Deck 9: Aggregate Demand

Question 1

Exports minus imports equal net exports.​

Answer 1

True

Question 2

When economists say investment is autonomous,they mean that investment is independent of the level of saving.​

Answer 2

False

Question 3

Movement along the aggregate expenditure line is caused by a change in the level of income.

Answer 3

True

Question 4

As disposable income decreases,saving decreases.​

Question 5

An increase in the interest rate will increase consumption spending.​

Question 6

The main determinants of investment are the interest rates and expected profit.​

Question 7

Movement along the aggregate demand curve may be caused by a change in autonomous investment spending.​

Question 8

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

Question 9

The slope of the consumption function is equal to the marginal propensity to save (MPS).​

Question 10

Aggregate expenditure means total or combined spending.​

Question 11

A change in consumers' expectations about the future will shift both the aggregate expenditure curve and the aggregate demand curve.​

Question 12

If there are no unintended changes in inventories,the economy is at its equilibrium level of real gross domestic product (GDP)demanded.​

Question 13

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

Question 14

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

Question 15

The higher the opportunity cost of borrowing,the higher the amount of investment,other things constant.​

Question 16

If current aggregate expenditure equals current production,an economy is in equilibrium.​

Question 17

An increase in the marginal propensity to consume (MPC)will cause the consumption function to become steeper.​

Question 18

The current level of investment depends on the current level of income.​

Question 19

An economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate,other things held constant.​

Question 20

Purchases of existing commodities,such as gold and precious gems,are considered investment spending by economists.​

Question 21

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 22

Which of the following is true of disposable income?​

A)It excludes transfer payments.
B)It is the portion of income that is used solely for consumption.
C)It is that part of total earned income that is paid to the government in the form of taxes.
D)It is the difference between income and saving.
E)It equals consumption expenditures plus saving.

Question 23

The marginal propensity to consume is:​

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

Question 24

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 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 0.
E)marginal propensity to save is 0.12.

Question 26

Historically,consumption spending in the United States has _____.​

A)fluctuated greatly with changes in the level of income
B)remained approximately constant as a percentage of income​
C)decreased as a percentage of income​
D)varied inversely with the inflation rate​
E)varied inversely with the interest rate

Question 27

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​

Question 28

Suppose an increase in disposable income from $3 trillion to $3.2 trillion increases consumption from $2.5 trillion to $2.6 trillion.The marginal propensity to consume is _____.​

A)0.1
B)0.2​
C)0.5​
D)0.8​
E)0.9​

Question 29

If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an economy,then consumption spending will increase by:​

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

Question 30

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 31

The table given below shows the disposable income and consumption of a household.In the table below,saving: ​
​Table 9.1
​

A)decreases as disposable income increases.
B)decreases as disposable income decreases.
C)remains constant as disposable income increases.
D)is negative at a disposable income of $1,000.
E)is negative at a disposable income of $1,400.

Question 32

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 33

The marginal propensity to consume:​

A)is the proportion of disposable income that is consumed.
B)is the ratio of disposable income to consumption.
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 34

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

A)its disposable income.
B)the in-kind transfers received by the household.
C)the level of education of the members of the household.
D)the interest rate.
E)the ratio of wage to non-wage income of the household.

Question 35

Only a change in the price level can cause shifts in both the aggregate expenditure line and the aggregate demand curve.​

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 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 0.25​
D)marginal propensity to save is 0.02​
E)marginal propensity to save is 0.25​

Question 38

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)Disposable income and consumption are negatively related to each other.

Question 39

The table given below shows the disposable income and consumption of a household.In the table below,the level of saving at a disposable income of $1,200 is: ​
Table 9.1
​

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

Question 40

If the marginal propensity to consume,MPC,is less than 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 total income of the household is above $100,000​
D)remain the same unless the change in income significantly affects the household's wealth​
E)increase by more than $2,000​

Question 41

A decrease in disposable income will:​

A)shift the consumption function upward.
B)shift the consumption function downward.
C)cause an upward movement along the consumption function.
D)cause a downward movement along the consumption function.
E)make the consumption function flatter.

Question 42

A decrease in the price level will _____.​

A)shift the consumption function upward
B)make the consumption function steeper​
C)result in an upward movement along the consumption function​
D)result in a downward movement along the consumption function​
E)shift the consumption function downward​

Question 43

Which of the following will shift the consumption function upward?​

A)A decrease in stock prices
B)An increase in stock prices​
C)A higher price level​
D)A lower disposable income​
E)A higher disposable income​

Question 44

_____ is the reward savers earn for deferring consumption.​

A)Dividend
B)Wage​
C)Rent​
D)Profit​
E)Interest​

Question 45

Expectations that the price level will decrease in the future will _____.​

A)make the current consumption function flatter
B)shift the current consumption function downward​
C)result in an upward movement along the current consumption function​
D)result in a downward movement along the current consumption function​
E)make the current consumption function steeper​

Question 46

If income increases by $100 and saving increases by $25,the slope of the consumption function equals _____.​

A)1/4
B)1/5​
C)1/2​
D)3/4​
E)3/5​

Question 47

An increase in net wealth will:​

A)increase consumption and saving at each level of income.
B)increase saving and decrease consumption at each level of income.
C)decrease consumption and saving at each level of income.
D)increase consumption and decrease saving at each level of income.
E)have no effect on consumption because consumption is a function of income.

Question 48

Which of the following will 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 49

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 50

Expectations that the price level will increase in the future will:​

A)shift the current consumption function upward.
B)make the current consumption function steeper.
C)make the current consumption function flatter.
D)result in a downward movement along the current consumption function.
E)shift the current consumption function downward.

Question 51

Along the consumption function,an increase in disposable 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 a movement along the given consumption function.
E)shift the consumption function downward.

Question 52

An increase in the price level will:​

A)make the consumption function flatter.
B)make the consumption function steeper.
C)increase consumption because wages will increase.
D)decrease consumption because falling interest rates make it cheaper to borrow.
E)decrease consumption because the value of net wealth will decrease.

Question 53

Which of the following will shift the consumption function upward?​

A)A decrease in disposable income​
B)An increase in disposable income
C)An increase in the interest rate
D)Expectations of lower future prices
E)An increase in net wealth

Question 54

A higher interest rate will:​

A)shift the consumption function upward.
B)shift the consumption function downward.
C)make the consumption function steeper.
D)make the consumption function flatter.
E)cause an upward movement along the consumption function.

Question 55

A decrease in stock prices will _____ the net wealth of households and _____ consumption.​

A)reduce; increase
B)reduce; decrease​
C)reduce; not change​
D)increase; increase​
E)increase; decrease​

Question 56

Which of the following is least likely to cause a shift of the consumption function?​

A)A change in the level of saving
B)A change in consumer expectations about future prices​
C)A change in household wealth​
D)A change in investment spending​
E)A change in the interest rate​

Question 57

The sum of the marginal propensity to consume (MPC)and the marginal propensity to save (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 58

Which of the following will shift the consumption function upward?​

A)A lower interest rate
B)An increase in the interest rate​
C)An increase in disposable income​
D)A decrease in disposable income​
E)Expectations of lower prices in the future​

Question 59

A decrease in net wealth will _____.​

A)shift the consumption function downward
B)make the consumption function steeper​
C)cause an upward movement along the consumption function​
D)cause a downward movement along the consumption function​
E)make the consumption function flatter​

Question 60

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 61

If the market interest rate decreases,then there will be _____.​

A)an upward movement along the investment demand curve
B)a downward movement along the investment demand curve​
C)a rightward shift of the investment demand curve​
D)a leftward shift of the investment demand curve​
E)no movement along or shift of the investment demand curve​

Question 62

Which of the following is true of net taxes?​

A)The level of net taxes varies directly with the level of transfer payments.
B)The level of net taxes varies inversely with the level of transfer payments.
C)Net taxes must always be less than zero.
D)Net taxes increase when income tax rates are reduced.
E)Net taxes increase when income decreases.

Question 63

An increase in the market interest rate,other things equal,will _____.​

A)have no effect on investment
B)increase the amount invested since the rate of return will be lower​
C)increase the amount invested because income will increase​
D)reduce the amount invested because the opportunity costs of investing will be higher​
E)increase the amount invested because the rate of return will be higher​

Question 64

A technological change that positively affects business expectations will:​

A)cause a rightward shift of the investment demand curve.
B)cause a leftward shift of the investment demand curve.
C)cause an upward movement along the investment demand curve.
D)cause a downward movement along the investment demand curve.
E)make the investment demand curve upward sloping.

Question 65

A firm's level of investment depends on the market interest rate:​

A)only when the firm has to borrow funds to invest in new equipment.
B)only when the firm has to borrow funds to buy stocks and bonds.
C)only when the firm already has sufficient funds and could lend them.
D)because the interest rate represents the opportunity cost of investing in capital.
E)because investments are always made with borrowed funds.

Question 66

A household that expects a decrease in disposable income in the future will _____.​

A)increase its current consumption spending
B)decrease its current consumption spending​
C)maintain its current consumption spending​
D)first increase its current consumption spending and then decrease spending when income falls​
E)first decrease its current consumption spending and then increase spending when income falls​

Question 67

Which of the following is most likely to cause a rightward shift of the investment demand curve?

A)An increase in income
B)A decrease in the market interest rate​
C)An improvement in business expectations​
D)An increase in the market rate of interest​
E)A decrease in income​

Question 68

Data on annual percentage changes in real GDP,consumption,and investment in the United States shows that fluctuations in investment _____.​

A)are noticeably smaller during expansions than during recessions
B)are roughly similar to fluctuations in consumption​
C)are roughly similar to fluctuations in GDP​
D)are closely followed by economic forecasters because those fluctuations often signal that a recession will occur​
E)account for most of the variability in GDP​

Question 69

Fluctuations in investment:​

A)account for almost all of the variability in gross domestic product (GDP)only during expansions.
B)account for little of the variability in gross domestic product (GDP).
C)account for almost all of the variability in gross domestic product (GDP)only during recessions.
D)are larger during expansions than during recessions.
E)account for more of the variability in gross domestic product (GDP)than consumption.

Question 70

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

A)Salaries of teachers in public schools
B)Chinese toys to be sold in stores​
C)Purchase of military aircrafts​
D)Construction of an interstate highway​
E)Building a public school​

Question 71

Less of an economy's resources will be channeled into building new factories and equipment when:​

A)interest rates are high.
B)households decide to save more of their income.
C)firms are optimistic about their future profits.
D)aggregate income increases.
E)an economy has a trade deficit.

Question 72

On a graph showing investment along the vertical axis and income along the horizontal axis,_____.​

A)the investment line will be downward sloping
B)the investment line will be upward sloping​
C)the investment line will be horizontal​
D)the investment line will be vertical​
E)the investment line will be U-shaped​

Question 73

The market interest rate is important to the investment decision of firms:​

A)only when funds are borrowed from financial intermediaries.
B)only when firms have the money to invest in capital.
C)regardless of whether funds must be borrowed or firms have the funds on hand.
D)only when firms have funds on hand and are ready to lend them.
E)only when firms purchase new equipment rather than a new building.

Question 74

Identify the correct statement.​

A)During a recession,investment decreases while consumption increases.
B)During a recession,investment increases while consumption decreases.
C)During a recession,investment is constant while consumption increases.
D)Annual variations in investment are larger than annual variations in consumption.
E)Annual variations in investment are smaller than annual variations in consumption.

Question 75

Expectations that disposable income will increase in the future will _____.​

A)shift the current consumption function upward
B)shift the current consumption function downward​
C)result in an upward movement along the current consumption function​
D)make the current consumption function flatter​
E)make the current consumption function steeper​

Question 76

Which of the following will shift the investment demand curve rightward?​

A)Higher interest rates
B)Gloomy sales expectations​
C)A cut in corporate taxes that raises after-tax profits​
D)A decrease in the marginal propensity to consume​
E)An increase in aggregate income​

Question 77

Net taxes are:​

A)taxes plus transfer payments.
B)taxes minus transfer payments.
C)an injection into the economic system.
D)consumption after taxes.
E)government spending minus taxes.

Question 78

Which of the following is true of government purchases?​

A)They are positively related to current income.
B)They are negatively related to current income.
C)They are directly related to taxes.
D)They are decided by public officials.
E)They depend on the market rate of interest.

Question 79

Government outlays equal:​

A)the difference between government expenditures and government revenues.
B)the sum of government expenditures and government revenues.
C)the sum of government purchases and transfer payments.
D)the difference between government purchases and transfer payments.
E)the ratio of government purchases to transfer payments.

Question 80

If the market interest rate equals 8 percent,the opportunity cost of the last new investment project undertaken would approximately be equal to _____.​

A)zero percent
B)4 percent​
C)infinity​
D)8 percent​
E)16 percent​