Answer as GDP increases, planned aggregate spending decreases. consumption is equal to investment spending. as GDP decreases, planned aggregate spending decreases. investment spending is equal to the disposable income. Add Question Here

Question 153

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Question Planned aggregate expenditures are represented by a line that is: Answer upward sloping. not sloped. vertical. horizontal. Add Question Here

Question 154

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Question The slope of the planned aggregate spending line is determined by: Answer the marginal propensity to consume. the level of unplanned investment spending. the level of planned investment spending. the level of autonomous consumption. Add Question Here

Question 155

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Question Use this scenario to answer questions 155–163. Scenario: Income-Expenditure Equilibrium GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The marginal propensity to consume is 0.8.

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Reference: Ref 11-07

(Scenario: Income-Expenditure Equilibrium) What is the consumption function? Answer C = 8,000 + .8 × YD C = 8,700 + .2 × YD C = 500 + 0.8 × YD C = 1,700 + .2 × YD Add Question Here

Question 156

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Question Use this scenario to answer questions 155–163. Scenario: Income-Expenditure Equilibrium GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The marginal propensity to consume is 0.8. Reference: Ref 11-07

(Scenario: Income-Expenditure Equilibrium) How much is consumption? Answer $500 $8,000 $700 $6,900 Add Question Here

Question 157

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Question Use this scenario to answer questions 155–163. Scenario: Income-Expenditure Equilibrium GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The marginal propensity to consume is 0.8. Reference: Ref 11-07

(Scenario: Income-Expenditure Equilibrium) How much is planned aggregate spending? Answer $7,100 $6,400 $8,000 $700 Add Question Here

Question 158

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Question Use this scenario to answer questions 155–163. Scenario: Income-Expenditure Equilibrium GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The marginal propensity to consume is 0.8. Reference: Ref 11-07

(Scenario: Income-Expenditure Equilibrium) How much is unplanned inventory investment? Answer $1,100 –$900 $900 0 Add Question Here

Question 159

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Question Use this scenario to answer questions 155–163. Scenario: Income-Expenditure Equilibrium GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The marginal propensity to consume is 0.8. Reference: Ref 11-07

(Scenario: Income-Expenditure Equilibrium) Given this situation, firms will tend to: Answer raise prices. hire more people. increase output. decrease output. Add Question Here

Question 160

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Question Use this scenario to answer questions 155–163. Scenario: Income-Expenditure Equilibrium GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The marginal propensity to consume is 0.8. Reference: Ref 11-07

(Scenario: Income-Expenditure Equilibrium) If GDP is $3,000, planned aggregate spending is: Answer $2,400. $2,900 $3,100 $3,000 Add Question Here

Question 161

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Question Use this scenario to answer questions 155–163. Scenario: Income-Expenditure Equilibrium GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The marginal propensity to consume is 0.8. Reference: Ref 11-07

(Scenario: Income-Expenditure Equilibrium) If GDP is $3,000, how much is unplanned inventory investment? Answer 0 $600 $100 –$100 Add Question Here

Question 162

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Question Use this scenario to answer questions 155–163. Scenario: Income-Expenditure Equilibrium GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The marginal propensity to consume is 0.8. Reference: Ref 11-07

(Scenario: Income-Expenditure Equilibrium) Income-expenditure equilibrium is achieved when GDP is: Answer $8,000. $7,000. $3,500. $700. Add Question Here

Question 163

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Question Use this scenario to answer questions 155–163. Scenario: Income-Expenditure Equilibrium GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The marginal propensity to consume is 0.8. Reference: Ref 11-07

(Scenario: Income-Expenditure Equilibrium) The multiplier is: Answer

0.8. 0.2. 5. 1.25. Add Question Here

Question 164

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Question Table: The Economy of Albernia

Reference: Ref 11-08

(Table: The Economy of Albernia) What is the consumption function for Albernia? Answer C = 600 + .3 × YD C = 600 + 0.75 × YD C = 400 + 0.6 × YD C = 400 + 0.75 × YD Add Question Here

Question 165

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Question Table: The Economy of Albernia

Reference: Ref 11-08

(Table: The Economy of Albernia) What is the income-expenditure equilibrium GDP? Answer $1,000 billion $1,500 billion

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$2,000 billion $2,500 billion Add Question Here

Question 166

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Question Table: The Economy of Albernia

Reference: Ref 11-08

(Table: The Economy of Albernia) If GDP is $1,500 billion, then the level of unplanned inventories will be equal to: Answer $400 billion. –$400 billion. $600 billion. –$600 billion. Add Question Here

Question 167

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Question Table: The Economy of Albernia

Reference: Ref 11-08

(Table: The Economy of Albernia) If real GDP is $3,000 billion, then unplanned investment will be: Answer zero. $100 billion. $200 billion. $300 billion. Add Question Here

Question 168

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Question Figure: The Aggregate Consumption Function and Planned Aggregate Spending

Reference: Ref 11-09

(Figure: The Aggregate Consumption Function and Planned Aggregate Spending) If current disposable income increases in this economy, then the: Answer AE will shift up. AE will shift down. economy will move upward along the AE. economy will move downward along the AE. Add Question Here

Question 169

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Question Figure: The Aggregate Consumption Function and Planned Aggregate Spending

Reference: Ref 11-09

(Figure: The Aggregate Consumption Function and Planned Aggregate Spending) If current disposable income decreases in this economy, then the: Answer AE will shift up. AE will shift down. economy will move upward along the AE. economy will move downward along the AE. Add Question Here

Question 170

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Question Figure: The Aggregate Consumption Function and Planned Aggregate Spending

Reference: Ref 11-09

(Figure: The Aggregate Consumption Function and Planned Aggregate Spending) If expected future disposable income increases in this economy, then the: Answer AE will shift up. AE will shift down. economy will move upward along the AE. economy will move downward along the AE. Add Question Here

Question 171

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Question Figure: The Aggregate Consumption Function and Planned Aggregate Spending

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Reference: Ref 11-09

(Figure: The Aggregate Consumption Function and Planned Aggregate Spending) If expected future disposable income decreases in this economy, then the: Answer AE will shift up. AE will shift down. economy will move upward along the AE. economy will move downward along the AE. Add Question Here

Question 172

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Question Figure: The Aggregate Consumption Function and Planned Aggregate Spending

Reference: Ref 11-09

(Figure: The Aggregate Consumption Function and Planned Aggregate Spending) If aggregate wealth increases in this economy, then: Answer AE will shift up. AE will shift down. economy will move upward along the AE. economy will move downward along the AE. Add Question Here

Question 173

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Question Figure: The Aggregate Consumption Function and Planned Aggregate Spending

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Reference: Ref 11-09

(Figure: The Aggregate Consumption Function and Planned Aggregate Spending) If aggregate wealth decreases in this economy, then the: Answer AE will shift up. AE will shift down. economy will move upward along the AE. economy will move downward along the AE. Add Question Here

Question 174

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Question Whenever GDP exceeds planned aggregate expenditure, unplanned investment is _______; whenever GDP falls short of planned aggregate expenditure, unplanned investment is _________. Answer positive; negative negative; positive zero; positive zero; negative Add Question Here

Question 175

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Question Whenever planned aggregate spending exceeds GDP: Answer unplanned inventory investment is negative. unplanned inventory investment is zero. unplanned inventory investment is positive. planned investment spending exceeds consumption. Add Question Here

Question 176

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Question Whenever GDP exceeds planned aggregate spending: Answer firms reduce production, thereby reducing GDP. households increase consumption, thereby increasing disposable income. firms increase production, thereby increasing GDP. households decrease consumption, thereby decreasing disposable income. Add Question Here

Question 177

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Question Income-expenditure equilibrium GDP is: Answer the level of GDP at which the unemployment rate is zero. the level of GDP at which GDP equals planned aggregate spending. the level of GDP at which there are no savings. the level of GDP at which autonomous consumption equals planned inventory investment. Add Question Here

Question 178

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Question Income-expenditure equilibrium is when: Answer GDP is equal to planned aggregate spending. GDP is equal to actual aggregate spending. GDP is equal to unplanned aggregate expenditure. consumption and investment are equal. Add Question Here

Question 179

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Question If GDP is smaller than planned aggregate spending, then: Answer unplanned inventory investment is positive. GDP will fall. the economy is in equilibrium. unplanned inventory investment is negative. Add Question Here

Question 180

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Question If GDP is greater than planned aggregate spending, then: Answer unplanned inventory investment is negative. GDP will fall. the economy is in equilibrium. GDP will rise. Add Question Here

Question 181

Multiple Choice Question At the income-expenditure equilibrium:

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Answer

investment net of depreciation is zero. planned investment is zero. unplanned inventory investment is zero. inventory investment is zero. Add Question Here

Question 182

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Question Unplanned inventory investment leads to: Answer prices increasing. production increasing. firms hiring more workers. production decreasing. Add Question Here

Question 183

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Question An unplanned fall in inventories leads to: Answer prices falling. production falling. production increasing. interest rates increasing. Add Question Here

Question 184

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Question The Keynesian cross was developed by: Answer John Maynard Keynes. Paul Samuelson. Adam Smith. Robert Heilbroner Add Question Here

Question 185

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Question “Income-expenditure equilibrium” can be defined as a situation in which: Answer there are no inventories. there is no unplanned inventory investment. inventory investment is equal to consumption. there are no savings. Add Question Here

Question 186

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Question Figure: Income-Expenditure Equilibrium

Reference: Ref 11-10

(Figure: Income-Expenditure Equilibrium) If investment spending increases in this economy, then the: Answer AE will shift up, increasing the income-expenditure equilibrium. AE will shift down, decreasing the income-expenditure equilibrium. economy will move upward along the AE, increasing the income-expenditure equilibrium. economy will move downward along the AE, decreasing the income-expenditure equilibrium. Add Question Here

Question 187

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Question Figure: Income-Expenditure Equilibrium

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Reference: Ref 11-10

(Figure: Income-Expenditure Equilibrium) If investment spending decreases in this economy, then the: Answer AE will shift up, increasing the income-expenditure equilibrium. AE will shift down, decreasing the income-expenditure equilibrium. economy will move upward along the AE, increasing the income-expenditure equilibrium. economy will move downward along the AE, decreasing the income-expenditure equilibrium. Add Question Here

Question 188

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Question Figure: Income-Expenditure Equilibrium

Reference: Ref 11-10

(Figure: Income-Expenditure Equilibrium) If planned investment spending increases autonomously by $100, GDP will: Answer increase by $250. increase by $100. increase by $125. not change. Add Question Here

Question 189

Multiple Choice Question Figure: Income-Expenditure Equilibrium

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Reference: Ref 11-10

(Figure: Income-Expenditure Equilibrium) If planned investment spending increases by $100, income-expenditure equilibrium occurs at GDP of: Answer $8,100. $3,600 $2,250. $4,000. Add Question Here

Question 190

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Question Table: Aggregate Spending

Reference: Ref 11-11

(Table: Aggregate Spending) Suppose the economy has no government spending and no foreign trade. With no taxes and transfers, real GDP is equal to disposable income (Yd). The data in the accompanying table shows consumption spending (C) and planned investment (Iplanned). At what level of real GDP will the economy find its income-expenditure equilibrium? Answer

$2000 $2500 $3500 $4500 Add Question Here

Question 191

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Question Table: Aggregate Spending

Reference: Ref 11-11

(Table: Aggregate Spending) Suppose the economy has no government spending and no foreign trade. With no taxes and transfers, real GDP is equal to disposable income (Yd). The data in the accompanying table shows consumption spending (C) and planned investment (Iplanned). If real GDP is $2500, what is the level of unplanned inventory investment? Answer

$200 $0 $2700 –$200 Add Question Here

Question 192

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Question Table: Aggregate Spending

Reference: Ref 11-11

(Table: Aggregate Spending) Suppose the economy has no government spending and no foreign trade. With no taxes and transfers, real GDP is equal to disposable income (Yd). The data in the accompanying table shows consumption spending (C) and planned investment (Iplanned). The income-expenditure equilibrium real GDP is found at _____ and if planned investment fell to $300, the new income-expenditure equilibrium real GDP would fall to _____. Answer $3500; $2500 $3500; $2000 $3000; $1500

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$4000; $2500 Add Question Here

Question 193

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Question Figure: Aggregate Expenditures and Real GDP

Reference: Ref 11-12

(Figure: Aggregate Expenditures and Real GDP) At a real GDP of $9,000 billion: Answer planned investment is less than investment. planned investment equals investment. planned investment is greater than investment. there will be no unplanned investment. Add Question Here

Question 194

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Question Figure: Aggregate Expenditures and Real GDP

Reference: Ref 11-12

(Figure: Aggregate Expenditures and Real GDP) If the level of real GDP equals $9,000 billion, and if there are no changes in the consumption function or in planned investment, then we expect that, in the next period, real GDP will: Answer rise. remain unchanged. fall. fall, but only if there is an offsetting change in autonomous consumption. Add Question Here

Question 195

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Question Figure: Aggregate Expenditures Curve I

Reference: Ref 11-13

(Figure: Aggregate Expenditures Curve I) The equilibrium level of real GDP in the aggregate expenditures model shown in this figure is: Answer $800. $1,000. $1,600.

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$3,200. Add Question Here

Question 196

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Question Figure: Aggregate Expenditures Curve I

Reference: Ref 11-13

(Figure: Aggregate Expenditures Curve I) The slope of the aggregate expenditures curve in the aggregate expenditures model shown in this figure is: Answer 0.25. 0.5. 1.0. 45°. Add Question Here

Question 197

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Question Figure: Aggregate Expenditures Curve I

Reference: Ref 11-13

(Figure: Aggregate Expenditures Curve I) The multiplier in the aggregate expenditures model shown in this figure is: Answer 1. 2. 3. 5. Add Question Here

Question 198

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Question Figure: Aggregate Expenditures Curve I

Reference: Ref 11-13

(Figure: Aggregate Expenditures Curve I) Suppose that the consumption function in this economy rises by $100. The result would be a shift in the: Answer aggregate expenditures curve upward by $100. aggregate expenditures curve upward by $200. aggregate expenditures curve upward by $100 times the multiplier. aggregate expenditures curve downward by $200. Add Question Here

Question 199

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Question Figure: Aggregate Expenditures Curve I

Reference: Ref 11-13

(Figure: Aggregate Expenditures Curve I) Suppose that the consumption function in this economy rises by $100. The result would be an increase in the equilibrium level of real GDP in the aggregate expenditures model shown here of: Answer $100. $200. $100 times the multiplier. $200 or $100 times the multiplier. Add Question Here

Question 200

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Question Figure: Aggregate Expenditures Curve I

Reference: Ref 11-13

(Figure: Aggregate Expenditures Curve I) Suppose that the government's purchases of goods and services in this economy rise by $100. Real GDP would: Answer decrease by $100. increase by $200. increase by $200 times the multiplier. decrease by $100 times the multiplier. Add Question Here

Question 201

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Question Figure: Aggregate Expenditures Curve II

Reference: Ref 11-14

(Figure: Aggregate Expenditures Curve II) The equilibrium level of real GDP in the aggregate expenditures model shown in this figure is: Answer $800. $1,000. $2,000. $4,000. Add Question Here

Question 202

Multiple Choice

Question Figure: Aggregate Expenditures Curve II

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Reference: Ref 11-14

(Figure: Aggregate Expenditures Curve II) The slope of the aggregate expenditures curve in the aggregate expenditures model shown in this figure is: Answer 0.25. 0.5. 0.6. 45°. Add Question Here

Question 203

Multiple Choice

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Question Figure: Aggregate Expenditures Curve II

Reference: Ref 11-14

(Figure: Aggregate Expenditures Curve II) The multiplier in the aggregate expenditures model shown in this figure is: Answer 1.0. 2.0. 2.5. 5.0. Add Question Here

Question 204

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Question Figure: Aggregate Expenditures Curve II

Reference: Ref 11-14

(Figure: Aggregate Expenditures Curve II) Suppose that the consumption function in this figure rises by $100. The result would be a shift in the: Answer aggregate expenditures curve upward by $100. aggregate expenditures curve upward by $250. aggregate expenditures curve upward by $100 times the multiplier. aggregate expenditures curve upward by $150. Add Question Here

Question 205

Multiple Choice

Question Figure: Aggregate Expenditures Curve II

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Reference: Ref 11-14

(Figure: Aggregate Expenditures Curve II) Suppose that the consumption function in this figure rises by $100. In the aggregate expenditures model shown here, the result would be an increase in the equilibrium level of real GDP of: Answer $100. $200. $100 times the multiplier. $50. Add Question Here

Question 206

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Question Figure: Aggregate Expenditures Curve II

Reference: Ref 11-14

(Figure: Aggregate Expenditures Curve II) Suppose that the consumption function in this economy rises by $200. The result would be an increase in equilibrium real GDP of: Answer $100. $200. $250. $500. Add Question Here

Question 207

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Question Figure: Aggregate Expenditures Curve III

Reference: Ref 11-15

(Figure: Aggregate Expenditures Curve III) Suppose that the consumption function in this figure rises by $100. The result would be a shift in the aggregate expenditures curve upward by: Answer $100. $400. $100 times the multiplier. $200 times the multiplier. Add Question Here

Question 208

Multiple Choice

Question Figure: Aggregate Expenditures Curve III

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Reference: Ref 11-15

(Figure: Aggregate Expenditures Curve III) Suppose that the consumption function shifts upward by $100. In the aggregate expenditures model shown here, the result would be an increase in the equilibrium level of real GDP of: Answer $100. $400. $100 times the multiplier. $400 or $100 times the multiplier. Add Question Here

Question 209

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Question In the aggregate expenditures model, if aggregate expenditures are greater than real GDP: Answer there will be unplanned decreases in inventories. employment decreases. aggregate output decreases. actual real output is greater than equilibrium real output. Add Question Here

Question 210

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Question In the aggregate expenditures model, if aggregate expenditures are less than real GDP: Answer there will be unplanned increases in inventories. employment increases. aggregate output increases. actual real output is less than equilibrium real output. Add Question Here

Question 211

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Question In the aggregate expenditures model, if aggregate expenditures equal $800 billion and real GDP equals $600 billion: Answer unplanned inventory accumulation equals $200 billion. unplanned inventory accumulation equals –$200 billion. consumption plus investment equals $200 billion. investment equals –$200 billion. Add Question Here

Question 212

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Question In the aggregate expenditures model, if real GDP equals $700 billion and aggregate expenditures equal $400 billion: Answer consumption plus investment equals $300 billion. investment equals –$300 billion. investment plus saving equals $300 billion. unplanned inventory accumulation equals $300 billion. Add Question Here

Question 213

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Question In the aggregate expenditures model, if real GDP exceeds aggregate expenditures, the economy will: Answer contract, causing employment to decrease. expand, causing inflation. expand, causing employment to increase. neither contract nor expand, causing employment to remain constant. Add Question Here

Question 214

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Question In the aggregate expenditures model, if aggregate expenditures exceed real GDP, the economy will: Answer expand, causing an increase in employment. expand, causing a decrease in prices. contract, causing a decrease in employment. neither expand nor contract, causing employment to remain the same. Add Question Here

Question 215

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Question If the slope of the aggregate expenditures curve = 0.8, the multiplier is equal to: Answer 1. 4. 5. infinity. Add Question Here

Question 216

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Question If the slope of the aggregate expenditures curve = 0.9, the multiplier is equal to: Answer 1. 4. 5. 10. Add Question Here

Question 217

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Question If the slope of the aggregate expenditures curve = 0.75, the multiplier is equal to: Answer 1. 4. 5. infinity. Add Question Here

Question 218

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Question If investment spending increases, the planned aggregate spending line: Answer becomes flatter. shifts down. becomes steeper. shifts up. Add Question Here

Question 219

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Question An increase in the expected future disposable income of households: Answer shifts down the planned aggregate spending line. increases the slope of the aggregate spending line. decreases the slope of the aggregate spending line. shifts up the planned aggregate spending line. Add Question Here

Question 220

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Question The magnitude of the multiplier process that links planned aggregate spending to GDP is determined by: Answer the marginal propensity to save. the interest rate. the level of autonomous consumption. the level of planned investment spending. Add Question Here

Question 221

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Question If the planned aggregate spending rises by $10 billion and the MPC is .75, then equilibrium GDP changes by: Answer $2.5 billion. $7.5 billion. $10 billion. $40 billion. Add Question Here

Question 222

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Question If the planned aggregate spending rises by $25 billion and the MPC is .8, then equilibrium GDP changes by: Answer $25 billion. $125 billion. $200 billion. $250 billion. Add Question Here

Question 223

Multiple Choice Question Aggregate spending increases when: Answer there is an increase in prices. there is a fall in prices.

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there is an increase in unplanned investment spending. there is an increase in planned investment spending. Add Question Here

Question 224

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Question An autonomous increase in aggregate spending: Answer reduces GDP by that amount. increases GDP by that amount. reduces GDP by more than that amount. increases GDP by more than that amount. Add Question Here

Question 225

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Question In an economy without government purchases, government transfers, or taxes, aggregate autonomous consumer spending is $250 billion, planned investment spending is $100 billion, and the marginal propensity to consume is 0.6. What is the expression for planned aggregate spending? Answer = $100 + 0.6 × YD AE Planned

AEPlanned = $250 + 0.4 × YD AEPlanned = $350 + 0.6 × YD AEPlanned = $150 + 0.4 × YD Add Question Here

Question 226

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Question In an economy without government purchases, government transfers, or taxes, aggregate autonomous consumer spending is $750 billion, planned investment spending is $300 billion, and the marginal propensity to consume is 0.75. What is the expression for planned aggregate spending? Answer AE = $1,050 + 0.75 × YD Planned

AEPlanned = $300 + 0.25 × YD AEPlanned = $750 + 0.75 × YD AEPlanned = $500 + 0.25 × YD Add Question Here

Question 227

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Question Figure: AE1

Reference: Ref 11-16

(Figure: AE1) Consider Figure AE1. The equilibrium real GDP is: Answer $500 billion. $300 billion. $700 billion. $625 billion. Add Question Here

Question 228

Multiple Choice

Question Figure: AE1

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Reference: Ref 11-16

(Figure: AE1) Refer to Figure AE1. When real GDP is $700 billion, there will be a: Answer $125 million increase in unplanned inventory investment. $125 million decline in unplanned inventory investment. $200 million decline in unplanned inventory investment. $200 million increase in unplanned inventory investment. Add Question Here

Question 229

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Question If real GDP is less than aggregate expenditure, then inventories will: Answer increase and firms will cut back on future production. fall and firms will increase the prices of their products. increase and firms will lower their product prices. fall and firms will increase their future production. Add Question Here

Question 230

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Question If real GDP is $1000 billion and the aggregate expenditure is $850 billion, then the change in inventories will be: Answer –$150 million. $1,850 million. $150 million. –$1,850 million. Add Question Here

Question 231

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Question Aggregate expenditure line has a slope: Answer greater than one. less than one. equal to one. less than zero. Add Question Here

Question 232

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Question When the economy is in income-expenditure equilibrium: Answer exports equal imports. saving is less than investment spending. taxes equal transfer payments. real GDP equals planned aggregate spending. Add Question Here

Question 233

True/False

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Question If the consumption function is C = $100,000,000 + .8 × YD, then the MPC is $100 million. Answer True False Add Question Here

Question 234

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Question The marginal propensity to consume is consumption divided by disposable income. Answer True False Add Question Here

Question 235

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Question If you expect to get a substantial raise six months from now, this will not affect your current consumption because you haven't received the money yet. Answer True False Add Question Here

Question 236

True/False

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Question The aggregate consumption function can shift, due to changes in expected future disposable income and changes in aggregate wealth. Answer True False Add Question Here

Question 237

True/False

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Question According to the life-cycle hypothesis, consumers plan their spending based on their current disposable income when they are very young. Answer True False Add Question Here

Question 238

True/False

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Question People use wealth to smooth consumption over their life-cycle. Answer True False Add Question Here

Question 239

True/False

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Question The demand for loanable funds is inversely related to the interest rate, because fewer projects are profitable at higher interest rates. Answer True False Add Question Here

Question 240

True/False

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Question If expected future GDP increases, then planned current investment will increase. Answer True False Add Question Here

Question 241

True/False

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Question The higher current production capacity is, the higher current planned investment will be. Answer True False Add Question Here

Question 242

True/False

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Question Planned investment spending and actual investment spending are NOT always equal. Answer True False Add Question Here

Question 243

True/False

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Question If planned investment is $50 billion and unplanned inventory investment is $10 billion, then actual investment is $40 billion. Answer True False Add Question Here

Question 244

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Question Inventories are investment because inventories are a source of future sales. Answer True False Add Question Here

Question 245

True/False

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Question If GDP is greater than planned expenditure, unplanned inventory investment is negative. Answer True False

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Add Question Here

Question 246

True/False

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Question Changes in unplanned inventory investment cause the economy to move toward the income-expenditure equilibrium. Answer True False Add Question Here

Question 247

True/False

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Question Decreases in investment spending are usually offset by increases in consumption through the multiplier process. Answer True False Add Question Here

Question 248

True/False

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Question If planned aggregate spending rises by $10 billion and the MPC is .8, then the income-expenditure equilibrium increases by 50 billion. Answer True False Add Question Here

Question 249

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Question If planned aggregate spending rises by $20 billion, and the MPC is .9, then the income-expenditure equilibrium increases by $18 billion. Answer True False Add Question Here

Question 250

Essay

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Question How does a nation's saving rate, as measured by the marginal propensity to save, affect the size of the spending multiplier? Explain with both intuition and the formula for the multiplier. Answer The multiplier process relies upon spending at every step. If disposable income rises, consumers increase spending at every stage of the process, by an amount equal to the marginal propensity to consume multiplied by the increase in disposable income. If the MPC is large, the MPS is small, and more total spending is multiplied throughout the economy. However, if consumers decide to increase savings at each stage of the process, the MPS increases, and disposable income “leaks” out of the spending multiplier. The multiplier M=1/(1-MPC). If the MPS increases, the MPC decreases, so (1-MPC) increases. If (1-MPC) increases, 1/(1MPC) decreases and the multiplier M falls. Add Question Here

Question 251

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Question Table: Disposable Income and Spending

Reference: Ref 11-17

(Table: Disposable Income and Spending) Using the accompanying table, calculate the marginal propensity to consume (MPC). Use this MPC to compute the spending multiplier. Answer The MPC = (change in consumer spending)/(change in disposable income) = $40/$50 = .80. The multiplier = 1/(1-MPC) = 1/.2 = 5. Add Question Here

Question 252

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Question Table: Disposable Income and Spending

Reference: Ref 11-17

(Table: Disposable Income and Spending) Use the data in the accompanying table to develop a linear equation of the consumption function. Use this consumption function to forecast the amount of consumption spending that would occur if disposable income were equal to $500. Answer The general equation of the consumption function is: C = A + MPC*(YD). The letter A stands for autonomous consumption, the level of consumption that occurs when disposable income YD is zero. From the table, A=$10. The MPC is the slope of the line, MPC=$40/$50 = .80. So C = 10 + .80*(YD). If YD=$500, C = $410. Add Question Here

Question 253

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Question How can autonomous consumption be greater than zero when disposable income is equal to zero?

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Answer When YD=0, consumption can still be positive if the consumer spends savings, liquidates some other asset (like selling stock or property), or by borrowing. Add Question Here

Question 254

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Question Suppose you have estimated the consumption function as: C = 250 + .90*YD. Knowing this, what is the equation for the corresponding savings function? Answer If disposable income is zero, autonomous consumption will be 250. Since C + S = YD, autonomous savings must be –250. Looking at the consumption function, it is clear that the MPC=.90, which is the slope of the function. Because MPC+MPS=1, the MPS=.10, the slope of the savings function. So the equation of the savings function is: S= –250 + .10*YD. Add Question Here

Question 255

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Question Table: Consumption for Four Consumers

Reference: Ref 11-18

(Table: Consumption for Four Consumers) The accompanying table shows the consumption spending of four different consumers, Brandy, Mandy, Sandy, and Candi, at several levels of disposable income. Use this data to construct the aggregate consumption function. Answer Autonomous consumption when disposable income is zero is $3500. When each person has disposable income of $1000, total income is $4000 and total consumption spending is $6300. When each person has $2000 of disposable income, total income rises to $8000 and total consumption spending rises to $9100. So collectively the MPC = (9100–6300)/(8000–4000) = 2800/4000 = .70. So the aggregate consumption function is: C = 3500 + .70*YD. Add Question Here

Question 256

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Question Suppose the economy is currently in income-expenditure equilibrium. How will each of the following affect planned investment and unplanned inventory investment. a. The Federal Reserve decreases interest rates. b. Major economic indicators decrease business optimism about future growth in real GDP. Answer a. A lower interest rate will increase planned investment and aggregate spending. This will increase planned aggregate spending above real GDP and inventories will fall. Thus unplanned inventory investment will be negative. b. Pessimism about the growth rate of the economy will decrease planned investment. This will decrease planned aggregate spending so that it is less than real GDP and inventories will accumulate. Thus unplanned inventory investment will be positive. Add Question Here

Question 257

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Question In a simple economy with no government and no foreign sector, autonomous consumer spending is $100 and planned investment spending is $300. The marginal propensity to consume is .75. a. Solve for the equilibrium level of real GDP. b. If real GDP is $2000, what is unplanned inventory investment? Answer a. Given this information, AEplanned = 400 + .75*YD. In equilibrium, AEplanned = GDP = YD. So we can rewrite YD = 400 + .75*YD, or .25*YD = 400, and equilibrium YD=GDP = $1600. b. If GDP = $2000, AEplanned = 400 + .75*(2000) = $1900 so output exceeds spending and so unplanned inventory investment is $100. Add Question Here

Question 258

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Question Table: Real GDP

Reference: Ref 11-19

(Table: Real GDP) Suppose the economy has no government spending and no foreign trade. With no taxes and transfers, real GDP is equal to disposable income (YD). The data in the accompanying table shows consumption spending (C) and planned investment (Iplanned). a. What is the MPC in this economy? b. At what level of real GDP will the economy find its income-expenditure equilibrium? Answer a. As YD increases by $1000, C increases by $900, so the MPC = 900/1000 = .90. b. If you create a new column for AEplanned = C + Iplanned, you will see that real GDP = AEplanned at $7000. Add Question Here

Question 259

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Question In a simple economy with no government and no foreign sector, autonomous consumer spending is $250 and planned investment spending is $500. The marginal propensity to consume is 0.80. a. Solve for the equilibrium level of real GDP. b. Suppose that interest rates fall and planned investment increases by $100. What is the new level of equilibrium real GDP? Answer a. Given this information, AEplanned = 750 + .80*YD. In equilibrium, AEplanned = GDP = YD. So we can rewrite YD = 750 + 0.80*YD, or 0.20*YD = 750, and equilibrium YD=GDP = $3750. b. With the MPC = 0.80, the multiplier M = 5. So an increase of $100 of new planned investment will increase real GDP by $500. So the new equilibrium real GDP is $4250. Add Question Here

Question 260

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Question The multiplier process: Answer explains how spending continues indefinitely with continuous rounds of spending. ends after one round of spending and with total spending limited to the initial change in spending. only occurs when economies are in an expansion phase. is limited with the total change in real GDP dependent upon the size of the marginal propensity to consume. Add Question Here

Question 261

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Question During the Great Depression: Answer investment fell, but consumption increased. investment increased, but consumption decreased. both consumption and investment decreased. overall GDP rose. Add Question Here

Question 262

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Question The value of the multiplier will be smaller: Answer the larger is the value of the MPS. the larger is the value of the MPC. if the MPC equals the MPS. if the MPC + MPS equals 1. Add Question Here

Question 263

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Question All of the following impacts consumer spending EXCEPT: Answer current disposable income. wealth. past disposable income. expected future disposable income. Add Question Here

Question 264

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Question Two thirds of total spending is usually attributed to: Answer consumption. investment. government spending. net exports. Add Question Here

Question 265

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Question Use this scenario to answer questions 265–266. Scenario: Aggregate Consumption Function Use the following information to answer the next two questions. Suppose the aggregate consumption function is given by the following equation: C = 1,000 + 0.75YD where C stands for consumption and YD stands for disposable income. Reference: Ref 11-20

(Scenario: Aggregate Consumption Function) Suppose disposable income increases by $100, this means aggregate consumption will increase by _________ and autonomous consumption _______________. Answer $75; remains at $1000 $1000; remains at $75 $100; increases by $100 $175; increases by $100 Add Question Here

Question 266

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Question Use this scenario to answer questions 265–266. Scenario: Aggregate Consumption Function Use the following information to answer the next two questions. Suppose the aggregate consumption function is given by the following equation: C = 1,000 + 0.75YD where C stands for consumption and YD stands for disposable income. Reference: Ref 11-20

(Scenario: Aggregate Consumption Function) If aggregate disposable income equals $1000, then aggregate consumption equals:

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Answer

$1,000. $1,750. $2,000. $1,075. Add Question Here

Question 267

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Question Suppose housing prices begin to rise nationwide, this will result, everything else constant, in a(n): Answer increase in consumer spending at any given level of disposable income. decrease in wealth as consumers spend more income on mortgage payments. decrease in overall aggregate expenditures. drop in investment spending. Add Question Here

Question 268

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Question If an economy experiences a decrease in consumer spending, most economists believe: Answer this was preceded by a decrease in investment spending. investment spending increases occurred before this drop in consumer spending. the aggregate expenditure function will shift up. such events are temporary as investment will rise to offset this. Add Question Here

Question 269

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Question The marginal propensity to save: Answer is the change in consumer saving divided by the change in consumption. is the change in saving divided by the change in disposable income. equals MPC + 1. changes when the MPC is constant. Add Question Here

Question 270

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Question Alice's disposable income increases by $1,000, and she spends $600 of this increase in disposable income. For Alice, her: Answer MPS is 0.40 and she saves $400. MPC is 0.40 and she saves $400. MPS is 0.40 and she saves $600. MPC is 0.60 and she consumes $400. Add Question Here

Question 271

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Question When consumers receive more disposable income, one will find that their spending: Answer will increase. will decrease. will stay the same, but their saving will decrease. and their saving will both decrease. Add Question Here

Question 272

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Question When Julie Ann's disposable income is $10,000, she spends $10,000 and when her disposable income is $15,000, her spending is $12,500. Julie Ann's autonomous consumption is ________ and her ___________. Answer $5,000; MPC = 0.50 $10,000; MPS = 0.50 $0; MPC = 0.50 $0; MPS = 0.50 Add Question Here

Question 273

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Question The slope of the consumption function equals: Answer 1 – MPS. 1/(1 – MPS). 1 – MPC. MPC/MPS. Add Question Here

Question 274

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Question The permanent income hypothesis suggests consumer: Answer spending depends on income people expect over the long term rather than on current income. spending is smoothed over each month in response to changes in their current disposable income. spending is made up of an autonomous amount and an amount dependent upon disposable income.

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saving depends on one's lifetime income. Add Question Here

Question 275

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Question Vanessa tells people she is consuming more now and probably will continue to do so for some time, but she believes her consumption will smooth out over her lifetime. Vanessa's consumption pattern mirrors: Answer the multiplier hypothesis. life-cycle income hypothesis. relative income hypothesis. accelerator principle. Add Question Here

Question 276

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Question Planned investment spending is: Answer investment firms plan to make during a given time period. inventory investment changes. not considered part of GDP. dependent only on interest rates. Add Question Here

Question 277

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Question Interest rates and planned investment spending: Answer have a positive relationship. exhibit a negative relationship. have no relationship since planned investment is fixed. have no relationship if the firm has retained earnings. Add Question Here

Question 278

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Question A firm has enough retained earnings to finance an investment project. For this firm, the market interest rate: Answer is not relevant to their investment decision. represents the opportunity cost of using their retained earnings. will help them calculate the rate of return for their project. has no impact on the profitability of the investment project. Add Question Here

Question 279

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Question The belief that a higher rate of growth in real GDP will lead to higher planned investment spending is known as: Answer the accelerator principle. the multiplier effect. fiscal policy with an emphasis on government spending. unplanned investment spending. Add Question Here

Question 280

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Question The multiplier process assumes that: Answer aggregate prices are perfectly flexible. the economy is open and there is free trade. the economy is operating with sticky aggregate price levels. interest rates are constantly changing. Add Question Here

Question 281

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Question Use this table to answer questions 281–285. Scenario: A Country's Consumption Function A country is currently closed with no government sector and aggregate price levels and interest rate levels fixed. Furthermore, the marginal propensity to consume is constant and the country's consumption function is as follows: C = 200 + 0.75YD, where YD is disposable income and C is consumption. Furthermore, assume that planned investment equals 75. Reference: Ref 11-21

(Scenario: A Country's Consumption Function) Given this consumption function, if this country experienced an increase in income of $10,000, we know consumption would increase by: Answer $10,000. $7,500. $200. $7,700. Add Question Here

Question 282

Multiple Choice Question Use this table to answer questions 281–285. Scenario: A Country's Consumption Function

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A country is currently closed with no government sector and aggregate price levels and interest rate levels fixed. Furthermore, the marginal propensity to consume is constant and the country's consumption function is as follows: C = 200 + 0.75YD, where YD is disposable income and C is consumption. Furthermore, assume that planned investment equals 75. Reference: Ref 11-21

(Scenario: A Country's Consumption Function) When real GDP equals 900: Answer planned investment equals 900. unplanned inventory investment is negative. autonomous consumption equals 900. the economy is in income-expenditure equilibrium. Add Question Here

Question 283

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Question Use this table to answer questions 281–285. Scenario: A Country's Consumption Function A country is currently closed with no government sector and aggregate price levels and interest rate levels fixed. Furthermore, the marginal propensity to consume is constant and the country's consumption function is as follows: C = 200 + 0.75YD, where YD is disposable income and C is consumption. Furthermore, assume that planned investment equals 75. Reference: Ref 11-21

(Scenario: A Country's Consumption Function) What is the income-expenditure equilibrium for this country? Answer 900 1100 275 200 Add Question Here

Question 284

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Question Use this table to answer questions 281–285. Scenario: A Country's Consumption Function A country is currently closed with no government sector and aggregate price levels and interest rate levels fixed. Furthermore, the marginal propensity to consume is constant and the country's consumption function is as follows: C = 200 + 0.75YD, where YD is disposable income and C is consumption. Furthermore, assume that planned investment equals 75. Reference: Ref 11-21

(Scenario: A Country's Consumption Function) Holding everything else constant, what would happen if aggregate wealth decreases by $100? Answer The AE curve shifts downward. The income-expenditure equilibrium real GDP increases by more than $100. The multiplier effect on real GDP does not occur since there is a drop in aggregate wealth. Planned investment will increase. Add Question Here

Question 285

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Question Use this table to answer questions 281–285. Scenario: A Country's Consumption Function A country is currently closed with no government sector and aggregate price levels and interest rate levels fixed. Furthermore, the marginal propensity to consume is constant and the country's consumption function is as follows: C = 200 + 0.75YD, where YD is disposable income and C is consumption. Furthermore, assume that planned investment equals 75. Reference: Ref 11-21

(Scenario: A Country's Consumption Function) If real GDP is 1100, then: Answer unplanned investment equals zero. planned investment equals zero. the AE curve shifts up. the MPC decreases. Add Question Here

Question 286

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Question If the MPC equals 0.75, then based on the simple model presented in this chapter, one would expect a $100 decrease in investment spending to lead to: Answer an increase in spending which will total $100 by the end of all the rounds. an increase in spending which will total $400 by the end of all the rounds. a decrease in spending which will total $100 by the end of all the rounds. a decrease in spending which will total $400 by the end of all the rounds. Add Question Here

Question 287

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Question Suppose the level of planned aggregate expenditure in an economy is $1000 while the real GDP is $800. According to the simple model developed in this chapter, where the aggregate price level is assumed to be constant, we can expect: Answer inventories will stay the same since this is part of planned investment. inventories will decrease. inventories will increase. real GDP will fall further. Add Question Here

Question 288

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Question If unplanned inventory investment is positive, this most likely means:

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Answer

the economy is growing rapidly. aggregate expenditures on goods and services is less than forecasted. the economy is doing the same since inventory changes have no impact on the economy. the stock of inventories is declining. Add Question Here

Question 289

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Question In the income-expenditure model, inventories are: Answer fixed and therefore provide little insight into the direction of the economy. a long-run event which aids forecasters in understanding where long-run real GDP is. constantly changing and provide insight into the future state of the economy. often positive suggesting additions to inventory stocks are a long-run goal. Add Question Here