Deck 9: Aggregate Expenditures

Question 1

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 above the 45-degree line.
E) the intercept of the consumption function when disposable income is negative.

Answer 1

C

Question 2

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.

Answer 2

A

Question 3

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.

Answer 3

C

Question 4

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.

Question 5

The sum of consumption and saving is called _____.

A) net investment
B) net income
C) personal income
D) disposable income
E) transfer income

Question 6

Autonomous consumption is defined as:

A) the domestic consumption that does not depend 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 model to work.
E) the part of consumption that is related to investment.

Question 7

Which of the following variables is a flow concept?

A) Gross domestic product
B) Assets
C) Wealth
D) Money supply
E) Saving

Question 8

The income net of taxes is called _____.

A) real income
B) disposable income
C) nominal income
D) taxable income.
E) personal income.

Question 9

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.

Question 10

NARRBEGIN: Figure 9.1
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.

Question 11

NARRBEGIN: Figure 9.1
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.

Question 12

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.

Question 13

NARRBEGIN: Figure 9.1
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.

Question 14

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

A) interest rate
B) price level
C) exchange rate
D) real GDP
E) unemployment level

Question 15

Which of the following is a stock variable?

A) Government spending
B) Investment
C) Daily household consumption
D) Saving
E) Wealth

Question 16

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 increase.
E) The consumption function has a positive slope while the saving function has a negative slope.

Question 17

NARRBEGIN: Figure 9.1
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.

Question 18

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 equal _____.

A) 0.12
B) 0.8
C) 0.7
D) 0.4
E) 0.04

Question 19

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.

Question 20

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.

Question 21

A change in the marginal propensity to save can be graphically represented by:

A) a movement along the investment function.
B) a movement along the saving function.
C) a parallel shift of the consumption function.
D) a parallel shift of the saving function.
E) a change in the slope of the saving function.

Question 22

NARRBEGIN: Figure 9.2
The figure given below shows the consumption function of a household.
Figure 9.2

In Figure 9.2, a decrease in disposable income would be illustrated by:

A) shifting the whole consumption function upward.
B) shifting the whole consumption function downward.
C) moving along the consumption function to the left.
D) moving along the consumption function to the right.
E) moving from point A to point D.

Question 23

The consumption function becomes flatter if:

A) the average propensity to spend increases.
B) the marginal propensity to spend increases.
C) the marginal propensity to save increases.
D) the autonomous consumption increases.
E) the autonomous consumption decreases.

Question 24

NARRBEGIN: Figure 9.3
The figure given below represents the consumption function of a country.
Figure 9.3

According to Figure 9.3, autonomous consumption equals:

A) -$200.
B) $0.
C) $100.
D) $200.
E) $400.

Question 25

NARRBEGIN: Figure 9.3
The figure given below represents the consumption function of a country.
Figure 9.3

Refer to Figure 9.3. Calculate the marginal propensity to consume.

A) 0.7
B) 0.1
C) 0.4
D) 0.25
E) 0.5

Question 26

If a household's disposable income increases from $50,000 to $100,000 and its consumption increases from $40,000 to $80,000, the MPS must be _____.

A) 0.4
B) 0.8
C) 0.7
D) 0.2
E) 0.5

Question 27

As disposable income rises:

A) consumption falls as a percentage of disposable income.
B) the average propensity to consume increases.
C) saving falls as a percentage of disposable income.
D) the average propensity to consume remains unchanged.
E) consumption rises as a percentage of disposable income.

Question 28

The sum of the MPC and the MPS is always:

A) greater than 1.
B) less than 1.
C) equal to 1.
D) equal to zero.
E) between 0 and 1.

Question 29

NARRBEGIN: Figure 9.3
The figure given below represents the consumption function of a country.
Figure 9.3

Refer to Figure 9.3. If the marginal propensity to consume is equal to 0.3, then:

A) autonomous consumption would decrease.
B) the total amount of dissaving would increase.
C) consumption spending would equal disposable income at an income level greater than $400.
D) consumption spending would equal disposable income at an income level less than $400.
E) consumption spending would equal disposable income at the same income level of $400.

Question 30

NARRBEGIN: Figure 9.3
The figure given below represents the consumption function of a country.
Figure 9.3

Refer to Figure 9.3. When disposable income is $800, consumption spending must equal:

A) $200.
B) $700.
C) $600.
D) $800.
E) $400.

Question 31

NARRBEGIN: Figure 9.3
The figure given below represents the consumption function of a country.
Figure 9.3

Refer to Figure 9.3. The savings function of the country will have a positive intercept at all income levels of _____.

A) less than $200
B) greater than $200
C) less than $600
D) greater than $400
E) less than $800

Question 32

Suppose total disposable income in Country X rises by $500 billion while total consumption rises by $50 billion. What would be the slope of the consumption function for this nation?

A) 1
B) 0.1
C) 0.5
D) 0.25
E) 0.4

Question 33

NARRBEGIN: Table 9.1
The table given below reports the consumption expenditure of a nation at different levels of disposable income.
Table 9.1

Refer to Table 9.1. Autonomous consumption expenditure in this nation will equal:

A) $10,000.
B) $5,500.
C) $4,500.
D) $3,000.
E) $4,000.

Question 34

NARRBEGIN: Figure 9.2
The figure given below shows the consumption function of a household.
Figure 9.2

In Figure 9.2, the line segment AD represents:

A) autonomous consumption.
B) the maximum amount of saving.
C) negative consumption.
D) zero consumption.
E) autonomous income.

Question 35

NARRBEGIN: Figure 9.3
The figure given below represents the consumption function of a country.
Figure 9.3

Refer to Figure 9.3. We can infer that the marginal propensity to save would be _____.

A) 0.7
B) 0.1
C) 0.4
D) 0.25
E) 0.5

Question 36

NARRBEGIN: Figure 9.2
The figure given below shows the consumption function of a household.
Figure 9.2

In Figure 9.2, an increase in autonomous consumption would be illustrated by:

A) moving from point A to point D.
B) moving from point A to point B.
C) shifting the whole consumption function upward.
D) shifting the whole consumption function downward.
E) moving from point C to point B.

Question 37

NARRBEGIN: Figure 9.3
The figure given below represents the consumption function of a country.
Figure 9.3

According to Figure 9.3, saving is zero when disposable income is _____.

A) $0
B) $400
C) $250
D) $800
E) $300

Question 38

NARRBEGIN: Figure 9.2
The figure given below shows the consumption function of a household.
Figure 9.2

In Figure 9.2, at any point to the left of point B:

A) autonomous consumption is less than zero.
B) saving occurs.
C) disposable income is negative
D) consumption is greater than disposable income.
E) autonomous consumption is zero.

Question 39

NARRBEGIN: Figure 9.2
The figure given below shows the consumption function of a household.
Figure 9.2

In Figure 9.2, consumption equals disposable income:

A) at point A only.
B) at point B only.
C) at point C only.
D) at points A and C only.
E) at all points on the consumption function.

Question 40

If a household experiences a $880 increase in consumption with a $1,100 increase in disposable income, what is the slope of that household's saving function?

A) 0.20
B) 2.0
C) 0.80
D) 0.08
E) 0.25

Question 41

NARRBEGIN: Figure 9.4
The figure given below shows the consumption functions of an economy.
Figure 9.4

Refer to the Figure 9.4. If the economy is in equilibrium at A, which of the following is most likely to occur if consumers expect a period of rapid economic expansion?

A) Equilibrium will move from A to F.
B) Equilibrium will move from A to C.
C) There will be a new equilibrium disposable income at G.
D) Equilibrium will remain at A.
E) There will be a new equilibrium disposable income at E.

Question 42

NARRBEGIN: Table 9.1
The table given below reports the consumption expenditure of a nation at different levels of disposable income.
Table 9.1

Refer to Table 9.1. At an income level of $45,000, the average propensity to save would equal:

A) 0.15.
B) 0.75.
C) 0.25.
D) 0.20.
E) 0.80.

Question 43

Which of the following is a determinant of investment?

A) Technological change
B) Net exports
C) Demographics
D) Nominal GDP
E) Population

Question 44

When we assume that investment is autonomous we imply that:

A) it is a fixed constant amount.
B) it is independent of current real GDP.
C) it is a positive function of interest rates.
D) it is actually zero.
E) it has no impact on consumption.

Question 45

Which of the following is true of long-run consumption functions?

A) Autonomous consumption is equal to zero in the long-run.
B) The long run consumption functions are steeper than short run consumption functions.
C) The marginal propensity to consume for the long run consumption function is almost equal to zero.
D) The autonomous consumption is negative in long run consumption functions.
E) The long run consumption function is represented by a straight line parallel to the horizontal axis.

Question 46

Any increase in autonomous consumption is associated with:

A) an equivalent increase in autonomous saving.
B) an equivalent decrease in autonomous saving.
C) an equivalent increase in the slope of the saving function.
D) an equivalent decrease in the slope of the saving function.
E) an equivalent movement along the saving function.

Question 47

A change in consumption caused by a change in disposable income is shown by:

A) movement along the consumption function.
B) a rightward shift of the consumption function.
C) a change in the slope of the consumption function.
D) a leftward shift of the consumption function.
E) a change in the shape of the consumption function.

Question 48

NARRBEGIN: Table 9.2
Table 9.2

Refer to Table 9.2. If a firm purchases the machine by taking out a one-year loan, how much interest will the firm have to pay?

A) $301,500
B) $30,150
C) $270,000
D) $27,000
E) $9,000

Question 49

Which of the following variables do not change autonomous consumption?

A) Demographics
B) Taxation
C) Expectation
D) Wealth
E) Disposable income

Question 50

As a function of real GDP (real GDP being measured on the horizontal axis), autonomous investment is represented by a(n):

A) U-shaped curve.
B) vertical line.
C) positively sloped line.
D) negatively sloped line.
E) horizontal line.

Question 51

NARRBEGIN: Table 9.1
The table given below reports the consumption expenditure of a nation at different levels of disposable income.
Table 9.1

Refer to Table 9.1. The income level of $18,000 coincides with:

A) the origin of the graph.
B) the point where the consumption function touches the vertical axis.
C) the point where the MPC equals 1.00.
D) the point where the APC equals 1.00.
E) the point where the consumption function crosses the 45-degree line.

Question 52

_____ is the primary determinant of consumption and is usually measured in terms of current disposable income.

A) Household income
B) Wealth
C) Expectation
D) Interest rate
E) Tax liability

Question 53

NARRBEGIN: Figure 9.4
The figure given below shows the consumption functions of an economy.
Figure 9.4

Refer to Figure 9.4. Which of the following could explain a downward shift of the consumption function from C1 to C3?

A) An increase in household wealth
B) A decrease in the proportion of young people in the population
C) An increase in the size of the population
D) A decrease in consumer confidence
E) An autonomous decrease in saving

Question 54

NARRBEGIN: Table 9.1
The table given below reports the consumption expenditure of a nation at different levels of disposable income.
Table 9.1

Refer to Table 9.1. When disposable income is $20,000, consumption spending equals:

A) $24,500.
B) $15,000.
C) $18,500.
D) $19,500.
E) $18,000.

Question 55

As household wealth increases, it will experience a(n):

A) increase in its MPC.
B) decrease in autonomous consumption.
C) decrease in its MPS.
D) increase in autonomous consumption.
E) increase in autonomous saving.

Question 56

Which of the following statements concerning the effects of demographics on consumption is not true?

A) The size of the population affects the slope of the consumption function.
B) The age of the population affects the slope of the consumption function.
C) Other things equal, the level of consumption will rise with increases in population.
D) Younger households tend to have higher MPCs than older households.
E) Older households tend to have higher MPSs than younger households.

Question 57

The consumer confidence index can be defined as:

A) an economic index that measures how consumers feel about their government.
B) an economic index that measures how confident companies are about keeping their current consumers.
C) an economic index that measures household expectations about the economy.
D) an index that measures how investors feel about their investments in the stock market.
E) an economic index used to measure consumers' confidence on a particular brand.

Question 58

NARRBEGIN: Figure 9.4
The figure given below shows the consumption functions of an economy.
Figure 9.4

Refer to Figure 9.4. The shift of the consumption function from C1 to C2 has caused autonomous saving to:

A) decrease by the distance between H and B.
B) increase by the distance between C and B.
C) decrease by the distance between C and B.
D) increase by the distance between H and G.
E) decrease by the distance between D and E.

Question 59

If it is assumed that there are absolutely no taxes in an economy, then aggregate consumption will be drawn as a function of:

A) disposable income.
B) real GDP.
C) government expenditure.
D) private income.
E) government transfers.

Question 60

NARRBEGIN: Table 9.1
The table given below reports the consumption expenditure of a nation at different levels of disposable income.
Table 9.1

Refer to Table 9.1. At an income level of $10,000, the APS equals -0.20. Therefore, the APC has to equal:

A) 0.20.
B) 0.80.
C) -1.20.
D) 1.20.
E) 1.80.

Question 61

When the U.S. government removes investment tax credits:

A) consumption spending falls.
B) the return on investment increases.
C) capacity utilization in the economy expands.
D) the cost of capital increases.
E) technological innovation advances more rapidly.

Question 62

Which of the following would cause a change in imports?

A) A change in foreign income
B) A change in foreign consumption
C) A change in domestic tastes for foreign products
D) A change in foreign tastes for domestic products
E) A change in domestic investment spending

Question 63

The second-largest component of aggregate expenditures in the United States is _____.

A) consumption.
B) investment
C) government expenditure
D) imports
E) exports

Question 64

Which of the following will cause the investment function to shift upward?

A) An decrease in government subsidies to businesses
B) An increase in business profits
C) A decline in capacity utilization
D) Expectations of higher business taxes
E) An increase in the market rate of interest

Question 65

Which of the following statements is true?

A) Real GDP is a positive function of net exports.
B) In the 1980s, the United States experienced a large trade surplus with Japan.
C) Positive net exports mean that the domestic country imports more than it exports.
D) Total U.S. net exports with Western Europe are zero.
E) U.S. net exports are negative because of large trade deficits with other industrial nations.

Question 66

Which of the following will cause the net export function to shift?

A) A change in real GDP
B) An increase in government spending
C) An increase in investment spending
D) A change in the exchange rate
E) A change in the domestic interest rate

Question 67

NARRBEGIN: Table 9.2
Table 9.2

Refer to Table 9.2. If a firm purchases the machine by taking out a one-year loan, what is the firm's profit from the investment?

A) $25,500
B) $35,000
C) $8,000
D) $0
E) $6,525

Question 68

What would be the impact of an increase in foreign income on the net export function?

A) The net export function would shift upward.
B) The net export function would shift downward.
C) The slope of the net export function would increase.
D) The slope of the net export function would decrease.
E) There would be a movement up along the net export function.

Question 69

When capacity utilization rate is high:

A) the price level is likely to go up.
B) consumption is likely to go down.
C) investment is likely to increase.
D) the rate of interest is likely to decrease.
E) aggregate supply of goods is likely to remain constant.

Question 70

All of the following would cause exports to decline, except:

A) a depreciation of the domestic currency.
B) a decline in foreign income.
C) stricter government regulations on international trade.
D) a decline in foreign preferences for domestic goods.
E) foreign quotas on domestic products.

Question 71

The net export function illustrates that:

A) net exports are a positive function of domestic income.
B) net exports are independent of domestic income.
C) net exports are a negative function of domestic income.
D) imports are independent of domestic income.
E) exports are independent of foreign income.

Question 72

Which of the following is least likely to contribute to the volatility of investment spending?

A) Expectations about business conditions
B) Changes in government spending
C) Changes in tax laws
D) Changes in capacity utilization
E) Interest rate fluctuations

Question 73

Other things equal, when Europeans want to buy more grain from the United States:

A) U.S. imports will increase.
B) European exports will increase at every level of domestic income.
C) U.S. exports will increase at every level of domestic income.
D) the U.S. balance of payments will show a deficit.
E) U.S. consumption spending will fall.

Question 74

NARRBEGIN: Table 9.3
In the table given below Y represent the aggregate expenditure of the economy on C = consumption, I = investment, G = government projects, and X = net exports.
Table 9.3

Refer to Table 9.3. Calculate the marginal propensity to consume in the economy.

A) 0.25
B) 0.50
C) 0.75
D) 0.80
E) 1.25

Question 75

As capacity utilization in an economy rises:

A) firms sell their fixed assets to remain solvent.
B) the gap between the potential output and actual output widens.
C) firms reduce their demand for labor.
D) employment of inputs by firms declines.
E) firms add more factories and machines and increase output.

Question 76

Suppose the marginal propensity to import for country A is 0.4. Calculate the change in total value of imports of the country if national income increases by $100,000.

A) $16,000
B) $20,000
C) $60,000
D) $40,000
E) $25,000

Question 77

NARRBEGIN: Table 9.3
In the table given below Y represent the aggregate expenditure of the economy on C = consumption, I = investment, G = government projects, and X = net exports.
Table 9.3

Refer to Table 9.3. Compute the marginal propensity to save in the economy.

A) 0.10
B) 0.20
C) 0.25
D) 0.50
E) 0.75

Question 78

An MPI of 0.4 indicates that for every 100 percent increase in domestic income:

A) there is a 40 percent increase in investment.
B) there is a 60 percent increase in investment.
C) there is a 40 percent decline in imports.
D) there is a 60 percent increase in imports.
E) there is a 40 percent increase in imports.

Question 79

Which of the following factors will not affect the profit expectations of business firms and change the level of investment?

A) Entry of new firms into the market
B) Introduction of new taxes
C) Announcement of new government subsidies
D) The current level of GDP
E) The marginal propensity to consume

Question 80

NARRBEGIN: Table 9.2
Table 9.2

Refer to Table 9.2. If a firm purchases the machine by taking out a one-year loan, what happens to the firm's rate of return on the investment if the interest rate increases to 10 percent?

A) It increases to 1.5 percent
B) It increases to 0.15 percent
C) It decreases to 1.5 percent
D) It decreases to 1.7 percent
E) It decreases to 0.17 percent