Question 1

Figure 8-2
 
-In Figure 8-2,which of the following moves can be explained by a tax cut?
A) A to B
B) A to C
C) A to D
D) A to E

Accepted Answer

The movement from point A to point E can be explained by a tax cut. Point E represents a higher level of output and employment than point A, indicating that the economy has experienced growth. A tax cut can stimulate economic growth by increasing the disposable income of consumers, which can lead to higher consumption spending and business investment.

Question 2

Assume that consumption in the United States is $9,000 billion in 2009.If the MPC is 0.8 and disposable income increases by $1,000 billion in 2010,then the level of consumption in 2010 will be
A) $10,000 billion.
B) $9,800 billion.
C) $9,000 billion.
D) $7,200 billion.

Accepted Answer

Given, MPC = 0.8, ∆Yd = $1,000 billion, and initial consumption in 2009 = $9,000 billion.

The formula for calculating the change in consumption is:
∆C = MPC x ∆Yd

Substituting the values, we have:
∆C = 0.8 x $1,000 billion = $800 billion

Therefore, the level of consumption in 2010 will be:
C(2010) = C(2009) + ∆C = $9,000 billion + $800 billion = $9,800 billion

Hence, the correct choice is B.

Question 3

After years of hard work in the field of macroeconomics,you win the Nobel Prize in economics (currently about $1.5 million).What is the most likely effect of this prize on your consumption function?
A) It will shift downward temporarily.
B) It will shift upward temporarily.
C) It will shift downward permanently.
D) It will shift upward permanently.
E) none of the above

Accepted Answer

Winning the Nobel Prize in economics will likely result in an increase in the individual's income and prestige, leading to a permanent upward shift in their consumption function. This is because the individual may feel more financially secure and able to afford higher levels of consumption, as well as possibly experiencing an increase in demand for their services and higher future earnings potential.

Question 4

If the MPC increases in value,what will happen to the slope of the consumption function?
A) The slope will decrease and the consumption function will become flatter.
B) The slope will decrease and the consumption function will become steeper.
C) The slope will increase and the consumption function will become steeper.
D) The slope will increase and the consumption function will become flatter.

Accepted Answer

The MPC (marginal propensity to consume) measures the amount by which consumption spending changes when disposable income changes. A higher MPC means that a larger portion of additional income will be consumed. As the MPC increases, the slope of the consumption function becomes steeper, indicating that a larger increase in disposable income leads to a larger increase in consumption spending. Therefore, option C is correct.

Question 5

Because of recent corporate downsizing,Chuck loses his job.The most likely effect on his consumption function is a(n)
A) movement downward along the function.
B) shift upward of the function.
C) shift downward of the function.
D) increase in consumption expenditures.

Accepted Answer

The answer of Because of recent corporate downsizing,Chuck loses his...

Question 6

If the MPC is .80,then a change in disposable income of $60 billion will lead to an initial change in consumption of
A) $30 billion.
B) $42 billion.
C) $48 billion.
D) $60 billion.
E) $70 billion.

Accepted Answer

The answer of If the MPC is .80,then a change...

Question 7

One of the effects of a change in disposable income could not be a(n)
A) movement up along the consumption function.
B) movement down along the consumption function.
C) change in the amount of consumption expenditures.
D) upward shift of the consumption function.

Accepted Answer

An upward shift of the consumption function is a possible effect of a change in disposable income. This means that at every level of disposable income, consumption expenditures will be higher than before the change. The other options (A, B, and C) all involve movements along the consumption function, but not a shift in its overall position.

Question 8

Figure 8-2
 
-In Figure 8-2,which of the following moves can be explained by an increase in government transfer payments?
A) A to B
B) A to C
C) A to D
D) A to E

Accepted Answer

The answer of Figure 8-2
 
-In Figure 8-2,which of the...

Question 9

For each $1 of a tax cut,economists expect consumption to
A) decrease by $1.
B) decrease by less than $1.
C) increase by less than $1.
D) increase by $1.

Accepted Answer

Economists generally expect that consumption will increase by less than $1 for each $1 of a tax cut, based on the concept of the marginal propensity to consume. This means that people will not spend all of the extra money they have, but instead will save some of it or use it to pay off debt. Therefore, the increase in consumption will be less than the amount of the tax cut.

Question 10

If income in Austria decreases by 30 million euros and consumption decreases by 24 euros,then the MPC equals
A)0.90.
B)0.80.
C)0.60
D)-0.60.

Accepted Answer

MPC = change in consumption/change in income

MPC = (-24)/(-30)

MPC = 0.8

Question 11

A decrease in disposable income will
A) lead to an upward movement along the consumption function.
B) lead to a downward movement along the consumption function.
C) shift the consumption function upward.
D) shift the consumption function downward.

Accepted Answer

A decrease in disposable income will lead to a decrease in consumption, causing a downward shift along the consumption function. Therefore, the correct choice is B as it describes the downward movement along the consumption function.

Question 12

Do economists know the value of the MPC for most economies?
A) Yes, with a high level of precision.
B) Yes, with a certainty level of four decimal places.
C) No, it is impossible to determine a national MPC.
D) Yes, but with some level of uncertainty.

Accepted Answer

Economists have methods to estimate the MPC for most economies, but there is always some level of uncertainty involved in those estimates. Therefore, the best answer is D, as it acknowledges that economists do know the value of the MPC, but not with absolute precision.

Question 13

Figure 8-2
 
-In Figure 8-2,which of the following moves can be explained by a decrease in the price level?
A) A to B
B) A to C
C) A to D
D) A to E

Accepted Answer

Only movement from A to D shows a decrease in the price level as the aggregate demand curve shifts to the left. The other movements either show an increase in the price level or a shift in aggregate demand due to factors other than price level changes.

Question 14

Figure 8-2
 
-In Figure 8-2,which of the following moves can be explained by a decrease in the prices of stock on the NASDAQ?
A) A to B
B) A to C
C) A to D
D) A to E

Accepted Answer

A decrease in the prices of stock on the NASDAQ would indicate a decrease in demand for technology companies, which are predominantly listed on the NASDAQ. This would lead to a decrease in the overall value of the stock market, which is indicated by the movement from point A to point C.

Question 15

In Macronesia,the MPC is approximately .80.If disposable income changes from 1,000 billion pukas to 1,500 billion pukas,then consumption will change by a(n)
A) decrease of 500 billion pukas.
B) increase of 500 billion pukas.
C) increase of 400 billion pukas.
D) increase of 800 billion pukas.

Accepted Answer

The answer of In Macronesia,the MPC is approximately .80.If disposable...

Question 16

Figure 8-2
 
-In Figure 8-2,which of the following moves can be explained by a decrease in disposable income?
A) E to B
B) A to C
C) A to D
D) B to E

Accepted Answer

The answer of Figure 8-2
 
-In Figure 8-2,which of the...

Question 17

A movement upward along the consumption function can be caused only by a(n)
A) increase in disposable income.
B) decrease in disposable income.
C) decrease in the price level.
D) increase in the price level.

Accepted Answer

An increase in disposable income will shift the consumption function upward, as consumers will have more money available to spend on goods and services. Decreases in disposable income, as well as changes in the price level, do not cause a movement along the consumption function.

Question 18

According to the relationship represented by the consumption function,governments can indirectly decrease consumption spending by
A) increasing taxes.
B) decreasing transfers.
C) decreasing taxes.
D) decreasing government spending.

Accepted Answer

The consumption function shows that as disposable income (income after taxes and transfers) increases, consumption spending also increases. Therefore, if the government increases taxes, disposable income decreases, and as a result, consumption spending decreases.

Question 19

A movement from one point to an another point on the same consumption function could be caused due to
A) changes in wealth.
B) an increase in the general price level.
C) decrease in the real interest rates.
D) changes in disposable income.

Accepted Answer

A movement along the consumption function is caused by a change in disposable income, as it directly affects the level of consumption. As the other options (changes in wealth, increase in general price level, and decrease in real interest rates) do not directly affect disposable income, they would not cause a movement along the consumption function.

Question 20

To predict the effects of a tax cut on consumption spending,economists must have some estimate of the
A) income effect.
B) substitution effect.
C) relative price effect.
D) marginal propensity to consume.

Accepted Answer

The marginal propensity to consume is the percentage of each additional dollar of income that is spent on consumption. Therefore, in order to predict the effects of a tax cut on consumption spending, economists need to know what portion of the extra income from the tax cut will be spent on consumption, which is captured by the marginal propensity to consume. The other options (income effect, substitution effect, and relative price effect) are relevant for analyzing the effects of changes in prices or income on consumption, but are not directly relevant for analyzing the effects of a tax cut.

Quiz 8: Aggregate Demand and the Powerful Consumer

Figure 8-2 -In Figure 8-2,which of the following moves can be explained by a tax cut?

Assume that consumption in the United States is $9,000 billion in 2009.If the MPC is 0.8 and disposable income increases by $1,000 billion in 2010,then the level of consumption in 2010 will be

After years of hard work in the field of macroeconomics,you win the Nobel Prize in economics (currently about $1.5 million) .What is the most likely effect of this prize on your consumption function?

If the MPC increases in value,what will happen to the slope of the consumption function?

Because of recent corporate downsizing,Chuck loses his job.The most likely effect on his consumption function is a(n)

If the MPC is .80,then a change in disposable income of $60 billion will lead to an initial change in consumption of

One of the effects of a change in disposable income could not be a(n)

Figure 8-2 -In Figure 8-2,which of the following moves can be explained by an increase in government transfer payments?

For each $1 of a tax cut,economists expect consumption to

If income in Austria decreases by 30 million euros and consumption decreases by 24 euros,then the MPC equals

A decrease in disposable income will

Do economists know the value of the MPC for most economies?

Figure 8-2 -In Figure 8-2,which of the following moves can be explained by a decrease in the price level?

Figure 8-2 -In Figure 8-2,which of the following moves can be explained by a decrease in the prices of stock on the NASDAQ?

In Macronesia,the MPC is approximately .80.If disposable income changes from 1,000 billion pukas to 1,500 billion pukas,then consumption will change by a(n)

Figure 8-2 -In Figure 8-2,which of the following moves can be explained by a decrease in disposable income?

A movement upward along the consumption function can be caused only by a(n)

According to the relationship represented by the consumption function,governments can indirectly decrease consumption spending by

A movement from one point to an another point on the same consumption function could be caused due to

To predict the effects of a tax cut on consumption spending,economists must have some estimate of the