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Exam 9: Aggregate Expenditures

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Question 1

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The table given below reports the consumption expenditure of a nation at different levels of disposable income. Table 9.1 $\begin{array}{|c|c|}\hline \text { Disposable Income }\left(Y_{2}\right) & \text { Consumption }(C) \\\hline \$ {0}& \$ 4,500 \\\hline \$ 10,000 & \$ 12,000 \\\hline \$ 15,000 & \$ 15,750 \\\hline \$ 25,000 & \$ 23,250 \\\hline \$ 30,000 & \$ 27,000 \\\hline \$ 35,000 & \$ 30,750 \\\hline \$ 40,000 & \$ 34,500 \\\hline \$ 50,000 & \$ 42,000 \\\hline\end{array}$ -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.

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Question 2

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

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

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Question 3

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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 $\begin{array}{c}\text { Aggregate Expenditures }\\\begin{array}{|c|c|c|c|c|}\hline \mathbf{Y} & \mathbf{C} & \mathbf{I} & \mathbf{G} & \mathbf{X} \\\hline \$ 0 & \$ 50 & \$ 75 & \$ 150 & \$ 40 \\\hline \$ 150 & \$ 125 & \$ 75 & \$ 150 & \$ 10 \\\hline \$ 300 & \$ 200 & \$ 75 & \$ 150 & -\$ 20 \\\hline \$ 450 & \$ 275 & \$ 75 & \$ 150 & -\$ 50 \\\hline \$ 600 & \$ 350 & \$ 75 & \$ 150 & -\$ 80 \\\hline\end{array}\end{array}$ -According to Table 9.3, what is the marginal propensity to import?

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:

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 $\begin{array}{c}\text { Aggregate Expenditures }\\\begin{array}{|c|c|c|c|c|}\hline \mathbf{Y} & \mathbf{C} & \mathbf{I} & \mathbf{G} & \mathbf{X} \\\hline \$ 0 & \$ 50 & \$ 75 & \$ 150 & \$ 40 \\\hline \$ 150 & \$ 125 & \$ 75 & \$ 150 & \$ 10 \\\hline \$ 300 & \$ 200 & \$ 75 & \$ 150 & -\$ 20 \\\hline \$ 450 & \$ 275 & \$ 75 & \$ 150 & -\$ 50 \\\hline \$ 600 & \$ 350 & \$ 75 & \$ 150 & -\$ 80 \\\hline\end{array}\end{array}$ -Refer to Table 9.3. Compute the marginal propensity to save in the economy.

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

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

The marginal propensity to consume (MPC) is equal to the inverse of the marginal propensity to save (MPS).

Saving remaining constant, the average propensity to save declines with an increase in disposable income.

An increase in disposable income will cause autonomous consumption to rise.

The consumption function has a positive slope while the savings function has a negative slope.

MPI refers to the percentage of additional domestic income spent on imports.

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 sum of the MPC and the MPS is always:

The consumption function becomes flatter if:

Other things equal, a marginal propensity to import of 0.8 implies that a $100 million increase in domestic income will lead to an $80 million decrease in net exports.

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?

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 $\begin{array}{c}\text { Aggregate Expenditures }\\\begin{array}{|c|c|c|c|c|}\hline \mathbf{Y} & \mathbf{C} & \mathbf{I} & \mathbf{G} & \mathbf{X} \\\hline \$ 0 & \$ 50 & \$ 75 & \$ 150 & \$ 40 \\\hline \$ 150 & \$ 125 & \$ 75 & \$ 150 & \$ 10 \\\hline \$ 300 & \$ 200 & \$ 75 & \$ 150 & -\$ 20 \\\hline \$ 450 & \$ 275 & \$ 75 & \$ 150 & -\$ 50 \\\hline \$ 600 & \$ 350 & \$ 75 & \$ 150 & -\$ 80 \\\hline\end{array}\end{array}$ -Refer to Table 9.3. The intercept of the C+ I+ G+ X function is at an aggregate expenditures level of:

Other things equal, a decrease in the cost of capital would be associated with an upward shift of the investment function and, hence, with a rise in aggregate expenditures.

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 _____.