Question 1

Unlike the classical economists,Keynes believed that the economy would automatically adjust to full employment.
Keynes believed the economy would not self-adjust and needed government intervention.

Accepted Answer

Keynes believed that the economy would not automatically adjust to full employment and that government intervention was necessary to achieve and maintain full employment.

Question 2

Favorable expectations about future sales will cause higher investment,ceteris paribus.
Businesses will be more inclined to invest when it seems likely to pay off financially.

Accepted Answer

Favorable expectations about future sales suggest that investing in the business will be profitable, which is likely to cause higher levels of investment. This is consistent with the basic principles of finance, which suggest that businesses are rational and will pursue investments that are likely to generate higher returns.

Question 3

Total consumption consists entirely of two components: autonomous consumption and income-dependent consumption.
Autonomous consumption is independent of income,while the rest of consumption is strongly correlated to the level of income.

Accepted Answer

This statement is true. Autonomous consumption refers to the level of consumption that is not influenced by changes in income, whereas income-dependent consumption is directly influenced by changes in income.

Question 4

The slope of a graph of the consumption function equals the marginal propensity to consume.
The MPC represents the portion of disposable income that is spent rather than saved.

Accepted Answer

This statement is true. The marginal propensity to consume represents the change in consumption resulting from a change in disposable income. Therefore, the slope of the graph of the consumption function (which is a graph of consumption as a function of disposable income) represents the MPC.

Question 5

According to an In the News article titled "Cuomo to Cut New York State Spending by $8.86 Billion,Fire 9,800 Workers," the governor did this because
A)Increased federal funding cannot keep up with decreased state gasoline taxes.
B)New York State taxes cannot keep up with the loss of federal aid.
C)State law requires the governor shrink the budget by 5 percent per year through 2015.
D)None of the choices are correct.

Accepted Answer

The governor decided to cut spending and fire workers because New York State taxes could not keep up with the loss of federal aid.

Question 6

One In the News article titled "U.S.Leading Indicators Index Increases More Than Forecast" states that economic activity for this period should pick up in the next
A)1 to 3 months.
B)3 to 6 months.
C)6 to 9 months.
D)9 to 12 months.

Accepted Answer

Leading indicators are typically used to predict economic activity in the near future, often within the next 3 to 6 months.

Question 7

Gross exports depend on the behavior of foreign businesses and consumers.
The amount of exports the United States sells depends on how well consumers and businesses are doing overseas; a recession will leave them with less income so they will buy fewer U.S.exports.Likewise,U.S.imports depend directly on the U.S.economy.Higher U.S.incomes mean more consumption of both U.S.GDP as well as foreign production.

Accepted Answer

The statement is correct in stating that gross exports depend on the behavior of foreign businesses and consumers, and U.S. imports depend directly on the U.S. economy and consumers' incomes.

Question 8

Keynes asserted that wealth was the most important determinant of consumer spending.
Keynes believed that disposable income was the most important determinant of consumer spending.

Accepted Answer

Keynes believed that consumer spending was determined by a variety of factors, including disposable income, but he did not place primary importance on wealth as a determinant.

Question 9

The change in total spending from additional income is
A)MPC.
B)MPS.
C)APC.
D)APS.

Accepted Answer

The MPC (Marginal Propensity to Consume) is the change in total spending from additional income. It represents the proportion of additional income that is spent on consumption.

Question 10

Federal government spending has a countercyclical impact that helps to stabilize the economy.
Automatic stabilizers such as transfer payments will rise during a recession,preventing a large drop in consumption.

Accepted Answer

Federal government spending has been recognized as an important tool to stabilize the economy, particularly during periods of recession. Automatic stabilizers such as transfer payments, progressive income tax, and unemployment insurance are known to work in a counter-cyclical manner, that is they increase during a recession and decrease during periods of growth, thereby helping to stabilize consumption and prevent a large drop in economic activity.

Question 11

A rise in interest rates will cause
A)A decline in investment spending.
B)A rise in investment spending.
C)Investment spending to remain constant.
D)Investment spending to be eliminated from the economy.

Accepted Answer

When interest rates rise, borrowing becomes more expensive and therefore investment spending tends to decline as businesses are less likely to take out loans and make investments.

Question 12

The four components of aggregate demand include all of the following except
A)Consumption.
B)Saving.
C)Investment.
D)Net exports.

Accepted Answer

The four components of aggregate demand are consumption, investment, government spending, and net exports. Saving is not a component of aggregate demand, as it represents a portion of income that is not spent on consumption or other components of demand. While saving can potentially impact aggregate demand if it leads to a decrease in consumption or investment, it is not itself a component of demand.

Question 13

The four components of aggregate spending are consumption,saving,imports,and taxes.
The four components of aggregate spending are consumption,investment,government expenditures,and net exports.

Accepted Answer

The correct components of aggregate spending are consumption, investment, government expenditures, and net exports, not saving, imports, and taxes.

Question 14

APC is equal to
A)The change in total consumption divided by the change in total disposable income.
B)The change in total saving divided by the change in total disposable income.
C)Total consumption divided by total disposable income.
D)Total saving divided by total disposable income.

Accepted Answer

APC or Average Propensity to Consume is the ratio of total consumption to total disposable income. It measures the proportion of income that is spent on consumption. Option A is incorrect as it calculates the marginal propensity to consume, not the average. Option B is incorrect as it calculates the marginal propensity to save, not the average. Option D is also incorrect as it calculates the total saving, not the proportion of income that is saved.

Question 15

The consumption function will shift because of a change in current disposable income.
There will be a movement along the consumption function due to a change in current disposable income.

Accepted Answer

The answer of The consumption function will shift because of...

Question 16

The largest component of aggregate spending is government spending.
The largest component of aggregate spending is consumption of goods and services.

Accepted Answer

The largest component of aggregate spending is consumption of goods and services, not government spending.

Question 17

All of the following will shift the investment curve except
A)Innovation.
B)Improvements in available technology.
C)Changes to expectations.
D)Changes to the interest rate.

Accepted Answer

The investment curve represents the relationship between the interest rate and the level of investment. A change in the interest rate will cause a movement along the investment curve, not a shift. choices A, B, and C will all shift the investment curve because they affect the willingness of firms to invest at any given interest rate. Innovation can create new investment opportunities, improvements in technology can make it cheaper or more profitable to invest, and changes to expectations can make firms more or less optimistic about future profitability.

Question 18

Most economists today recognize that a short-run macro failure is possible.
In the short run,the macro equilibrium could be below the full-employment level of output.

Accepted Answer

This statement is true. Short-run macroeconomic failure can occur when the economy is experiencing a recession or other downturn that causes output levels to fall below the full-employment level. This can happen due to a variety of factors, including changes in consumer and business spending, shifts in international trade patterns, or changes in government policies. Most economists recognize this possibility and work to develop policies that can help stabilize the economy and support full employment.

Question 19

Dissaving occurs whenever
A)Current supply exceeds current production.
B)Current income falls.
C)Current consumption exceeds current income.
D)Current unemployment falls.

Accepted Answer

Dissaving refers to a situation where current consumption exceeds current income, resulting in a negative savings rate or a reduction in savings. Option A is incorrect because it refers to a mismatch between supply and demand, not necessarily related to dissaving. Option B is related to a decrease in income, but it doesn't necessarily imply dissaving. Option D is also incorrect because lower unemployment rates may increase income and savings, not necessarily dissaving.

Question 20

The marginal propensity to consume (MPC)is related to the marginal propensity to save (MPS)by the formula MPC = 1 - MPS.
Out of any additional disposable income,the MPC and MPS measure the fractions that are spent and saved,respectively.

Accepted Answer

The statement is correct - the MPC and MPS represent the portions of additional disposable income that are spent and saved, respectively, and are related by the formula MPC = 1 - MPS.

Quiz 9: Aggregate Demand

Unlike the classical economists,Keynes believed that the economy would automatically adjust to full employment. Keynes believed the economy would not self-adjust and needed government intervention.

Favorable expectations about future sales will cause higher investment,ceteris paribus. Businesses will be more inclined to invest when it seems likely to pay off financially.

Total consumption consists entirely of two components: autonomous consumption and income-dependent consumption. Autonomous consumption is independent of income,while the rest of consumption is strongly correlated to the level of income.

The slope of a graph of the consumption function equals the marginal propensity to consume. The MPC represents the portion of disposable income that is spent rather than saved.

According to an In the News article titled "Cuomo to Cut New York State Spending by $8.86 Billion,Fire 9,800 Workers," the governor did this because

One In the News article titled "U.S.Leading Indicators Index Increases More Than Forecast" states that economic activity for this period should pick up in the next

Keynes asserted that wealth was the most important determinant of consumer spending. Keynes believed that disposable income was the most important determinant of consumer spending.

The change in total spending from additional income is

Federal government spending has a countercyclical impact that helps to stabilize the economy. Automatic stabilizers such as transfer payments will rise during a recession,preventing a large drop in consumption.

A rise in interest rates will cause

The four components of aggregate demand include all of the following except

The four components of aggregate spending are consumption,saving,imports,and taxes. The four components of aggregate spending are consumption,investment,government expenditures,and net exports.

APC is equal to

The consumption function will shift because of a change in current disposable income. There will be a movement along the consumption function due to a change in current disposable income.

The largest component of aggregate spending is government spending. The largest component of aggregate spending is consumption of goods and services.

All of the following will shift the investment curve except

Most economists today recognize that a short-run macro failure is possible. In the short run,the macro equilibrium could be below the full-employment level of output.

Dissaving occurs whenever

The marginal propensity to consume (MPC)is related to the marginal propensity to save (MPS)by the formula MPC = 1 - MPS. Out of any additional disposable income,the MPC and MPS measure the fractions that are spent and saved,respectively.