Question 1

Whenever total planned expenditures differ from real GDP,

Accepted Answer

A)  unplanned inventories will remain unchanged.
B)  unplanned inventories will change.
C)  government spending will adjust.
D)  tax revenues will move the economy back to equilibrium.

Question 2

Your real disposable income is your real income after you have paid

Accepted Answer

A)  rent and food expenses.
B)  net taxes.
C)  medical expenses.
D)  consumption expenses.

Question 3

If the marginal propensity to consume (MPC) is 0.75 and government purchases increase by $200 billion,then

Accepted Answer

A)  equilibrium real Gross Domestic Product (GDP) will increase by $800 billion.
B)  equilibrium real Gross Domestic Product (GDP) will increase by $200 billion.
C)  equilibrium real Gross Domestic Product (GDP) will increase by $50 billion.
D)  the effect on equilibrium real Gross Domestic Product (GDP) cannot be determined from the given information.

Question 4

Along the 45-degree reference line,

Accepted Answer

A)  total planned real expenditures = real GDP.
B)  total planned real expenditures = planned nominal expenditures.
C)  total planned nominal expenditures = consumption.
D)  total planned investment spending = planned real expenditures.

Question 5

-Consider the above figure.At an income of $60 we would expect saving to be equal to

Accepted Answer

A)  $60.
B)  $40.
C)  $10.
D)  $0.

Question 6

The saving function shows the relationship between planned real saving and

Accepted Answer

A)  real wealth.
B)  real disposable income.
C)  the average propensity to save.
D)  the marginal propensity to save.

Question 7

Note: Amounts in $ trillions
-Refer to the above table.Which variables in the table are NOT autonomous?

Accepted Answer

A)  Taxes,government spending,and saving.
B)  Planned investment,net exports,and government spending.
C)  Planned consumption and planned saving.
D)  Planned saving only.

Question 8

The investment function will shift when there is a change in

Accepted Answer

A)  the interest rate.
B)  firms' profit expectations.
C)  the cost of borrowing.
D)  the opportunity cost of retained earnings.

Question 9

The marginal propensity to save is

Accepted Answer

A)  real consumption/real disposable income.
B)  real saving/real disposable income.
C)  change in real consumption/change in real disposable income.
D)  change in real saving/change in real disposable income.

Question 10

Other things being constant,if the marginal propensity to save (MPS) is 0.1,and private investment spending falls by $100 million,then real Gross Domestic Product (GDP)

Accepted Answer

A)  decreases by $10 million.
B)  increases by $90 million.
C)  decreases by $1 billion.
D)  increases by $1 billion.

Question 11

-Use the above table.The MPC is

Accepted Answer

A)  0.91.
B)  0.80.
C)  0.20.
D)  0.09.

Question 12

How does a reduction in the price level affect the position of the C + I + G + X curve and in turn the equilibrium level of real GDP?

Accepted Answer

A)  The C + I + G + X curve shifts down,thereby reducing the equilibrium level of real GDP.
B)  The C + I + G + X curve shifts down,thereby increasing the equilibrium level of real GDP.
C)  The C + I + G + X curve shifts up,thereby reducing the equilibrium level of real GDP.
D)  The C + I + G + X curve shifts up,thereby increasing the equilibrium level of real GDP.

Question 13

-Refer to the above figure.The figure represents the consumption function for a consumer.Point D represents

Accepted Answer

A)  autonomous consumption.
B)  saving.
C)  dissaving.
D)  zero saving.

Question 14

The consumption function shifts upward when

Accepted Answer

A)  real income increases.
B)  saving increases.
C)  the real wealth of the average household increases.
D)  population decreases.

Question 15

Thinking as an economist would,which is true of investment?

Accepted Answer

A)  It is the portion of disposable income that is not used for consumption or saving.
B)  Investment represents spending on capital goods.
C)  Investment is putting money into stocks and bonds.
D)  Investment is a stock concept.

Question 16

The multiplier effect tends to

Accepted Answer

A)  generate instability.
B)  promote stability of the general price level.
C)  magnify small changes in spending into much larger changes in real Gross Domestic Product (GDP) .
D)  increase the MPC.

Question 17

Which of the following would cause a leftward shift in the investment function?

Accepted Answer

A)  Technological progress
B)  A reduction in the rate of interest
C)  Optimistic expectations about business conditions
D)  An increase in business taxes

Question 18

Which of the following is a true statement relative to retained earnings and investment?

Accepted Answer

A)  Lower interest rates stimulate borrowing for investment,but have no effect on the use of retained earnings for investment spending.
B)  Lower interest rates stimulate borrowing for investment,but discourage the use of retained earnings for investment.
C)  Lower interest rates reduce the opportunity cost of retained earnings,stimulating the use of these funds in investment.
D)  Lower interest rates have no effect on investment spending at all because investment spending is autonomous.

Question 19

A lump-sum tax,such as a $1000 tax that every family must pay one time,is

Accepted Answer

A)  a type of income tax.
B)  an autonomous tax.
C)  negatively related to real GDP.
D)  a regressive tax.

Question 20

Which of the following is negative for the "typical" consumer at some level of real disposable income?

Accepted Answer

A)  Marginal propensity to save.
B)  Marginal propensity to consume.
C)  Average propensity to save.
D)  Average propensity to consume.

Exam 12: Consumption, real GDP, and the Multiplier

How does a reduction in the price level affect the position of the C + I + G + X curve and in turn the equilibrium level of real GDP?

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-Use the above table.The MPC is

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If the marginal propensity to consume (MPC) is 0.75 and government purchases increase by $200 billion,then

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The marginal propensity to save is

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Thinking as an economist would,which is true of investment?

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Your real disposable income is your real income after you have paid

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Along the 45-degree reference line,

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A lump-sum tax,such as a $1000 tax that every family must pay one time,is

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Whenever total planned expenditures differ from real GDP,

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-Consider the above figure.At an income of $60 we would expect saving to be equal to

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Which of the following is negative for the "typical" consumer at some level of real disposable income?

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Other things being constant,if the marginal propensity to save (MPS) is 0.1,and private investment spending falls by $100 million,then real Gross Domestic Product (GDP)

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The saving function shows the relationship between planned real saving and

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Note: Amounts in $ trillions -Refer to the above table.Which variables in the table are NOT autonomous?

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Which of the following would cause a leftward shift in the investment function?

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The investment function will shift when there is a change in

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The consumption function shifts upward when

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-Refer to the above figure.The figure represents the consumption function for a consumer.Point D represents

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The multiplier effect tends to

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Which of the following is a true statement relative to retained earnings and investment?

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