Question 1

Net exports

Accepted Answer

A)  increase as real domestic income increases
B)  decrease as real domestic income increases
C)  are independent of real domestic income
D)  are always positive
E)  are always negativeF) C) and D)
G) A) and D)

Question 2

Imagine an investment demand curve that shows that, if the market interest rate is 4 percent, the quantity of investment demanded is $500 billion. Then, if the market rate rises to 5 percent, the most likely result is that the quantity of investment demanded

Accepted Answer

A)  does not change
B)  rises
C)  declines
D)  rises then falls
E)  It is not possible to answer without seeing the actual curveF) None of the above
G) B) and D)

Question 3

Suppose that autonomous investment level is $100 billion per year. If income in the economy falls,

Accepted Answer

A)  the level of investment will increase
B)  the level of investment will decrease
C)  the quantity of investment demanded will increase
D)  the quantity of investment demanded will decrease
E)  investment spending will not changeF) A) and D)
G) B) and C)

Question 4

The amount of U.S. exports purchased by the rest of the world is primarily determined by

Accepted Answer

A)  real disposable income in the United States
B)  real disposable income in other nations
C)  the real interest rate in other nations
D)  the real interest rate in the United States
E)  the government budget deficits in other nationsF) A) and B)
G) A) and C)

Question 5

Exhibit 9-3
 
-In Exhibit 9-3, the MPS is equal to

Accepted Answer

A)  0.25
B)  0.33
C)  0.67
D)  0.75
E)  1.33F) A) and E)
G) All of the above

Question 6

Exhibit 9-3
 
-In Exhibit 9-3, when real disposable income is equal to $6 billion, saving is equal to

Accepted Answer

A)  0
B)  $1 billion
C)  $2 billion
D)  $3 billion
E)  $4 billionF) D) and E)
G) A) and C)

Question 7

If income increases by $100 and $75 of the increase is spent (consumed) , the MPS equals

Accepted Answer

A)  1/4
B)  1/2
C)  3/4
D)  4/5
E)  1F) B) and C)
G) A) and D)

Question 8

Exports minus imports equal net exports.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that when disposable income rises from $3 trillion to $3.2 trillion, consumption rises from $2.5 trillion to $2.6 trillion. What is the marginal propensity to consume?

Accepted Answer

A)  0.1
B)  0.2
C)  0.5
D)  0.8
E)  0.9F) B) and E)
G) A) and C)

Question 10

An upward shift of the consumption function might be caused by

Accepted Answer

A)  an increase in disposable income
B)  a decrease in disposable income
C)  a decrease in the price level
D)  a decrease in household wealth
E)  an increase in the interest rateF) None of the above
G) A) and E)

Question 11

An increase in the interest rate, other things constant, decreases the amount of investment spending.

Accepted Answer

A) True 
 B)False

Question 12

If consumption is greater than income, saving must be negative.

Accepted Answer

A) True 
 B)False

Question 13

The marginal propensity to consume is the fraction of a change in income that is saved.

Accepted Answer

A) True 
 B)False

Question 14

Mr. Green is considering four possible investment opportunities, each of which would cost him $5,000. He expects annual returns on these investments of $600, $500, $400, and $300. If the interest rate is 7 percent, how many of these opportunities should Mr. Green undertake?

Accepted Answer

A)  one
B)  two
C)  three
D)  four
E)  noneF) A) and C)
G) A) and E)

Question 15

Which of the following would shift the consumption function downward?

Accepted Answer

A)  a decrease in stock prices
B)  a lower interest rate
C)  a lower price level
D)  lower disposable income
E)  expectations of higher future pricesF) A) and B)
G) B) and C)

Question 16

If every time disposable income increases by $5 billion, consumption increases by $4 billion and saving increases by $1 billion, the MPC and MPS are, respectively,

Accepted Answer

A)  1/4, 1/2
B)  1/2, 1/2
C)  1, 0
D)  4/5, 1/5
E)  the answer is indeterminate from the information givenF) C) and D)
G) B) and D)

Question 17

A decline in the interest rate, other things constant, shifts the investment function downward.

Accepted Answer

A) True 
 B)False

Question 18

The non-income determinants of consumption include all of the following except one. Which is the exception?

Accepted Answer

A)  net wealth
B)  the profitability of new investment
C)  the price level
D)  expectations
E)  the interest rateF) C) and E)
G) A) and B)

Question 19

Which of the following is not an example of a government purchase?

Accepted Answer

A)  schools and teacher salaries
B)  Chinese toys to be sold in discount department stores
C)  aircraft carriers
D)  interstate highway construction
E)  All the answers are correctF) C) and E)
G) A) and B)

Question 20

Expectations that disposable income will increase in the future will

Accepted Answer

A)  shift the current consumption function up
B)  shift the current consumption function down
C)  result in a movement upward along the current consumption function
D)  make the current consumption function flatter
E)  make the current consumption function steeperF) All of the above
G) B) and D)

Exam 10: Aaggregate Expenditure and Agregate Demand

Suppose that autonomous investment level is $100 billion per year. If income in the economy falls,

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If income increases by $100 and $75 of the increase is spent (consumed) , the MPS equals

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The non-income determinants of consumption include all of the following except one. Which is the exception?

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Suppose that when disposable income rises from $3 trillion to $3.2 trillion, consumption rises from $2.5 trillion to $2.6 trillion. What is the marginal propensity to consume?

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If every time disposable income increases by $5 billion, consumption increases by $4 billion and saving increases by $1 billion, the MPC and MPS are, respectively,

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Which of the following would shift the consumption function downward?

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Which of the following is not an example of a government purchase?

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If consumption is greater than income, saving must be negative.

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Mr. Green is considering four possible investment opportunities, each of which would cost him $5,000. He expects annual returns on these investments of $600, $500, $400, and $300. If the interest rate is 7 percent, how many of these opportunities should Mr. Green undertake?

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An upward shift of the consumption function might be caused by

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Expectations that disposable income will increase in the future will

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Exports minus imports equal net exports.

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Exhibit 9-3 -In Exhibit 9-3, when real disposable income is equal to $6 billion, saving is equal to

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Imagine an investment demand curve that shows that, if the market interest rate is 4 percent, the quantity of investment demanded is $500 billion. Then, if the market rate rises to 5 percent, the most likely result is that the quantity of investment demanded

Correct AnswerverifiedShow Answer

Net exports

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The marginal propensity to consume is the fraction of a change in income that is saved.

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A decline in the interest rate, other things constant, shifts the investment function downward.

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The amount of U.S. exports purchased by the rest of the world is primarily determined by

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Exhibit 9-3 -In Exhibit 9-3, the MPS is equal to

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An increase in the interest rate, other things constant, decreases the amount of investment spending.

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