Deck 27: Expenditure Multipliers: The Keynesian Model

Question 1

The marginal propensity to save is calculated as

A)saving divided by disposable income.
B)saving divided by the change in disposable income.
C)the change in saving divided by the change in consumption expenditure.
D)the change in saving divided by the change in disposable income.
E)the change in saving divided by disposable income.

Answer 1

the change in saving divided by the change in disposable income.

Question 2

Use the figure below to answer the following questions.

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for a model economy.
Refer to Figure 27.1.1.Consumption and disposable income are equal

A)at all points along the consumption function.
B)when saving equals $40 billion and disposable income equals $540 billion.
C)when disposable income is $500 billion.
D)when disposable income is $600 billion.
E)when disposable income is greater than or equal to $500 billion.

Answer 2

when disposable income is $500 billion.

Question 3

Use the figure below to answer the following questions.

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for a model economy.
Refer to Figure 27.1.1.When disposable income is equal to $200 billion,saving is

A)zero.
B)$200 billion.
C)$150 billion.
D)$60 billion.
E)- $60 billion.

Answer 3

- $60 billion.

Question 4

Use the figure below to answer the following questions.

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for a model economy.
Refer to Figure 27.1.1.The marginal propensity to consume for this economy is

A)0.5.
B)1.
C)0.2.
D)0.8.
E)0.6.

Question 5

Disposable income is

A)used for consumption only.
B)aggregate income minus taxes plus transfer payments.
C)aggregate income plus transfer payments.
D)aggregate income minus taxes.
E)aggregate income minus transfer payments.

Question 6

If a household's disposable income increases from $12,000 to $22,000 and at the same time its consumption expenditure increases from $4,000 to $9,000,then

A)the household is dissaving.
B)the slope of the consumption function is 0.6.
C)the slope of the consumption function is 0.5.
D)the marginal propensity to consume over this range is negative.
E)the marginal propensity to save over this range is negative.

Question 7

If the marginal propensity to consume is 0.85,what change in consumption expenditure would you expect if disposable income increases by $200 million?

A)$20 million
B)$170 million
C)$180 million
D)$1,800 million
E)$18 million

Question 8

The sum of the marginal propensity to save and the marginal propensity to consume

A)always equals 1.
B)sometimes equals 1.
C)always equals 0.
D)never equals 1.
E)is greater than zero but less than 1.

Question 9

The marginal propensity to consume

A)is negative if dissaving is present.
B)is greater than 1 if dissaving is present.
C)is between 1/2 and 1.
D)is greater than 1 but less than 2.
E)is between zero and 1.

Question 10

The marginal propensity to save

A)equals 1 - MPC.
B)is between zero and 1/2.
C)is greater than 1.
D)is greater than 1 but less than 2.
E)is negative.

Question 11

Use the figure below to answer the following questions.

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for a model economy.
Refer to Figure 27.1.1.When disposable income is $500 billion,saving is equal to

A)disposable income.
B)zero.
C)$20 billion.
D)consumption expenditure.
E)$40 billion.

Question 12

The marginal propensity to consume is calculated as

A)consumption expenditure divided by the change in disposable income.
B)the change in consumption expenditure divided by disposable income.
C)consumption expenditure divided by total disposable income.
D)the change in consumption expenditure divided by saving.
E)the change in consumption expenditure divided by the change in disposable income.

Question 13

If the marginal propensity to save is 0.2,then

A)the marginal propensity to consume is larger than 0.8.
B)the marginal propensity to consume is 0.8.
C)the marginal propensity to consume is also 0.2.
D)the slope of the consumption function is 0.2.
E)the slope of the saving function is 0.8.

Question 14

Use the figure below to answer the following questions.

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for a model economy.
Refer to Figure 27.1.1.When disposable income is $200 billion,

A)saving is equal to line segment AD.
B)households are consuming less than $200 billion.
C)businesses are spending more than households because the consumption function lies above the 45° line.
D)households are dissaving an amount equal to line segment AB.
E)households are saving an amount equal to line segment AB.

Question 15

Complete the following sentence.A household

A)consumes or pays taxes out of disposable income.
B)consumes, saves, or pays taxes out of disposable income.
C)consumes or saves out of disposable income.
D)only consumes out of disposable income.
E)None of the above.

Question 16

If consumption expenditure for a household increases from $300 to $500 when disposable income increases from $200 to $500,the marginal propensity to consume is

A)equal to 1.
B)equal to 0.75.
C)equal to 1.33.
D)negative.
E)equal to 0.67.

Question 17

Use the figure below to answer the following questions.

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for a model economy.
When the consumption function lies below the 45° line,households

A)spend all of any increase in disposable income.
B)consume more than their disposable income.
C)are saving some portion of their disposable income.
D)save all of any increase in disposable income.
E)are dissaving.

Question 18

If consumption is $8,000 when disposable income is $10,000,the marginal propensity to consume

A)is 0.50.
B)is 0.75.
C)is 0.80.
D)is 1.25.
E)cannot be determined from the information given.

Question 19

Dissaving occurs when a household

A)spends less than it receives in disposable income.
B)spends more than it saves.
C)saves more than it spends.
D)consumes more than it receives in disposable income.
E)borrows.

Question 20

The marginal propensity to consume is the

A)fraction of the first dollar of disposable income received that is saved.
B)fraction of the first dollar of disposable income received that is consumed.
C)fraction of the last dollar of disposable income received that is saved.
D)fraction of a change in disposable income that is spent on consumption.
E)total amount of consumption divided by the total amount of disposable income.

Question 21

The consumption function shows the relationship between consumption expenditure and

A)the interest rate.
B)the price level.
C)disposable income.
D)saving.
E)nominal income.

Question 22

Use the table below to answer the following question.
Table 27.1.1
The following table shows the relationship between consumption
expenditure (C)and disposable income (YD)for a hypothetical economy.

Refer to Table 27.1.1.Based on the information in the table,saving would be $125 if YD were

A)$1,000.
B)$1,100.
C)$1,200.
D)$1,300.
E)$900.

Question 23

The fraction of a change in disposable income spent on consumption is the

A)marginal propensity to consume.
B)marginal propensity to save.
C)marginal propensity to dispose.
D)marginal tax rate.
E)consumption function.

Question 24

Use the table below to answer the following questions.
Table 27.1.2

Refer to Table 27.1.2.Saving equals $100 when disposable income is

A)$475.
B)$550.
C)$525.
D)$575.
E)$625.

Question 25

Use the table below to answer the following question.
Table 27.1.1
The following table shows the relationship between consumption
expenditure (C)and disposable income (YD)for a hypothetical economy.

Refer to Table 27.1.1.If YD is $400,then saving is

A)-$50.
B)$50.
C)zero.
D)$100.
E)-$125.

Question 26

Use the figure below to answer the following questions.

Figure 27.1.2
Refer to Figure 27.1.2.The marginal propensity to consume is

A)800.
B)0.8.
C)0.2.
D)0.25.
E)0.75.

Question 27

Use the table below to answer the following questions.
Table 27.1.2

Refer to Table 27.1.2.When saving is zero,what is the level of disposable income?

A)$325
B)$400
C)$475
D)$550
E)$625

Question 28

Use the table below to answer the following questions.
Table 27.1.3

Refer to Table 27.1.3.The marginal propensity to consume is

A)0.35.
B)0.65.
C)1.15.
D)1.65.
E)1.54.

Question 29

Use the table below to answer the following questions.
Table 27.1.3

In Table 27.1.3,at which of the following values of disposable income is there positive saving?

A)0
B)100
C)200
D)300
E)both C and D are correct

Question 30

Use the table below to answer the following question.
Table 27.1.1
The following table shows the relationship between consumption
expenditure (C)and disposable income (YD)for a hypothetical economy.

Refer to Table 27.1.1.The marginal propensity to consume is

A)increasing as YD increases.
B)equal to 1 when YD equals $600.
C)0.75.
D)0.25.
E)1.33.

Question 31

Use the table below to answer the following question.
Table 27.1.1
The following table shows the relationship between consumption
expenditure (C)and disposable income (YD)for a hypothetical economy.

Refer to Table 27.1.1.The marginal propensity to save is

A)decreasing as YD increases.
B)equal to zero when YD equals $600.
C)0.75.
D)0.25.
E)4.

Question 32

The fraction of a change in disposable income that is saved is the

A)marginal propensity to consume.
B)marginal propensity to save.
C)marginal propensity to dispose.
D)marginal tax rate.
E)saving function.

Question 33

Use the figure below to answer the following questions.

Figure 27.1.2
Refer to Figure 27.1.2.Autonomous consumption is

A)-200.
B)$200.
C)$800.
D)$600.
E)zero.

Question 34

Use the table below to answer the following questions.
Table 27.1.2

Refer to Table 27.1.2.What is the value of the marginal propensity to consume?

A)0.75
B)0.25
C)1.33
D)0.34
E)0.67

Question 35

The saving function shows the relationship between saving and

A)the interest rate.
B)the price level.
C)disposable income.
D)consumption.
E)nominal income.

Question 36

Use the table below to answer the following question.
Table 27.1.1
The following table shows the relationship between consumption
expenditure (C)and disposable income (YD)for a hypothetical economy.

Refer to Table 27.1.1.Based on the information in the table,if YD were zero,then

A)consumption would be zero.
B)consumption would be $150.
C)saving would be zero.
D)consumption would be -$150.
E)consumption would be $100.

Question 37

Use the table below to answer the following questions.
Table 27.1.3

Refer to Table 27.1.3.Autonomous consumption is equal to

A)$0.
B)$65.
C)$100.
D)$260.
E)$400.

Question 38

Use the figure below to answer the following questions.

Figure 27.1.1
This figure describes the relationship between consumption expenditure and disposable income for a model economy.
The vertical distance between the consumption function and the 45° line measures

A)disposable income.
B)consumption.
C)saving or dissaving.
D)the marginal propensity to consume.
E)the marginal propensity to save.

Question 39

Use the table below to answer the following questions.
Table 27.1.2

Refer to Table 27.1.2.What is the value of the marginal propensity to save?

A)0.27
B)0.25
C)0.67
D)0.33
E)1.33

Question 40

The consumption functions for the Canadian economy covering the period from 1970 to 2010 indicate a marginal propensity to consume approximately equal to

A)0.9.
B)0.65.
C)0.85.
D)0.7.
E)0.54.

Question 41

Use the figure below to answer the following questions.

Figure 27.2.1
There are no exports or imports in this economy.
Refer to Figure 27.2.1.When real GDP is equal to Y?,then aggregate planned expenditure

A)exceeds real GDP and real GDP increases.
B)is less than real GDP and real GDP decreases.
C)exceeds real GDP and real GDP decreases.
D)is equal to real GDP and real GDP neither increases nor decreases.
E)is less than real GDP and real GDP increases.

Question 42

If an economy's real GDP increases from $100 billion to $150 billion,and at the same time its imports increase from $40 billion to $50 billion,then the marginal propensity to import

A)decreases from 0.4 to 0.2.
B)is greater than 0.2 and less than 0.4.
C)is 0.2.
D)is 0.36.
E)is 0.4.

Question 43

Use the figure below to answer the following questions.

Figure 27.2.1
There are no exports or imports in this economy.
Refer to Figure 27.2.1.When real GDP is equal to Y?,then

A)actual expenditure is less than planned expenditure.
B)actual expenditure is greater than planned expenditure.
C)planned expenditure is equal to actual expenditure.
D)the economy is in equilibrium.
E)real GDP decreases.

Question 44

Everything else remaining the same,a decrease in expected future income ________ current consumption expenditure and ________ saving.

A)increases;increases
B)increases;decreases
C)decreases;increases
D)decreases;decreases
E)does not change;does not change

Question 45

The aggregate expenditure curve shows the relationship between aggregate planned expenditure and

A)disposable income.
B)real GDP.
C)the interest rate.
D)consumption expenditure.
E)the price level.

Question 46

If aggregate planned expenditure is less than real GDP,then inventories

A)increase and real GDP increases.
B)increase and real GDP falls.
C)decrease and real GDP increases.
D)decrease and real GDP decreases.
E)remain constant and real GDP remains constant.

Question 47

If there is an unplanned increase in inventories,aggregate planned expenditure is

A)greater than real GDP and firms increase production.
B)greater than real GDP and firms decrease production.
C)less than real GDP and firms increase production.
D)less than real GDP and firms decrease production.
E)less than real GDP and firms decrease investment.

Question 48

The marginal propensity to import is equal to ________.

A)disposable income minus consumption expenditure minus saving divided by real GDP
B)the change in imports divided by the change in real GDP that brought it about, other things remaining the same
C)the change in net imports divided by the change in disposable income, other things remaining the same
D)imports minus exports
E)1 - MPC

Question 49

Which of the following events would shift the consumption function upward?

A)an increase in disposable income
B)a decrease in disposable income
C)a decrease in wealth
D)a decrease in expected future disposable income
E)an increase in wealth

Question 50

Use the figure below to answer the following questions.

Figure 27.2.1
There are no exports or imports in this economy.
Refer to Figure 27.2.1.Equilibrium real GDP

A)is decreasing.
B)is equal to Y?.
C)is equal to Yb.
D)is equal to Yc.
E)can be any of Y?, Yb, or Yc depending on what is happening to inventories.

Question 51

If aggregate planned expenditure exceeds real GDP,then inventories

A)increase and real GDP increases.
B)increase and real GDP falls.
C)decrease and real GDP increases.
D)decrease and real GDP decreases.
E)remain constant and real GDP remains constant.

Question 52

Everything else remaining the same,if Canadians expect future disposable income to rise,then

A)Canada's consumption function shifts downward.
B)Canada's consumption function shifts upward.
C)a movement occurs up along Canada's consumption function.
D)a movement occurs down along Canada's consumption function.
E)Canada's saving function shifts upward.

Question 53

An increase in autonomous consumption

A)shifts the consumption function upward.
B)shifts the consumption function downward.
C)creates a movement downward along the consumption function.
D)creates a movement upward along the consumption function.
E)changes the slope of the consumption function.

Question 54

The marginal propensity to consume

A)is equal to zero when disposable income equals consumption expenditure.
B)is equal to 1 minus the slope of the saving function.
C)is negative when saving is positive.
D)increases as the economy moves upward along the consumption function.
E)is greater than the slope of the 45-degree line.

Question 55

When disposable income increases

A)the consumption function shifts upward.
B)the saving function shifts downward.
C)a movement occurs down along the consumption function.
D)a movement occurs up along the consumption function.
E)Both A and B are correct.

Question 56

The marginal propensity to import is calculated as

A)imports divided by the change in real GDP.
B)the change in imports divided by real GDP.
C)imports divided by real GDP.
D)the change in imports divided by the change in real GDP.
E)none of the above.

Question 57

The slope of the consumption function is

A)less than the slope of the 45° line.
B)greater than the slope of the 45° line.
C)equal to the slope of the 45° line.
D)one.
E)zero.

Question 58

Use the figure below to answer the following questions.

Figure 27.2.1
There are no exports or imports in this economy.
Refer to Figure 27.2.1.When real GDP is equal to Yc,then

A)actual expenditure is less than planned expenditure.
B)actual expenditure is greater than planned expenditure.
C)planned expenditure is equal to actual expenditure.
D)the economy is in equilibrium.
E)real GDP increases.

Question 59

Use the figure below to answer the following questions.

Figure 27.2.1
There are no exports or imports in this economy.
Refer to Figure 27.2.1.When real GDP is equal to Yb,then

A)actual expenditure is less than planned expenditure.
B)actual expenditure is greater than planned expenditure.
C)planned expenditure is equal to actual expenditure.
D)real GDP increases.
E)real GDP decreases.

Question 60

If real GDP is $3 billion and aggregate planned expenditure is $3.5 billion,then inventories

A)increase and productions increases.
B)increase and production decreases.
C)decrease and production increases.
D)decrease and production decreases.
E)remain the same and production decreases.

Question 61

Use the figure below to answer the following questions.

Figure 27.2.1
There are no exports or imports in this economy.
Refer to Figure 27.2.1.When real GDP is equal to Yc,then aggregate planned expenditure is

A)less than real GDP and real GDP decreases.
B)less than real GDP and real GDP increases.
C)greater than real GDP and real GDP decreases.
D)equal to real GDP and real GDP neither increases nor decreases.
E)greater than real GDP and real GDP increases.

Question 62

Use the figure below to answer the following questions.

Figure 27.2.2
The economy depicted does not engage in international trade and has no government.Planned aggregate expenditure (AE)is equal to the sum of consumption expenditure (C)and investment (I).
Refer to Figure 27.2.2.Equilibrium expenditure is

A)$100 billion.
B)$300 billion.
C)$250 billion.
D)$200 billion.
E)$400 billion.

Question 63

If AE = 50 + 0.6Y and Y = 200,then unplanned inventories

A)increase by 75.
B)increase by 30.
C)decrease by 75.
D)decrease by 30.
E)do not change and equilibrium exists.

Question 64

The fact that imports increase as real GDP increases implies that imports are part of

A)marginal expenditure.
B)autonomous expenditure.
C)consumption expenditure.
D)equilibrium expenditure.
E)induced expenditure.

Question 65

Equilibrium expenditure occurs when

A)consumption equals real GDP.
B)aggregate planned expenditure equals real GDP.
C)aggregate planned expenditure equals consumption.
D)induced consumption equals aggregate planned expenditure.
E)none of the above.

Question 66

Which one of the following will lead to an increase in the slope of the AE function?

A)an increase in the marginal propensity to import
B)an increase in the marginal tax rate
C)a decrease in the marginal propensity to consume
D)a decrease in the marginal propensity to save
E)an increase in the marginal propensity to save

Question 67

Everything else remaining the same,autonomous consumption

A)increases as disposable income decreases.
B)increases as disposable income increases.
C)does not change as disposable income changes.
D)is usually assumed to be zero.
E)decreases as disposable income decreases.

Question 68

If AE = 100 + 0.7Y and Y = 300,then unplanned inventories

A)increase by 10.
B)increase by 200.
C)decrease by 10.
D)decrease by 200.
E)do not change and equilibrium exists.

Question 69

Use the figure below to answer the following questions.

Figure 27.2.2
The economy depicted does not engage in international trade and has no government.Planned aggregate expenditure (AE)is equal to the sum of consumption expenditure (C)and investment (I).
Refer to Figure 27.2.2.When real GDP is to $300 billion,real GDP

A)$25 billion is less than aggregate planned expenditure, and firms decrease production.
B)exceeds aggregate planned expenditure by $25 billion, and firms increase production.
C)is the same as aggregate planned expenditure, and firms do not change production.
D)exceeds aggregate planned expenditure by $25 billion, and firms decrease production.
E)exceeds aggregate planned expenditure by $50 billion, and firms increase production.

Question 70

Use the figure below to answer the following questions.

Figure 27.2.2
The economy depicted does not engage in international trade and has no government.Planned aggregate expenditure (AE)is equal to the sum of consumption expenditure (C)and investment (I).
Refer to Figure 27.2.2.When real GDP is $100 billion,

A)real GDP is less than aggregate planned expenditure, and firms increase production.
B)aggregate planned expenditure is greater than real GDP, and firms decrease production.
C)real GDP is greater than aggregate planned expenditure, and firms decrease production.
D)aggregate planned expenditure equals real GDP, and the economy is in equilibrium.
E)aggregate planned expenditure is less than real GDP, and firms increase production.

Question 71

As real GDP increases

A)autonomous consumption increases.
B)planned investment increases.
C)exports increase.
D)imports increase.
E)imports decrease.

Question 72

As real GDP decreases

A)induced consumption decreases.
B)planned investment increases.
C)exports increase.
D)imports increase.
E)induced consumption increases.

Question 73

Use the figure below to answer the following questions.

Figure 27.2.1
There are no exports or imports in this economy.
Refer to Figure 27.2.1.When real GDP is equal to Yb,then aggregate planned expenditure is

A)less than real GDP and real GDP decreases.
B)less than real GDP and real GDP increases.
C)greater than real GDP and real GDP increases.
D)greater than real GDP and real GDP decreases.
E)equal to real GDP and real GDP neither increases nor decreases.

Question 74

Which one of the following variables has an induced component?

A)investment
B)consumption
C)exports
D)government expenditure on goods and services
E)all of the above

Question 75

Consumption expenditure minus imports,which varies with real GDP,is

A)aggregate expenditure.
B)autonomous expenditure.
C)planned consumption.
D)induced expenditure.
E)unplanned consumption.

Question 76

If there is an unplanned decrease in inventories,aggregate planned expenditure is

A)greater than real GDP, and firms increase production.
B)greater than real GDP, and firms decrease production.
C)less than real GDP, and firms increase production.
D)less than real GDP, and firms decrease production.
E)greater than real GDP, and firms increase investment.

Question 77

Use the figure below to answer the following questions.

Figure 27.2.3
There are no taxes in this economy.
In Figure 27.2.3,the marginal propensity to consume,assuming no income taxes,is

A)0.3.
B)0.6.
C)0.9.
D)1.0.
E)0.93.

Question 78

Suppose real GDP increases by $1 billion and,as a result,consumption increases by $500 million.This change in consumption is

A)unplanned.
B)induced.
C)autonomous.
D)too little.
E)planned.

Question 79

Use the figure below to answer the following questions.

Figure 27.2.2
The economy depicted does not engage in international trade and has no government.Planned aggregate expenditure (AE)is equal to the sum of consumption expenditure (C)and investment (I).
Refer to Figure 27.2.2.Investment is

A)$50 billion.
B)$25 billion.
C)$75 billion.
D)$100 billion.
E)increasing as real GDP increases.

Question 80

A change in consumption,in response to a change in income,is

A)unplanned consumption.
B)autonomous consumption.
C)induced consumption.
D)equilibrium consumption.
E)planned consumption.