Question 1

Which of the following forces did Keynes assert had the strongest influence on consumption decisions?
A)Prices.
B)Wealth.
C)Interest rates.
D)Disposable income.

Accepted Answer

Keynes argued that disposable income (income after taxes and transfers) is the most significant factor influencing consumption decisions, as it directly affects the amount of money people have available to spend.

Question 2

The combination of price level and real output that is compatible with both aggregate demand and aggregate supply is the definition of
A)Full-employment GDP.
B)Disposable income.
C)Macro equilibrium.
D)Real expenditures.

Accepted Answer

Macro equilibrium is the point where aggregate demand and aggregate supply intersect, resulting in a combination of price level and real output that is consistent with both. Full-employment GDP refers to the maximum potential output of an economy when all resources are fully utilized, but does not necessarily indicate macro equilibrium. Disposable income refers to the income leftover after taxes and other deductions, and real expenditures refer to the actual spending on goods and services in the economy, neither of which directly relate to macro equilibrium.

Question 3

If,in the aggregate,consumers spend 75 cents of every extra dollar received,then the
A)APC is 1.25.
B)APC is 0.75.
C)MPC is 0.75.
D)MPS is 0.75.

Accepted Answer

The MPC (marginal propensity to consume) is the fraction of each additional dollar of income that is spent on consumption. In this case, the MPC is 0.75, meaning that for every extra dollar received, consumers spend 75 cents. The APC (average propensity to consume) is the total amount of consumption divided by total income. The given information does not give us enough to calculate the APC. The MPS (marginal propensity to save) is the fraction of each additional dollar of income that is saved. The given information does not give us enough to calculate the MPS either.

Question 4

Aggregate demand is the total quantity of output
A)Demanded if the economy is in equilibrium.
B)Demanded at alternative price levels in a given time period.
C)Producers are willing and able to supply at alternative price levels.
D)Consumers actually buy.

Accepted Answer

Aggregate demand refers to the total quantity of goods and services that consumers, businesses, and the government are willing to buy at alternative price levels in a given time period. It is the combined demand of all actors in the economy and is a function of their willingness and ability to spend. Therefore, option B is the correct choice. Option A is incorrect because equilibrium refers to a specific price level and output level where the quantity demanded equals the quantity supplied. Option C is incorrect because it refers to aggregate supply, which is the total quantity of goods and services that producers are willing and able to supply at alternative price levels. Option D is incorrect because aggregate demand is a theoretical concept and does not directly measure the actual purchases made by consumers.

Question 5

Suppose the MPC in an economy is 0.9.The APC is initially 0.95 and disposable income is $4 billion.If disposable income increases to $14 billion,what is the new level of consumption?
A)$13.3 billion.
B)$12.8 billion.
C)$9 billion.
D)$12.6 billion.

Accepted Answer

The change in income is $10 billion ($14 billion - $4 billion). With an MPC of 0.9, the change in consumption is $9 billion (0.9 * $10 billion). Initial consumption is $3.8 billion (0.95 * $4 billion). Therefore, the new consumption level is $12.8 billion ($3.8 billion + $9 billion).

Question 6

If the MPC is 0.8 and the APC is 0.9,the MPS equals
A)0.1.
B)0.2.
C)0.8.
D)1.7.

Accepted Answer

MPS (Marginal Propensity to Save) is calculated as 1 - MPC (Marginal Propensity to Consume). Given MPC is 0.8, MPS = 1 - 0.8 = 0.2. APC (Average Propensity to Consume) is not directly relevant for calculating MPS.

Question 7

Consumption expenditures
A)Account for over two-thirds of total spending.
B)Include purchases of new and used goods by consumers.
C)Are equal to disposable personal income plus personal saving.
D)Are equal to consumer spending plus transfer payments.

Accepted Answer

Consumption expenditures, which are a major component of GDP, indeed account for over two-thirds of total spending in many economies, reflecting the aggregate spending by households on goods and services.

Question 8

If consumption is $340 and saving is $20,then disposable income
A)Is $340.
B)Is $360.
C)Is $320.
D)Cannot be determined from the information given.

Accepted Answer

Disposable Income = Consumption + Saving
Disposable Income = $340 + $20 = $360. Therefore, the answer is B.

Question 9

The MPC + MPS must always equal
A)The slope of the consumption function.
B)1.
C)The APC.
D)0.

Accepted Answer

The MPC (marginal propensity to consume) is the fraction of additional income that is spent on consumption, and the MPS (marginal propensity to save) is the fraction of additional income that is saved. Therefore, MPC + MPS must equal 1, since all additional income must either be consumed or saved.

Question 10

If the MPC is 0.60 and disposable income increases from $20,000 billion to $22,000 billion,consumption will increase by
A)$2,000 billion.
B)$800 billion.
C)$1,200 billion.
D)$600 billion.

Accepted Answer

The MPC (marginal propensity to consume) is 0.60, which means that for every additional dollar of disposable income, 60 cents will be spent on consumption.

The increase in disposable income is $22,000 billion-$20,000 billion=$2,000 billion.

To find the increase in consumption, we multiply the increase in disposable income by the MPC:

$2,000 billion x 0.60 = $1,200 billion

Therefore, consumption will increase by $1,200 billion. The best choice is C.

Question 11

When the APC is greater than 1,the APS must be
A)Equal to 1.
B)Greater than 1 also.
C)Between 0 and 1.
D)Negative.

Accepted Answer

When the Average Propensity to Consume (APC) is greater than 1, it means that consumption is greater than income, leading to negative savings, hence the Average Propensity to Save (APS) must be negative.

Question 12

The components of aggregate demand are
A)Consumption,government spending,net exports,and investment.
B)Consumption,exports,imports,and disposable income.
C)Consumption,inventory,government spending,and disposable income.
D)Exports,imports,investment,and disposable income.

Accepted Answer

The four components of aggregate demand are consumption, government spending, net exports, and investment. These factors contribute to the overall demand for goods and services in an economy. Consumption is the largest component, representing the spending of households on goods and services. Government spending includes expenditures on goods and services by federal, state, and local governments. Net exports represent the difference between exports and imports, which can either add to or subtract from total demand. Finally, investment includes spending on capital goods like machinery and buildings, which can increase the productive capacity of an economy.

Question 13

According to Keynesian theory,which of the following is not true e of all short-term macro equilibria?
A)The economy may or may not be at full employment.
B)The aggregate demand curve intersects the aggregate supply curve.
C)All macroeconomic goals are achieved.
D)Producers are selling everything they currently produce.

Accepted Answer

According to Keynesian theory, short-term macro equilibria may or may not achieve all macroeconomic goals, such as full employment, price stability, and economic growth. Therefore, statement C is not true of all short-term macro equilibria.

Question 14

Given that C = $1,000 + 0.60Y_D,if the level of disposable income is $1,000,the level of saving is A)$600. B)$400. C)-$600. D)-$300.

Accepted Answer

The answer of Given that C = $1,000 + 0.60Y_D,if...

Question 15

If disposable income increases from $9,000 billion to $11,000 billion,and consumption increases from $9,500 billion to $11,000 billion,the MPC must be
A)0.75.
B)1.00.
C)0.90.
D)0.25.

Accepted Answer

The answer of If disposable income increases from $9,000 billion...

Question 16

Given that C = $500 + 0.8Y_D,if the level of disposable income is $1,000,the level of saving is A)$300. B)-$300. C)$500. D)-$1,300.

Accepted Answer

Using the provided formula, we plug in the given level of disposable income: C = $500 + 0.8($1,000)_D C = $500 + $800_D To determine the level of saving, we need to subtract the level of consumption (C) from disposable income (Y). Y = $1,000 _D = Y - C _D = $1,000 - ($500 + $800_D) Simplifying: _D = $1,000 - $500 - $800_D _D = $500 - $800_D Moving the variable term to the left side: $800_D + _D = $500 Factoring out the variable: _D($800 + 1) = $500 _D = -$300 Therefore, the level of saving is -$300.

Question 17

When consumer spending exceeds disposable income,all of the following are true except
A)The APS is negative.
B)The APC is greater than 1.
C)Households are dissaving.
D)The MPS is negative.

Accepted Answer

The Marginal Propensity to Save (MPS) cannot be negative. MPS is the proportion of an additional dollar of household income that is used for saving. If consumer spending exceeds disposable income, it means households are dissaving or spending savings, but MPS reflects the change in saving rate with respect to income, not the total amount saved, and thus cannot be negative.

Question 18

Which of the following is not true about the marginal propensity to consume?
A)It is equal to the change in consumption divided by the change in disposable income.
B)It is equal to the slope of the consumption function.
C)It is equal to 1 - MPS.
D)It is always equal to or greater than 1.

Accepted Answer

The statement "It is always equal to or greater than 1." is not true. The marginal propensity to consume can range from 0 to 1, but it cannot be greater than 1 as it represents the fraction of each additional dollar of income that is spent on consumption.

Question 19

The MPC indicates the fraction of
A)An additional dollar of disposable income that will be saved.
B)An additional dollar of disposable income that will be spent.
C)Total income that will be saved.
D)Total income that will be spent.

Accepted Answer

The MPC (Marginal Propensity to Consume) indicates the fraction of an additional dollar of disposable income that will be spent.

Question 20

The marginal propensity to consume can be found by dividing
A)Total consumption by total saving.
B)Total consumption by the number of people consuming.
C)The change in total consumption by the change in disposable income.
D)Disposable income by total consumption.

Accepted Answer

The marginal propensity to consume (MPC) is the fraction of each additional dollar of disposable income that is spent on consumption. It can be found by dividing the change in total consumption by the change in disposable income. Thus, option C is the correct answer. Option A is incorrect because it divides total consumption by total saving, which does not provide information on how consumption changes with changes in disposable income. Option B is incorrect because it calculates the average consumption per person, which is not the same as MPC. Option D is also incorrect because it divides disposable income by total consumption, which is not the same as MPC.

Quiz 9: Aggregate Demand

Which of the following forces did Keynes assert had the strongest influence on consumption decisions?

The combination of price level and real output that is compatible with both aggregate demand and aggregate supply is the definition of

If,in the aggregate,consumers spend 75 cents of every extra dollar received,then the

Aggregate demand is the total quantity of output

Suppose the MPC in an economy is 0.9.The APC is initially 0.95 and disposable income is $4 billion.If disposable income increases to $14 billion,what is the new level of consumption?

If the MPC is 0.8 and the APC is 0.9,the MPS equals

Consumption expenditures

If consumption is $340 and saving is $20,then disposable income

The MPC + MPS must always equal

If the MPC is 0.60 and disposable income increases from $20,000 billion to $22,000 billion,consumption will increase by

When the APC is greater than 1,the APS must be

The components of aggregate demand are

According to Keynesian theory,which of the following is not true e of all short-term macro equilibria?

Given that C = $1,000 + 0.60YD,if the level of disposable income is $1,000,the level of saving is

If disposable income increases from $9,000 billion to $11,000 billion,and consumption increases from $9,500 billion to $11,000 billion,the MPC must be

Given that C = $500 + 0.8YD,if the level of disposable income is $1,000,the level of saving is

When consumer spending exceeds disposable income,all of the following are true except

Which of the following is not true about the marginal propensity to consume?

The MPC indicates the fraction of

The marginal propensity to consume can be found by dividing

Given that C = $1,000 + 0.60Y_D,if the level of disposable income is $1,000,the level of saving is

Given that C = $500 + 0.8Y_D,if the level of disposable income is $1,000,the level of saving is