Deck 8: Aggregate Demand and The Powerful Consumer

Question 1

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

Answer 1

False

Question 2

Aggregate demand is the total demand for the final goods and services produced in an economy.

Answer 2

True

Question 3

The slope of the consumption function is equal to the marginal propensity to save.

Answer 3

False

Question 4

Scatter diagrams are a useful way to depict the relationship between two variables.

Question 5

The consumption function shows an indirect relationship between consumer spending and disposable income.

Question 6

The typical value for the MPC is less than 1.0.

Question 7

A scatter diagram could help a policy maker decide on the size of a tax cut necessary to increase consumer expenditures by a certain amount.

Question 8

Tax reductions should also reduce the amount of consumer expenditures.

Question 9

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

Question 10

The MPC can be used to predict the effect of a tax increase.

Question 11

The relationship between consumption and disposable income is very unreliable and unpredictable.

Question 12

A change in the value of consumer's stock market holdings will cause a shift in the consumption function.

Question 13

Aggregate demand is the sum of total domestic spending by the private sector.

Question 14

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

Question 15

If U.S.consumers become more optimistic about their future income and wealth,the consumption function will shift upward.

Question 16

Government spending is a leakage out of the circular flow of income and spending.

Question 17

The marginal propensity to consume is calculated by dividing the change in consumer spending by the change in disposable income.

Question 18

Taxes add to and transfers subtract from the flow of income and spending.

Question 19

Consumer spending is an injection in the circular flow of income and spending.

Question 20

If consumers receive an increase in income of $1,000,their spending will increase by a smaller amount.

Question 21

The tax cuts of 2008 and 2009 were effective because consumers believed that they were temporary.

Question 22

If inflation rises more quickly in the United States than in France,U.S.exports to France should rise.

Question 23

An example of investment is the purchase of machinery by a manufacturing company.

Question 24

Government transfer payments are income earned by individuals who work for the federal government.

Question 25

A $500 government bond is a money-fixed asset.

Question 26

An economic boom in one country usually causes a recession in other countries.

Question 27

Changes in the price level affect household wealth more than household income.

Question 28

If households decrease the amount of bank account withdrawals,the consumption function may shift upward.

Question 29

U.S.imports rise when income in the United States increases.

Question 30

The purchase of a new house is included in government spending.

Question 31

Financial investments,such as mutual fund purchases,are included in the national income component.

Question 32

Government purchases are included in national product.

Question 33

When the price level falls,consumers may feel wealthier and the consumption function will shift upward.

Question 34

The value of both exports and imports are added to the value of national product.

Question 35

National income minus personal taxes net of transfer payments equals disposable income.

Question 36

To economists,investment means buying stocks and bonds.

Question 37

Bank accounts and bonds are examples of money-fixed assets.

Question 38

A savings account is an example of consumer income.

Question 39

Capital goods are counted the same as consumer goods in the national product accounts.

Question 40

Consumers increased consumption by a relatively small amount in 2008 and 2009 because they believed the tax cuts were temporary.

Question 41

Consumer spending represents about what fraction of total spending in the economy?

A) one-fifth
B) two-thirds
C) one-third
D) two-fifths
E) three-fourths

Question 42

The "investment" component of aggregate demand will include all of the following except

A) expenditures of business firms on new plants.
B) expenditures of business firms on new equipment.
C) resales of existing physical assets.
D) household spending on new homes.

Question 43

Aggregate demand is defined as the total spending

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

Question 44

In which of the following years was a tax cut ineffective in stimulating aggregate demand?

A) 1964
B) 1975
C) 1981
D) 1999

Question 45

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

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

Question 46

Melissa purchases shares in a government bond mutual fund.Is this included in the aggregate demand component "Investment"?

A) Yes,if it is a domestic mutual fund.
B) Yes,if the purchase is made out of current income.
C) No,unless the funds are deposited in a domestic financial institution.
D) No,it would never be included.

Question 47

If a U.S.citizen buys a car produced in Germany,this transaction will add to

A) U.S.aggregate demand.
B) U.S.aggregate supply.
C) German aggregate demand.
D) German imports.

Question 48

Which of the following is considered to be an investment in economists' point of view?

A) Serena buys bonds issued by Citibank.
B) John purchases a new house.
C) Venus invests hundred thousand dollars in Bear Stearns stock.
D) Allen sells the old truck he used for transporting goods.

Question 49

Consumers most likely decide on their current consumption spending by looking at their short-run income prospects.

Question 50

National income and domestic product must be equal.

Question 51

National income is

A) the sum of all wages and salaries,interest,rent,and profits in the economy.
B) equal to the money value of national output.
C) the before-tax income of all individuals in the economy.
D) All of the above are correct.

Question 52

Aggregate demand is a ____ rather than a ____.

A) fixed number,concept
B) schedule,fixed number
C) set number,concept
D) government aggregate,private aggregate

Question 53

Which of the following should be subtracted while calculating aggregate demand of the U.S.?

A) Pakistan's purchase of F-16s from the U.S.
B) Computers imported by China from the U.S.
C) Memorabilia purchases in the U.S.by a foreign tourist.
D) A U.S.firm's purchase of German machinery.

Question 54

The difference between national income and disposable income is

A) residential investment.
B) federal deficits.
C) net exports.
D) financial investment.
E) the amount of taxes collected.

Question 55

Aggregate demand is the sum of

A) C + I + G + (X − IM).
B) C + I + X.
C) C + I + X − IM.
D) C + I + G.

Question 56

Governments can affect the level of aggregate demand in a direct way by changing

A) government spending.
B) exports.
C) taxes.
D) transfer payments.

Question 57

For those in the lowest tax bracket,each dollar tax cut increases disposable income by about $1.33.

Question 58

Aggregate demand is the total demand for

A) all intermediate and final goods.
B) all monetary investments.
C) real and financial investments.
D) all final goods and services.

Question 59

When aggregate demand decreases rapidly,the economy is likely to experience

A) inflation.
B) an economic boom.
C) economic growth.
D) recession.

Question 60

The net export component of aggregate demand is defined as U.S.

A) imports minus U.S.exports.
B) imports plus U.S.exports.
C) exports minus U.S.imports.
D) exports minus taxes and customs duties.

Question 61

On a graph with consumption on the vertical axis and disposable income on the horizontal axis,the slope of the line is

A) greater than one.
B) equal to one.
C) less than one.
D) undefined.

Question 62

Imports are a leakage in the sense that

A) the international financial system is unstable.
B) consumers buy foreign output of goods and services.
C) foreigners earn less than U.S.workers.
D) a trade deficit increases aggregate demand.

Question 63

In the circular flow model,which of the following is considered a leakage?

A) investment spending
B) business spending
C) household saving
D) total exports

Question 64

In the circular flow model,which of the following is an injection?

A) investment spending
B) government taxes
C) total exports
D) imports

Question 65

To get a complete measure of the total spending on U.S.-produced final goods and services,one must adjust aggregate demand by

A) adding imports and subtracting exports.
B) adding imports that are purchased by U.S.consumers.
C) adding exports and subtracting imports.
D) subtracting exports sold to foreigners.

Question 66

Disposable income can be defined as national product

A) minus federal and state taxes.
B) minus taxes plus transfers.
C) minus indirect taxes.
D) plus taxes plus transfers.

Question 67

The circular flow diagram is best described as a(n)

A) abstraction of little value in macroeconomics.
B) exact representation of the cause and effect relationship between spending and employment.
C) model that clarifies the relationship between spending and income.
D) model to explain the relationship between the federal deficit and tax revenues.

Question 68

Historical data representing consumption and disposable income reveals that

A) during the 1930s,U.S.saving was at a high level.
B) U.S.citizens increased saving during World War II.
C) there is no systematic relationship between the two.
D) consumption rises faster than disposable income during recessions.

Question 69

When saving leaks out of the circular flow of income and spending,

A) total income necessarily falls.
B) it leaks out of the financial system.
C) it flows to borrowers.
D) it increases the size of the spending flow.

Question 70

Which of the following is the injection into the circular flow model?

A) Money deposited in a savings account.
B) Income earned through exports.
C) Goods imported from abroad.
D) Taxes paid by the individuals.

Question 71

If you produce a graph with consumption spending on the vertical axis and disposable income on the horizontal axis,the relation between consumption and income will

A) be inverse.
B) be transcendental.
C) shift unpredictably.
D) be direct.

Question 72

The largest component of aggregate demand is

A) investment spending.
B) consumer spending.
C) government spending.
D) total imports.

Question 73

The relationship between consumption and disposable income is such that as

A) consumption rises,disposable income falls.
B) disposable income rises,consumption rises.
C) disposable income rises,consumption falls.
D) disposable income rises,saving falls.

Question 74

Which of the following would be counted as investment in the national income accounts?

A) the purchase of a newly issued stock
B) the purchase of a newly built apartment house
C) the purchase of a newly minted coin
D) the payment of tuition at a private college

Question 75

Saving is a leakage in the sense that

A) saving is lost to the economy and ultimately leads to stagnation.
B) the financial system often makes negative profits.
C) it often accompanies a trade deficit.
D) consumers spend less than their total income.

Question 76

Which of the following would be added to U.S.national income?

A) an American consumer buying French wine
B) an American business selling aircraft to British Airways
C) a Swedish firm selling mobile phones to Americans
D) a French firm buying a Swedish cellular phone

Question 77

Government spending is an injection in the sense that it

A) increases the amount of total spending.
B) increases the size of the federal deficit.
C) decreases the amount of household saving.
D) decreases the amount of taxes paid.

Question 78

Why is it true that domestic product and national income must be equal?

A) The IRS national accounting system assures that taxes equal total income.
B) The total amount of spending must equal total national sales.
C) The value of final product must equal the sum of resource income that produced it.
D) The total amount of income earned is eventually spent.

Question 79

Which of the following is a transfer payment?

A) Work-study students receive wages transferred from the university budget.
B) A company pays the moving expenses for a transferred employee.
C) A student transfers to another college and receives a tuition rebate.
D) A student receives a tuition grant from the federal government.

Question 80

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

A) saving
B) taxes
C) imports
D) exports