Question 1

Keynesian economics developed in response to:

Accepted Answer

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.

Question 2

The figure given below shows the consumption function of a household.?Figure 9.2
 
-In Figure 9.2, the line segment AD represents:

Accepted Answer

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

Question 3

If capacity utilization by businesses remains constant, investment spending is likely to be the most volatile component of aggregate expenditures in the United States.

Accepted Answer

A) True 
 B)False

Question 4

At the point where consumption equals disposable income, the average propensity to consume equals 1.

Accepted Answer

A) True 
 B)False

Question 5

As disposable income increases, consumption spending will rise, but it will rise by less than disposable income if the MPS is positive.

Accepted Answer

A) True 
 B)False

Question 6

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 _____.

Accepted Answer

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

Question 7

-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?

Accepted Answer

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

Question 8

In the table given below Y represents the aggregate expenditure of the economy on C = consumption, I = investment, G = government projects, and X = net exports.?
 
-Refer to Table 9.3. Compute the marginal propensity to save in the economy.

Accepted Answer

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

Question 9

Which of the following is a stock variable?

Accepted Answer

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

Question 10

When capacity utilization rate is high:

Accepted Answer

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 11

The aggregate expenditures function:

Accepted Answer

A)   has the same slope as the aggregate demand curve.
B)   is the key determinant of equilibrium real GDP in a fixed-price model.
C)   is negatively related to household consumption.
D)   is negatively related to net exports.
E)   is equal to C+I+G-X.

Question 12

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 _____.

Accepted Answer

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

Question 13

If disposable income rises from $15,000 to $20,000 and the marginal propensity to consume equals 0.9, then saving must increase by $500.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

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 15

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:

Accepted Answer

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

Question 16

Other things equal, an increase in the consumer confidence index tends to raise the average propensity to consume.

Accepted Answer

A) True 
 B)False

Question 17

When government spending is added to consumption and planned investment, the slope of the aggregate expenditure function increases.

Accepted Answer

A) True 
 B)False

Question 18

The figure given below shows the aggregate expenditures function of an economy.?Figure 9.5
 
-Refer to Figure 9.5. Which of the following statements is true?

Accepted Answer

A)   Autonomous net exports equal the distance between A and C.
B)   Autonomous consumption is equal to the distance between A and C.
C)   There is a deficit in the merchandise and services account.
D)   Exports exceed imports for the country in question.
E)   Autonomous consumption is equal to the distance between 0 and C.

Question 19

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

Accepted Answer

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

Question 20

As disposable income rises:

Accepted Answer

A)   consumption falls, but not by as much as the disposable income rises.
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)   saving rises as a percentage of disposable income.

Exam 9: Aggregate Expenditures

At the point where consumption equals disposable income, the average propensity to consume equals 1.

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Which of the following is a stock variable?

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When capacity utilization rate is high:

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Keynesian economics developed in response to:

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

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As disposable income rises:

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If disposable income rises from $15,000 to $20,000 and the marginal propensity to consume equals 0.9, then saving must increase by $500.

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

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When government spending is added to consumption and planned investment, the slope of the aggregate expenditure function increases.

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In the table given below Y represents the aggregate expenditure of the economy on C = consumption, I = investment, G = government projects, and X = net exports.? -Refer to Table 9.3. Compute the marginal propensity to save in the economy.

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The figure given below shows the consumption function of a household.?Figure 9.2 -In Figure 9.2, the line segment AD represents:

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The figure given below shows the aggregate expenditures function of an economy.?Figure 9.5 -Refer to Figure 9.5. Which of the following statements is true?

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If capacity utilization by businesses remains constant, investment spending is likely to be the most volatile component of aggregate expenditures in the United States.

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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 _____.

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As disposable income increases, consumption spending will rise, but it will rise by less than disposable income if the MPS is positive.

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-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?

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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:

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The aggregate expenditures function:

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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 _____.

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Other things equal, an increase in the consumer confidence index tends to raise the average propensity to consume.

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