Question 1

Dissaving occurs when:
A) disposable income is greater than consumption.
B) consumption is greater than disposable income.
C) consumption is equal to disposable income.
D) consumption is greater than personal income.
E) consumption is less than personal income.

Accepted Answer

Dissaving occurs when consumption is greater than disposable income. This means that individuals are spending more than they are earning, and may be relying on borrowing or using savings to cover their expenses.

Question 2

Which of the following is a stock variable?
A) Government spending
B) Investment
C) Daily household consumption
D) Saving
E) Wealth

Accepted Answer

A stock variable is a measured at a specific point in time such as wealth, which is the total assets minus total liabilities of an individual or a country at a specific point in time. Government spending, investment, daily household consumption, and saving are all flow variables, that measure the changes in a variable over a period of time.

Question 3

Identify the correct statement with respect to consumption and saving function.
A) Both the consumption function and the saving function have negative slopes.
B) As disposable income declines, consumption and saving increase.
C) The consumption function has a negative slope while the saving function has a positive slope.
D) As disposable income rises, consumption and saving increases.
E) The consumption function has a positive slope while the saving function has a negative slope.

Accepted Answer

This is because as disposable income increases, people tend to spend more on consumption (i.e., buy more goods and services) and save more (i.e., keep some money aside for future use). Therefore, both consumption and saving functions have positive slopes. Choice A is incorrect because saving function has a positive slope. Choice B is incorrect because as disposable income declines, people tend to spend less, thereby reducing consumption and saving. Choice C is incorrect because the saving function has a positive slope. Finally, choice E is incorrect because both consumption and saving functions have positive slopes.

Question 4

Autonomous consumption is defined as:
A) the level of consumption that depends only on the exchange rate.
B) the consumption expenditures incurred by the government.
C) the level of consumption that does not depend on income.
D) an equilibrium condition that needs to be met for the aggregate expenditure model to work.
E) the part of consumption that is related to investment.

Accepted Answer

Autonomous consumption is the part of consumption that does not depend on income, meaning it is a constant level of spending that is not influenced by changes in income or other economic variables.

Question 5

The figure given below represents the saving function of an economy.?Figure 9.1
 
-Refer to Figure 9.1. Which of the following statements is true for real GDP levels below $400 billion?
A) Saving exists because consumption is smaller than disposable income.
B) Saving does not exist because consumption exceeds disposable income.
C) The corresponding section of the consumption function lies below the 45-degree line.
D) Autonomous consumption is equal to zero.
E) The slope of the consumption function becomes negative.

Accepted Answer

The answer of The figure given below represents the saving...

Question 6

The sum of consumption and saving is called _____.
A) net investment
B) net income
C) personal income
D) disposable income
E) transfer payment

Accepted Answer

The sum of consumption and saving is called disposable income, which is the income that households have available for spending and saving after paying taxes and receiving transfer payments.

Question 7

The consumption function illustrates that:
A) saving increases as disposable income decreases.
B) consumption increases as saving increases.
C) consumption increases as disposable income increases.
D) consumption increases as disposable income decreases.
E) consumption increases as investment increases.

Accepted Answer

The consumption function states that as disposable income increases, consumption also increases. This is shown by the positive slope of the consumption line.

Question 8

Which of the following variables is a flow concept?
A) Gross domestic product
B) Assets
C) Wealth
D) Money supply
E) Saving

Accepted Answer

Saving is a flow concept because it measures the amount of income not spent in a period of time, typically a year. The other choices (GDP, assets, wealth, and money supply) are all stock concepts because they measure a quantity at a specific point in time.

Question 9

The part of the disposable income that is not consumed by households is:
A) given away in the form of taxes.
B) given away as charity.
C) saved.
D) deducted as a depreciation cost.
E) spent on imports.

Accepted Answer

Disposable income is the income left over after taxes and other mandatory deductions. Saving is the part of disposable income that households choose not to spend, but rather keep for future use or investment. Therefore, the answer is C.

Question 10

The income net of taxes is called _____.
A) real income
B) disposable income
C) nominal income
D) taxable income
E) personal income

Accepted Answer

Disposable income is the income that an individual or household has after paying taxes. It is the amount of money that can be used for spending or saving.

Question 11

Identify the correct statement.
A) Autonomous consumption equals saving when disposable income is equal to zero.
B) Saving is equal to consumption when autonomous consumption is zero.
C) The savings function always has a positive intercept when autonomous consumption is positive.
D) The consumption and saving function intersect each other when disposable income is zero.
E) Autonomous consumption is positive even when disposable income is zero.

Accepted Answer

Autonomous consumption is the minimum level of consumption that exists independent of income. Therefore, it can be positive even when disposable income is zero. Choices A, B, and D are incorrect because they do not accurately reflect the definitions of autonomous consumption, saving, and the consumption and saving functions. Choice C is not always true as the intercept can be zero if autonomous consumption is zero.

Question 12

The 45-degree line used in a consumption function represents:
A) the saving function.
B) all points at which saving equals disposable income.
C) all points at which consumption equals saving.
D) all points at which all disposable income is consumed.
E) the aggregate income of the economy.

Accepted Answer

The 45-degree line in a consumption function graphically represents all the points where all disposable income is consumed, meaning consumption equals disposable income at every point along this line.

Question 13

Keynesian economics developed in response to:
A) the Great Depression of the 1930s.
B) the inflation following World War II.
C) economic growth during the 1950s.
D) the Vietnam War.
E) the oil embargo in the 1970s.

Accepted Answer

Keynesian economics developed in response to the Great Depression of the 1930s. John Maynard Keynes, an economist, argued that government intervention was necessary to stimulate demand and boost economic growth during times of economic downturns. His ideas became the basis for Keynesian economics.

Question 14

Suppose two successive levels of disposable personal income are $16 and $21 billion, respectively, and the change in consumption spending between these two levels of disposable personal income is $2 billion, then the MPC will be equal to _____.
A) 0.12
B) 0.8
C) 0.7
D) 0.4
E) 0.04

Accepted Answer

The answer of Suppose two successive levels of disposable personal...

Question 15

The amount of autonomous consumption in an economy is measured by the:
A) the intercept of the consumption function when disposable income is positive.
B) the intercept of the consumption function where actual consumption is above the 45-degree line.
C) the intercept of the consumption function when disposable income is zero.
D) the intercept of the consumption function where actual consumption is below the 45-degree line.
E) the intercept of the consumption function when disposable income is negative.

Accepted Answer

Autonomous consumption is the amount of consumption that is independent of income. Therefore, it is measured by the intercept of the consumption function when disposable income is zero, as it represents the level of consumption that would occur even if income were zero.

Question 16

The figure given below represents the saving function of an economy.?Figure 9.1
 
-Refer to Figure 9.1. An increase in autonomous consumption would be illustrated by:
A) an upward shift of the saving function.
B) a downward shift of the saving function.
C) a downward shift of the corresponding consumption function.
D) a movement to the right along the saving function.
E) a movement to the left along the saving function.

Accepted Answer

An increase in autonomous consumption would shift the consumption function upward, resulting in a decrease in saving at every level of disposable income. This shift in consumption would cause a downward shift in the saving function.

Question 17

A key assumption of the Keynesian model of macroeconomics is a fixed _____.
A) interest rate
B) price level
C) exchange rate
D) growth rate
E) unemployment level

Accepted Answer

A key assumption of the Keynesian model of macroeconomics is a fixed price level. In this model, changes in aggregate demand result in changes in output and employment, rather than changes in the price level. Therefore, the price level is assumed to remain constant in the short run, allowing for adjustments in output and employment.

Question 18

The figure given below represents the saving function of an economy.?Figure 9.1
 
-Refer to Figure 9.1. At the real GDP level of $400 billion, which of the following statements is true?
A) There is dissaving.
B) Saving is equal to $10 billion.
C) Consumption is equal to disposable income.
D) The slope of the saving function is equal to zero.
E) The slope of the consumption function is equal to zero.

Accepted Answer

The answer of The figure given below represents the saving...

Question 19

In the country of Marzipana, total consumption in Year 1 was $56,000 million and in Year 2 was $60,000 million. It has been observed that each time disposable income changes in this country by $100, consumption changes by $70. Using this information compute the change in disposable income from Year 1 to Year 2.
A) Disposable income increased by $2,800 million in Year 2.
B) Disposable income decreased by $2,000 million in Year 2.
C) Disposable income increased by $2,000 million in Year 2.
D) Disposable income increased by $4,500 million in Year 2.
E) Disposable income decreased by $2,600 million in Year 2.

Accepted Answer

The change in consumption from Year 1 to Year 2 is $60,000 million - $56,000 million = $4,000 million. Given that a $100 change in disposable income results in a $70 change in consumption, a $4,000 million increase in consumption implies a change in disposable income of ($4,000 million / $70) * $100 = $5,714.29 million. However, the closest option provided is A) Disposable income increased by $2,800 million in Year 2, which seems to be a mistake in calculation. The correct calculation method was described, but the options provided do not match the calculated result. The correct approach would involve dividing the change in consumption by the marginal propensity to consume (MPC), which is 0.7 in this case, to find the change in disposable income.

Question 20

The figure given below represents the saving function of an economy.?Figure 9.1
 
-Refer to Figure 9.1. When disposable income equals zero:
A) autonomous consumption equals zero.
B) the maximum amount of saving equals $10 billion.
C) autonomous income equals $10 billion.
D) autonomous consumption equals $10 billion.
E) consumption is negative.

Accepted Answer

When disposable income equals zero, autonomous consumption is the amount of consumption that occurs. It's called "autonomous" because it does not depend on income levels. In this context, it is stated to equal $10 billion, indicating that even with no income, consumption would still be at $10 billion due to factors like savings, borrowing, or wealth.

Quiz 9: Aggregate Expenditures

Dissaving occurs when:

Which of the following is a stock variable?

Identify the correct statement with respect to consumption and saving function.

Autonomous consumption is defined as:

The figure given below represents the saving function of an economy.?Figure 9.1 -Refer to Figure 9.1. Which of the following statements is true for real GDP levels below $400 billion?

The sum of consumption and saving is called _____.

The consumption function illustrates that:

Which of the following variables is a flow concept?

The part of the disposable income that is not consumed by households is:

The income net of taxes is called _____.

Identify the correct statement.

The 45-degree line used in a consumption function represents:

Keynesian economics developed in response to:

Suppose two successive levels of disposable personal income are $16 and $21 billion, respectively, and the change in consumption spending between these two levels of disposable personal income is $2 billion, then the MPC will be equal to _____.

The amount of autonomous consumption in an economy is measured by the:

The figure given below represents the saving function of an economy.?Figure 9.1 -Refer to Figure 9.1. An increase in autonomous consumption would be illustrated by:

A key assumption of the Keynesian model of macroeconomics is a fixed _____.

The figure given below represents the saving function of an economy.?Figure 9.1 -Refer to Figure 9.1. At the real GDP level of $400 billion, which of the following statements is true?

The figure given below represents the saving function of an economy.?Figure 9.1 -Refer to Figure 9.1. When disposable income equals zero: