Question 1

If the marginal propensity to consume (MPC) in your classmate's nation is 3/5 and the marginal propensity to save (MPS) in your country is 1/10,which of the following must be true?

Accepted Answer

A)  The spending multiplier is larger in your classmate's nation than in your country.
B)  The spending multiplier is smaller in your classmate's nation than in your country.
C)  Autonomous consumption is higher in your classmate's nation than in your country.
D)  Autonomous consumption is lower in your classmate's nation than in your country.
E)  Total consumption is lower in your classmate's nation than in your country.F) B) and E)
G) All of the above

Question 2

On a graph showing investment along the vertical axis and income along the horizontal axis,_____.

Accepted Answer

A)  the investment line will be downward sloping
B)  the investment line will be upward sloping
C)  the investment line will be horizontal
D)  the investment line will be vertical
E)  the investment line will be U-shapedF) B) and E)
G) B) and D)

Question 3

An increase in real disposable income will:

Accepted Answer

A)  increase the value of net exports of a country.
B)  decrease the value of net exports of a country.
C)  increase government purchases.
D)  decrease government purchases.
E)  increase net taxes.F) A) and B)
G) A) and E)

Question 4

If the simple spending multiplier is 8,the marginal propensity to consume is _____.

Accepted Answer

A)  1/8
B)  1/4
C)  4/5
D)  7/8
E)  8F) A) and B)
G) A) and C)

Question 5

The consumption function relates consumption spending to _____.

Accepted Answer

A)  the price level
B)  interest rates
C)  disposable income
D)  expectations about the price level
E)  household wealthF) A) and D)
G) All of the above

Question 6

If households save $30 billion more at each level of income and the marginal propensity to consume (MPC) is 0.9,the aggregate expenditure line will _____.

Accepted Answer

A)  intersect the 45-degree line at a real GDP of $30 billion
B)  shift upward by $30 billion
C)  shift downward by $30 billion
D)  shift upward by $300 billion because of the multiplier effect
E)  shift downward by $300 billion because of the multiplier effectF) B) and C)
G) A) and D)

Question 7

The market interest rate is important to the investment decision of firms:

Accepted Answer

A)  only when funds are borrowed from financial intermediaries.
B)  only when firms have the money to invest in capital.
C)  regardless of whether funds must be borrowed or firms have the funds on hand.
D)  only when firms have funds on hand and are ready to lend them.
E)  only when firms purchase new equipment rather than a new building.F) All of the above
G) A) and D)

Question 8

The marginal propensity to consume is:

Accepted Answer

A)  the relationship between a change in consumption and a change in income.
B)  the relationship between a change in consumption and a change in saving.
C)  the relationship between changes in consumption and changes in net wealth.
D)  the ratio of income to consumption at any given level of income.
E)  the ratio of total consumption to total saving.F) C) and D)
G) B) and C)

Question 9

An increase in the market interest rate,other things equal,will _____.

Accepted Answer

A)  have no effect on investment
B)  increase the amount invested since the rate of return will be lower
C)  increase the amount invested because income will increase
D)  reduce the amount invested because the opportunity costs of investing will be higher
E)  increase the amount invested because the rate of return will be higherF) C) and E)
G) None of the above

Question 10

If income increases by $100 and saving increases by $25,the slope of the consumption function equals _____.

Accepted Answer

A)  1/4
B)  1/5
C)  1/2
D)  3/4
E)  3/5F) A) and D)
G) B) and D)

Question 11

Which of the following is true of the simple spending multiplier

Accepted Answer

A)  It equals the ratio of the marginal propensity to consume to the marginal propensity to save.
B)   It equals the difference between the marginal propensity to save and the marginal propensity to consume.
C)  It is the reciprocal of the marginal propensity to save.
D)  It is the reciprocal of the marginal propensity to consume.
E)  It is the sum of the marginal propensity to consume and the marginal propensity to save.F) A) and B)
G) A) and E)

Question 12

Which of the following is not true about a change in the price level?

Accepted Answer

A)  It will shift the aggregate demand curve.
B)  It will shift the aggregate expenditure curve.
C)  It will result in a new value of equilibrium real GDP demanded.
D)  It will change the real value of dollar-denominated assets.
E)  It will shift the consumption function.F) A) and C)
G) A) and E)

Question 13

An increase in the price level in an economy will _____.

Accepted Answer

A)  shift the aggregate expenditure line upward
B)  shift the aggregate expenditure line downward
C)  cause an upward movement along the aggregate expenditure line
D)  cause a downward movement along the aggregate expenditure line
E)  shift the aggregate demand curve downwardF) All of the above
G) A) and E)

Question 14

Which of the following is most likely to cause a rightward shift of the investment demand curve?

Accepted Answer

A)  An increase in income
B)  A decrease in the market interest rate
C)  An improvement in business expectations
D)  An increase in the market rate of interest
E)  A decrease in incomeF) B) and E)
G) B) and C)

Question 15

Which of the following will not shift the consumption function?

Accepted Answer

A)  A change in household wealth
B)  A change in the price level
C)  A change in household disposable income
D)  A change in the level of unemployment
E)  A change in the rate of interestF) B) and C)
G) A) and E)

Question 16

Purchases of existing commodities,such as gold and precious gems,are considered investment spending by economists.

Accepted Answer

A) True 
 B)False

Question 17

An increase in the U.S.price level,other things constant,will _____.

Accepted Answer

A)  increase U.S.exports and decrease U.S.imports
B)  increase U.S.exports and leave U.S.imports unchanged
C)  decrease U.S.exports and increase U.S.imports
D)  decrease U.S.exports and leave U.S.imports unchanged
E)  leave both U.S.exports and U.S.imports unchangedF) A) and E)
G) C) and E)

Question 18

If the level of autonomous spending in an economy increases at a given price level,_____.

Accepted Answer

A)  the aggregate expenditure line shifts upward and the economy moves upward along the aggregate demand curve
B)  the aggregate expenditure line shifts downward and the economy moves upward along the aggregate demand curve
C)  the aggregate expenditure line shifts upward and the aggregate demand curve shifts to the right
D)  the aggregate expenditure line shifts downward and the aggregate demand curve shifts to the left
E)  the aggregate expenditure curve shifts upward and the aggregate demand curve shifts to the leftF) C) and D)
G) A) and C)

Question 19

Historically,consumption spending in the United States has _____.

Accepted Answer

A)  fluctuated greatly with changes in the level of income
B)  remained approximately constant as a percentage of income
C)  decreased as a percentage of income
D)  varied inversely with the inflation rate
E)  varied inversely with the interest rateF) B) and C)
G) None of the above

Question 20

The current level of investment depends on the current level of income.

Accepted Answer

A) True 
 B)False

Exam 9: Aggregate Demand

Historically,consumption spending in the United States has _____.

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An increase in real disposable income will:

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On a graph showing investment along the vertical axis and income along the horizontal axis,_____.

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If income increases by $100 and saving increases by $25,the slope of the consumption function equals _____.

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If the marginal propensity to consume (MPC) in your classmate's nation is 3/5 and the marginal propensity to save (MPS) in your country is 1/10,which of the following must be true?

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An increase in the market interest rate,other things equal,will _____.

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Which of the following will not shift the consumption function?

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The consumption function relates consumption spending to _____.

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The marginal propensity to consume is:

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An increase in the U.S.price level,other things constant,will _____.

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Which of the following is true of the simple spending multiplier

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If households save $30 billion more at each level of income and the marginal propensity to consume (MPC) is 0.9,the aggregate expenditure line will _____.

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Purchases of existing commodities,such as gold and precious gems,are considered investment spending by economists.

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Which of the following is most likely to cause a rightward shift of the investment demand curve?

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The current level of investment depends on the current level of income.

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If the simple spending multiplier is 8,the marginal propensity to consume is _____.

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An increase in the price level in an economy will _____.

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If the level of autonomous spending in an economy increases at a given price level,_____.

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The market interest rate is important to the investment decision of firms:

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Which of the following is not true about a change in the price level?

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