Deck 25: The Algebra of Income and Expenditure

Question 1

Consumption that is independent of the level of income is called autonomous consumption.

Answer 1

True

Question 2

The nation of Omega has an MPC of 0.70 and an MPM of 0.15. Therefore, Omega's spending multiplier is

A)1.18
B)2.22
C)3.33
D)1.43
E)This question cannot be answered without knowing the MPS

Answer 2

B

Question 3

If Y = C + I + G + (X - M) (where C = $100, I = $50, G = $50, and X - M = -$10) the equilibrium level of Y equals

A)$150
B)$180
C)$190
D)$200
E)$210

Answer 3

C

Question 4

If Y = C + I + G + (X - M) and Y = $190, C = $100, I = $50 and G = $50 then, in equilibrium, X - M must equal

A)-$20
B)-$10
C)$10
D)$20
E)$50

Question 5

If C = $3,000 + 0.9Y and income is $20,000,

A)consumption is $20,000
B)consumption is $18,000
C)saving is $0
D)saving is -$1,000
E)income will increase to $200,000

Question 6

Equilibrium output equals autonomous spending multiplied by the spending multiplier.

Question 7

Equilibrium output can be found by solving for the value of Y in the expression a + b(Y - NT) + I + G + X - M(Y - NT).

Question 8

Increases in consumption that result from increases in investment are called induced consumption.

Question 9

If C = a + bY, which of the following is true?

A)If a increases, autonomous saving will increase.
B)If a increases, the multiplier will increase.
C)If a increases, the multiplier will decrease.
D)If b increases, the multiplier will increase.
E)If b increases, the multiplier will decrease.

Question 10

Investment is the only autonomous spending component in aggregate expenditure.

Question 11

In the consumption function: C = a + b(Y - NT), the term b represents the

A)intercept of the consumption function
B)level of taxation
C)level of net taxation
D)level of income
E)marginal propensity to consume

Question 12

If C = 10 + 0.8Y, a $100 increase in Y would increase consumption by

A)$10
B)$20
C)$50
D)$80
E)$100

Question 13

If the marginal propensity to import increases, the spending multiplier increases.

Question 14

The nation of Omega has an MPC of 0.70 and a multiplier of 2.22. Therefore, Omega's MPM is

A)0.9
B)0.7
C)0.5
D)0.15
E)This question cannot be answered without knowing the MPS

Question 15

If C = $3,000 + 0.9Y, which of the following will not be true?

A)If income is less than $30,000, saving must be negative.
B)If income is $30,000, then consumers are not saving.
C)If income equals $40,000, saving must be $0.
D)The marginal propensity to consume is 0.9.
E)Autonomous consumption is $3,000.

Question 16

If the net export function is 500 - 0.15Y, then exports are represented by -0.15Y.

Question 17

If the net export function is 500 - 0.15Y, then an increase in income of $1,000 will decrease net exports by $150.