Question 1

An upward shift of the consumption function might be caused by:

Accepted Answer

A)   an increase in disposable income.
B)   a decrease in disposable income.
C)   a decrease in the price level.
D)   a decrease in household wealth.
E)   an increase in the interest rate.

Question 2

Which of the following is least likely to cause a shift of the consumption function?

Accepted Answer

A)   A change in the level of saving
B)   A change in consumer expectations about future prices
C)   A change in household wealth
D)   A change in investment spending
E)   A change in the interest rate

Question 3

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.

Question 4

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 rate

Question 5

An increase in the marginal propensity to consume (MPC) will cause the consumption function to become steeper.

Accepted Answer

A) True 
 B)False

Question 6

Exports minus imports equal net exports.

Accepted Answer

A) True 
 B)False

Question 7

Suppose an increase in disposable income from $3 trillion to $3.2 trillion increases consumption from $2.5 trillion to $2.6 trillion. The marginal propensity to consume is _____.

Accepted Answer

A)   0.1
B)   0.2
C)   0.5
D)   0.8
E)   0.9

Question 8

The consumption function assumes that:

Accepted Answer

A)   only disposable income affects consumption.
B)   only the price level affects consumption.
C)   many factors other than disposable income affect consumption, and each is allowed to vary along the consumption function.
D)   factors other than disposable income affect consumption, but those are held constant along the consumption function.
E)   only consumer expectations affect consumption.

Question 9

Net taxes are:

Accepted Answer

A)   taxes plus transfer payments.
B)   taxes minus transfer payments.
C)   an injection into the economic system.
D)   consumption after taxes.
E)   government spending minus taxes.

Question 10

Only a change in the price level can cause shifts in both the aggregate expenditure line and the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 11

If the marginal propensity to save (MPS)  is 1/8, the value of the simple spending multiplier is:

Accepted Answer

A)   8.
B)   1/8.
C)   2.
D)   1/2.
E)   4.

Question 12

Assume an economy is in equilibrium at a real GDP of $5 trillion. If aggregate expenditure (AE)  increases by $1 trillion, the economy's equilibrium real GDP is likely to _____.

Accepted Answer

A)   increase by $1 trillion
B)   increase by more than $1 trillion
C)   increase by less than $1 trillion
D)   decrease by $1 trillion
E)   decrease by more than $1 trillion

Question 13

The aggregate expenditure line is drawn on a graph that measures:

Accepted Answer

A)   real GDP on the horizontal axis and aggregate expenditure on the vertical axis.
B)   aggregate expenditure on the horizontal axis and real GDP on the vertical axis.
C)   consumption on the horizontal axis and aggregate expenditure on the vertical axis.
D)   aggregate expenditure on the horizontal axis and consumption on the vertical axis.
E)   investment on the horizontal axis and aggregate expenditure on the vertical axis.

Question 14

A decrease in the price level will _____.

Accepted Answer

A)   shift the consumption function upward
B)   shift the consumption function downward
C)   result in an upward movement along the consumption function
D)   result in a downward movement along the consumption function

Question 15

The table given below shows the real gross domestic product (GDP) , consumption, and planned investment in an economy. The marginal propensity to consume (MPC)  in the economy is:

Accepted Answer

A)   0.
B)   0.2.
C)   0.8.
D)   0.9.
E)   80.

Question 16

If the marginal propensity to save (MPS)  is 0.25, the simple multiplier is _____.

Accepted Answer

A)   25
B)   75
C)   5
D)   3/4
E)   4

Question 17

As disposable income decreases, saving decreases.

Accepted Answer

A) True 
 B)False

Question 18

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 unchanged

Question 19

Identify the correct statement.

Accepted Answer

A)   An increase in the price level in an economy will increase the real value of dollar-denominated assets.
B)   An increase in the price level in an economy will shift the aggregate expenditure line upward.
C)   An increase in the price level in an economy will decrease the equilibrium level of output demanded.
D)   An increase in the price level in an economy will cause an upward movement along the aggregate demand curve.
E)   An increase in the price level in an economy will shift the aggregate demand curve rightward.

Question 20

An increase in autonomous investment in an economy will _____.

Accepted Answer

A)   shift the aggregate expenditure line upward
B)   shift the aggregate expenditure line downward
C)   result in an upward movement along the aggregate expenditure line
D)   result in a downward movement along the aggregate expenditure line
E)   increase aggregate expenditures only at high levels of income

Exam 9: Aggregate Demand

A decrease in the price level will _____.

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Identify the correct statement.

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If the marginal propensity to save (MPS) is 0.25, the simple multiplier is _____.

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The aggregate expenditure line is drawn on a graph that measures:

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Historically, consumption spending in the United States has _____.

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Only a change in the price level can cause shifts in both the aggregate expenditure line and the aggregate demand curve.

Correct AnswerverifiedShow Answer

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

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

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If the marginal propensity to save (MPS) is 1/8, the value of the simple spending multiplier is:

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As disposable income decreases, saving decreases.

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An upward shift of the consumption function might be caused by:

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The consumption function assumes that:

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The table given below shows the real gross domestic product (GDP) , consumption, and planned investment in an economy. The marginal propensity to consume (MPC) in the economy is:

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An increase in autonomous investment in an economy will _____.

Correct AnswerverifiedShow Answer

Suppose an increase in disposable income from $3 trillion to $3.2 trillion increases consumption from $2.5 trillion to $2.6 trillion. The marginal propensity to consume is _____.

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Which of the following is least likely to cause a shift of the consumption function?

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An increase in the marginal propensity to consume (MPC) will cause the consumption function to become steeper.

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Net taxes are:

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Assume an economy is in equilibrium at a real GDP of $5 trillion. If aggregate expenditure (AE) increases by $1 trillion, the economy's equilibrium real GDP is likely to _____.

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Exports minus imports equal net exports.

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