Question 1

If the marginal propensity to consume is 0.9, it would mean that:
A) consumers spend $9 out of every $10 of additional disposable income.
B) consumers save $9 out of every $10 of additional disposable income.
C) consumers spend $1 out of every $10 of additional disposable income.
D) consumers spend $9.90 out of every $10 of additional disposable income.

Accepted Answer

The marginal propensity to consume (MPC) is the proportion of additional disposable income that is spent rather than saved. An MPC of 0.9 means that consumers spend 90% of every additional dollar of disposable income. Therefore, A is the correct answer.

Question 2

If a firm's business taxes decrease, we would expect investment spending to:
A) increase.
B) decrease.
C) remain constant.
D) There is not enough information to determine what would happen.

Accepted Answer

A decrease in business taxes would increase a firm's after-tax profits. This would result in more funds available for investment spending, leading to an increase in investment spending.

Question 3

Which of the following is not a determinant of investment spending?
A) Real income
B) Interest rates
C) Taxes
D) Expected profitability

Accepted Answer

Real income is not a determinant of investment spending. Investment spending is affected by factors such as interest rates, taxes, and expected profitability, but not by real income.

Question 4

The marginal propensity to consume:
A) is the amount by which consumption increases when after-tax income increases by $1.
B) is closely linked to the multiplier effect of government spending.
C) is a value between 0 and 1.
D) All of these are true.

Accepted Answer

All of these are true. The marginal propensity to consume (MPC) is the amount by which consumption increases when after-tax income increases by $1. MPC is closely linked to the multiplier effect of government spending and it is always a value between 0 and 1, as it represents the proportion of additional income that people choose to spend rather than save.

Question 5

Which of the following is a determinant of investment spending?
A) Real income
B) Expected future income
C) Taxes
D) Wealth

Accepted Answer

The answer of Which of the following is a determinant...

Question 6

If the marginal propensity to consume is 0.25, it would mean that:
A) $0.25 of an additional $1 of individuals' after-tax income is spent on consumption.
B) $0.25 of an additional $1 of individuals' after-tax income is saved.
C) $0.75 of an additional $1 of individuals' after-tax income is spent on consumption.
D) None of these are true.

Accepted Answer

Marginal propensity to consume (MPC) refers to the portion of an additional dollar of income that is spent on consumption. Therefore, if the MPC is 0.25, it means that $0.25 of an additional $1 of individuals' after-tax income is spent on consumption.

Question 7

Which of the following would cause investment spending to decrease?
A) Real income increases.
B) Real interest rates increase.
C) A firm's revenues increase while their costs remain constant.
D) Expected future income increases.

Accepted Answer

An increase in real interest rates would cause investment spending to become more expensive, which would decrease its demand.

Question 8

Economist John Maynard Keynes noted that one of the main contributors to the Great Depression in the 1930s was:
A) weak spending.
B) poor infrastructure for manufacturing.
C) a sharp decline in U.S. exports.
D) high interest rates.

Accepted Answer

Keynes believed that weak spending was the main cause of the Great Depression because when people don't spend, businesses don't have enough revenue to continue operating, leading to layoffs and further reductions in spending. This creates a negative cycle that can lead to a recession or depression.

Question 9

In economics, investment refers to:
A) stocks.
B) bonds.
C) physical capital.
D) mutual funds.

Accepted Answer

Investment in economics typically refers to physical capital, which includes things like machines, buildings, and equipment used in the production of goods and services. Stocks, bonds, and mutual funds are all financial investments rather than physical investments.

Question 10

During the Great Depression, unemployment was so bad that nearly _______ of the labor force was unemployed.
A) half
B) three quarters
C) a quarter
D) one-third

Accepted Answer

During the Great Depression, unemployment rates soared, reaching about 25% at its peak, which means nearly a quarter of the labor force was unemployed.

Question 11

Suppose that John earns a disposable annual income of $50,000 and allocates $10,000 of this for necessities. Any additional income beyond that is both spent and saved. If John's MPC is 0.8, how much money will he save?
A) $10,000
B) $40,000
C) $12,000
D) $8,000

Accepted Answer

John's marginal propensity to consume (MPC) is 0.8, meaning he spends 80% of any additional income beyond his basic necessities. Since he allocates $10,000 for necessities out of his $50,000 income, he has $40,000 left. With an MPC of 0.8, he spends 80% of the $40,000, which is $32,000. Therefore, he saves 20% of the $40,000, which is $8,000.

Question 12

If the expected profitability of a business activity increases, we would expect investment spending to:
A) increase.
B) decrease.
C) remain constant.
D) There is not enough information to determine what would happen.

Accepted Answer

When the expected profitability of a business activity increases, it becomes more attractive for investors to put their money there. This would lead to an increase in investment spending.

Question 13

A _______ relationship exists between the real interest rate and investment spending.
A) negative
B) positive
C) limited
D) constant

Accepted Answer

As the real interest rate increases, investment spending decreases as the cost of borrowing becomes more expensive. Conversely, as the real interest rate decreases, investment spending increases as the cost of borrowing becomes less expensive. This inverse relationship between interest rates and investment spending is a fundamental concept in macroeconomics.

Question 14

Which of the following scenarios would cause investment to increase?
A) The Federal Reserve announces an increase in the interest rate.
B) Housing prices increase.
C) A free trade agreement increases overall exports.
D) The U.S. government announces a plan to tax the ad revenue of large tech companies.

Accepted Answer

The answer of Which of the following scenarios would cause...

Question 15

A(n) _______ relationship exists between profitability and investment spending.
A) negative
B) positive
C) indirect
D) constant

Accepted Answer

A positive relationship exists between profitability and investment spending, meaning that as profitability increases, so does investment spending. This is because businesses with higher profits have more resources available to invest in new opportunities for growth and development.

Question 16

Which of the following is a determinant of investment spending?
A) Disposable income
B) Expected future income
C) Expected profitability
D) Real income

Accepted Answer

Expected profitability is a key determinant of investment spending because firms are more likely to invest in new projects or capital if they expect these investments to be profitable.

Question 17

Which of the following scenarios would cause investment to decrease?
A) High foreign demand for government debt lowers interest rates.
B) Vermont starts taxing tech firms to fund water quality improvement initiatives.
C) The government announces that economists expect strong consumer confidence during the upcoming year.
D) 5G technology requires increasing cell phone tower coverage.

Accepted Answer

Taxing tech firms would decrease their profits and potentially make them less attractive as an investment opportunity. This would lead to a decrease in investment. The other scenarios do not necessarily indicate a decrease in investment.

Question 18

A _______ relationship exists between business taxes and investment spending.
A) negative
B) positive
C) secondary
D) constant

Accepted Answer

A negative relationship exists between business taxes and investment spending, meaning that an increase in business taxes will lead to a decrease in investment spending. This happens because higher taxes lower the after-tax return on investment, making it less attractive for businesses to invest.

Question 19

In a recession, the federal government may choose to increase spending in order to:
A) decrease real interest rates.
B) decrease the overall price level.
C) achieve full-employment GDP.
D) increase exports.

Accepted Answer

Increasing government spending can lead to an increase in aggregate demand, which can increase economic output and help achieve full-employment GDP. Option A is incorrect because increasing spending can lead to an increase in real interest rates. Option B is incorrect because increasing spending can lead to inflation, which would increase the overall price level. Option D is incorrect because increasing spending alone cannot directly increase exports.

Question 20

During the Great Depression, the banking industry was crippled so badly that _______ of the banks failed.
A) nearly half
B) a quarter
C) almost all
D) a majority

Accepted Answer

Nearly half of the banks failed during the Great Depression, which significantly contributed to the economic downturn.

Quiz 11: Aggregateexpenditures

If the marginal propensity to consume is 0.9, it would mean that:

If a firm's business taxes decrease, we would expect investment spending to:

Which of the following is not a determinant of investment spending?

The marginal propensity to consume:

Which of the following is a determinant of investment spending?

If the marginal propensity to consume is 0.25, it would mean that:

Which of the following would cause investment spending to decrease?

Economist John Maynard Keynes noted that one of the main contributors to the Great Depression in the 1930s was:

In economics, investment refers to:

During the Great Depression, unemployment was so bad that nearly _______ of the labor force was unemployed.

Suppose that John earns a disposable annual income of $50,000 and allocates $10,000 of this for necessities. Any additional income beyond that is both spent and saved. If John's MPC is 0.8, how much money will he save?

If the expected profitability of a business activity increases, we would expect investment spending to:

A _______ relationship exists between the real interest rate and investment spending.

Which of the following scenarios would cause investment to increase?

A(n) _______ relationship exists between profitability and investment spending.

Which of the following is a determinant of investment spending?

Which of the following scenarios would cause investment to decrease?

A _______ relationship exists between business taxes and investment spending.

In a recession, the federal government may choose to increase spending in order to:

During the Great Depression, the banking industry was crippled so badly that _______ of the banks failed.