Deck 9: Aggregate Expenditure

Question 1

Disposable income is equal to consumption

A)plus investment
B)plus taxes
C)plus saving
D)minus taxes
E)minus saving

Answer 1

C

Question 2

The most important determinant of a household's consumption spending is

A)its disposable income
B)its total wealth
C)the number of persons in the household
D)its net wealth
E)the ratio of wage to nonwage income the household earns

Answer 2

A

Question 3

If disposable income decreases, there is typically a decrease in consumption spending.

Answer 3

True

Question 4

The primary determinant of saving is income.

Question 5

Exhibit 9-1

Given the data in Exhibit 9-1, the level of saving decreases as disposable income increases.

Question 6

Autonomous consumption expenditures are

A)identical to induced consumption
B)determined primarily by transfer payments
C)not influenced by disposable income
D)increasing at a decreasing rate
E)increasing at an increasing rate

Question 7

Saving in our simple model

A)varies inversely with income
B)is determined primarily by the interest rate
C)is positive when a person spends less than her income
D)can never be negative because it is a stock
E)can never be negative because it is a flow

Question 8

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

Question 9

Which must be true when consumption exceeds income?

A)the consumption function shifts upward
B)the consumption function shifts downward
C)aggregate expenditures equal real GDP
D)saving must be negative
E)aggregate expenditures will fall

Question 10

Out of disposable income, households

A)consume and save
B)consume and invest
C)save and invest
D)consume, save, and pay taxes
E)consume, save, pay taxes, and make transfer payments

Question 11

Disposable income is

A)the major determinant of consumption spending
B)total salary and wage income minus taxes and transfer payments
C)the income households earn before taxes
D)aggregate income plus taxes minus transfer payments
E)a measure of income that is equivalent to GDP

Question 12

As disposable income increases, consumption spending

A)increases by the same amount
B)decreases by the same amount
C)increases by less than the increase in disposable income
D)decreases by less than the increase in disposable income
E)does not change at all

Question 13

An increase in the interest rate would shift the consumption function upward.

Question 14

Exhibit 9-1

Given the data in Exhibit 9-1, the level of saving at a disposable income of $1,200 is

A)$80
B)$240
C)$950
D)$1,200
E)$1,300

Question 15

The difference between consumption spending and disposable income

A)decreases as income increases
B)stays proportionally the same as income increases
C)decreases if the interest rate increases
D)equals the amount of taxes paid
E)equals saving

Question 16

Sarah moves from Upperland, which has no taxes or transfer payments, to Lowerland, where she is hit with taxes of $2,000 and receives transfer payments of $3,000. She earns the same wage in both countries, but in Lowerland her disposable income is

A)$1,000 higher
B)$1,000 lower
C)$5,000 higher
D)$2,000 lower
E)$3,000 higher

Question 17

Historically, consumption spending in the United States has

A)increased as a percentage of income
B)remained approximately constant as a percentage of income
C)decreased as a percentage of income
D)remained constant over time
E)increased more than income

Question 18

The primary determinant of saving is the interest rate.

Question 19

The primary determinant of consumption spending is the price level.

Question 20

Which is true of disposable income?

A)it excludes transfer payments
B)the portion of income is used solely for consumption
C)it is that part of aggregate income that is taken in taxes by government
D)all of disposable income contributes directly to aggregate expenditure
E)disposable income equals consumption expenditures plus saving

Question 21

Consumption spending depends mainly on the level of

A)national income
B)disposable income
C)personal income
D)personal income taxes
E)imports

Question 22

The MPC is a relationship between

A)a change in consumption and a change in income
B)a change in consumption and a change in saving
C)changes in consumption and changes in saving
D)the ratio of income to consumption at any given level of income
E)the total level of consumption and the total level of saving

Question 23

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

Question 24

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

Question 25

If a household's income falls from $20,000 to $17,000 and its consumption spending falls from $18,000 to $15,000, then its

A)marginal propensity to consume is -0.67
B)marginal propensity to consume is 0.88
C)marginal propensity to consume is 0.20
D)marginal propensity to save is zero
E)marginal propensity to save is 0.12

Question 26

Induced consumption spending

A)represents consumption that is independent of income
B)plus saving equals total consumption spending
C)is positively related to disposable income
D)is equal to autonomous consumption spending in equilibrium
E)is the difference between autonomous consumption spending and disposable income

Question 27

The consumption function relates consumption spending to

A)the price level
B)interest rates
C)disposable income
D)expectations about the price level
E)household wealth

Question 28

Which of the following is true of the relationship between disposable income and consumption?

A)Disposable income and consumption are both dependent variables.
B)Disposable income and consumption are both independent variables.
C)Disposable income is the dependent variable and consumption is the independent variable.
D)Consumption is the dependent variable and disposable income is the independent variable.
E)Neither is dependent nor independent since they are related by the equation DI = C + S.

Question 29

Induced saving

A)is that part of saving that is inversely related to the interest rate
B)plus autonomous saving equals disposable income
C)is that portion of saving that is directly related to income
D)is less than disposable income at every level of income
E)equals autonomous saving at every income level

Question 30

If a household's income rises from $46,000 to $46,700 and its consumption spending rises from $35,800 to $36,400, then its

A)marginal propensity to consume is 0.86
B)marginal propensity to consume is 0.99
C)marginal propensity to consume is 0.98
D)marginal propensity to save is 0.01
E)marginal propensity to save is 0.86

Question 31

As disposable income increases, saving decreases.

Question 32

A simple statement of the consumption behavior suggested in our model is that

A)all income earned from wages is spent
B)total income must be equal to wages plus profits
C)social values and customs are the primary determinants of consumption spending
D)spending increases by less than income
E)people spend more and save more as their disposable income increases

Question 33

If a household's income falls from $26,000 to $24,000 and its consumption spending falls from $25,000 to $23,500, then its

A)marginal propensity to consume is 0.98
B)marginal propensity to consume is 1.33
C)marginal propensity to consume is 0.94
D)marginal propensity to save is 0.02
E)marginal propensity to save is 0.25

Question 34

At the equilibrium level of real GDP, the MPC equals 1.

Question 35

If disposable income increases, consumption spending increases and saving decreases.

Question 36

As disposable income increases,

A)consumption and saving both increase
B)consumption increases and saving decreases
C)consumption and saving both decrease
D)consumption decreases but saving increases
E)saving increases, but we cannot predict what happens to consumption

Question 37

If the MPC < 1 and a household's disposable income increases by $2,000, the household's consumption will

A)increase by less than $2,000
B)increase by $2,000
C)decrease if the family was wealthy before the income change
D)remain the same unless the change in income significantly affects the household's wealth
E)remain the same

Question 38

If a household's income rises from $20,000 to $22,000 and its consumption spending rises from $19,000 to $20,500, then its

A)marginal propensity to save is 0.70
B)marginal propensity to save is 0.02
C)marginal propensity to consume is 0.93
D)marginal propensity to consume is 0.95
E)marginal propensity to consume is 0.75

Question 39

If a household's income falls from $26,000 to $24,000 and its saving falls from $1,000 to $500, then its

A)marginal propensity to consume is 0.98
B)marginal propensity to consume is 1.33
C)marginal propensity to consume is 0.75
D)marginal propensity to save is 0.02
E)marginal propensity to save is 0.4

Question 40

The consumption function assumes that

A)only disposable income affects consumption
B)only the price level affects consumption
C)many factors other than disposable income affect consumption, and each is allowed to vary along the consumption function
D)factors other than disposable income affect consumption, but those are held constant along the consumption function
E)only consumer expectations affect consumption

Question 41

The marginal propensity to consume

A)is the proportion of disposable income consumed
B)is the reciprocal of the ratio of disposable income to saving
C)is the change in consumption relative to a change in disposable income
D)minus the marginal propensity to save must equal 1
E)is greater than 1 at all levels of income

Question 42

The fraction of an increase in income that is saved is referred to as the

A)marginal propensity to save
B)average propensity to save
C)marginal propensity to consume
D)average propensity to consume
E)saving-consumption ratio (i.e., saving divided by consumption spending)

Question 43

An increase in the MPC will cause the consumption function to become steeper (rotate upwards).

Question 44

The marginal propensity to consume measures the change in consumption divided by the change in income.

Question 45

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,

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 given

Question 46

Exhibit 9-2

In Exhibit 9-2, the marginal propensity to save equals

A)60
B)0
C)0.43
D)0.57
E)0.30

Question 47

If income increases by $100 and the MPC is 3/4 (0.75), then consumption increases by

A)$25
B)$66.66
C)$50
D)$33.33
E)$75

Question 48

The slope of the consumption function equals the marginal propensity to consume.

Question 49

Suppose that when disposable income rises from $5.2 trillion to $6.0 trillion, consumption rises from $5.0 trillion to $5.6 trillion. What is the marginal propensity to consume?

A)0.25
B)0.33
C)0.75
D)0.67
E)0.07

Question 50

If autonomous net taxes increase by $10 trillion and the marginal propensity to consume is 0.8, consumption initially will

A)increase by $50 trillion
B)decrease by $10 trillion
C)decrease by $8 trillion
D)increase by $10 trillion
E)decrease by $50 trillion

Question 51

Suppose that when disposable income rises from $5.2 trillion to $6.0 trillion, consumption rises from $5.0 trillion to $5.6 trillion. What is the marginal propensity to save?

A)0.25
B)0.33
C)0.75
D)0.67
E)0.07

Question 52

Exhibit 9-2

In Exhibit 9-2, the marginal propensity to consume equals

A)140
B)1.00
C)1.43
D)0.43
E)0.70

Question 53

The slope of the consumption function equals the

A)MPC
B)MPS
C)APC
D)APS
E)ratio of the APC to the APS (i.e., APC divided by APS)

Question 54

If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion, then consumption spending will rise by

A)$ 6 billion
B)$14 billion
C)$20 billion
D)$28 billion
E)$67 billion

Question 55

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?

A)0.1
B)0.2
C)0.5
D)0.8
E)0.9

Question 56

We can tell from the data in Exhibit 9-2 that planned investment is autonomous because

A)actual investment is constant at each level of income
B)it does not vary as consumption changes
C)it does not vary as income changes
D)it does not vary as the actual investment changes
E)it does not vary as the price level changes

Question 57

The inverse of the slope of the consumption function equals the marginal propensity to save.

Question 58

The slope of the saving function is equal to the MPS.

Question 59

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 save?

A)0.1
B)0.2
C)0.5
D)0.8
E)0.9

Question 60

The marginal propensity to consume is defined as the

A)fraction of consumption that is spent on goods, both durable and nondurable
B)fraction of a change in income that is spent on consumption
C)fraction of a change in income that is spent on investment
D)average amount of consumption at different levels of income
E)average amount of consumption at a given level of income

Question 61

Which of the following would not shift the consumption function?

A)a change in household wealth
B)a change in the price level
C)a change in household disposable income
D)a change in the level of unemployment
E)a change in the rate of interest

Question 62

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

A)0.25
B)0.33
C)0.67
D)0.75
E)1.33

Question 63

If income increases by $100 and consumption increases by $75, the slope of the consumption function equals

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

Question 64

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

A)$-2 billion
B)$-1 billion
C)0
D)$1 billion
E)$2 billion

Question 65

An increase in the interest rate will increase consumption spending.

Question 66

The MPC plus the MPS equals

A)0.5
B)the multiplier
C)the slope of the consumption function
D)1.0
E)the slope of the saving function

Question 67

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

A)0.25
B)0.33
C)0.67
D)0.75
E)1.33

Question 68

A decrease in the price level decreases net wealth and increases consumption spending.

Question 69

If income increases by $100 and the MPS is 1/4, then the amount saved equals

A)$50
B)$75
C)$25
D)$100
E)$33.33

Question 70

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

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

Question 71

If income increases by $100 and saving increases by $25, the slope of the saving function equals

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

Question 72

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

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

Question 73

Expectations that the price level will rise in the future cause consumption to rise today.

Question 74

If income rises from $6.0 trillion to $6.4 trillion, consumption rises from $5.5 trillion to $5.8 trillion. What is the slope of the aggregate expenditure line? (Assume there is neither international trade nor any government.)

A)0.25
B)0.33
C)0.67
D)0.75
E)1.33

Question 75

The slope of the consumption function shows how

A)consumption changes over time
B)consumption changes as household size changes
C)consumption changes as the price level changes
D)income changes as the level of consumption changes
E)consumption changes as the level of income changes

Question 76

Exhibit 9-3
In Exhibit 9-3, the slope of the consumption function is equal to

A).33
B).5
C).67
D).7
E).9

Question 77

Along the aggregate consumption function, an increase in income will

A)cause autonomous consumption to rise
B)shift the consumption function upward
C)cause a corresponding downward shift of the saving function
D)cause movement along the given consumption function
E)shift the consumption function downward

Question 78

A change in which of the following is least likely to cause a shift of the consumption function?

A)the saving rate
B)consumer expectations about future prices
C)household wealth
D)investment spending
E)the interest rate

Question 79

An upward shift of the consumption function might be caused by

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 rate

Question 80

Changes in the price level will not shift the consumption function.