Question 1

Which of the following is true of the relationship between disposable income and consumption?

Accepted Answer

A)   Disposable income and consumption are both dependent variables.
B)   Disposable income and consumption are both independent variables.
C)   Disposable income is the dependent variable and consumption is the independent variable.
D)   Consumption is the dependent variable and disposable income is the independent variable.
E)   Neither is dependent nor independent since they are related by the equation DI = C + S.F) D) and E)
G) C) and D)

Question 2

The partners in the Wonderwords word processing firm spend $12,000 on computers,hoping to earn an additional $1,000 per year with them.If the partners could earn 7 percent interest on a bank deposit they should

Accepted Answer

A)   put the $12,000 in the bank
B)   put $6,000 in the bank and spend only $6,000 on computers
C)   buy the computers because the rate of return on the computers is positive
D)   buy the computers only if they do not have to borrow the funds to buy the computers
E)   buy the computers because the rate of return on the computers exceeds 7 percentF) B) and D)
G) A) and E)

Question 3

If every time disposable income increases by $5 billion,consumption increases by $4 billion and saving increases by $1 billion,the MPC and MPS are,respectively,

Accepted Answer

A)   1/4,1/2
B)   1/2,1/2
C)   1,0
D)   4/5,1/5
E)   the answer is indeterminate from the information givenF) A) and B)
G) A) and C)

Question 4

The slope of the consumption function equals the marginal propensity to consume.

Accepted Answer

A) True 
 B)False

Question 5

Dennis spends $400 on a snowblower,expecting to earn $80 per year for each of the next five years clearing out his neighbors' driveways.The rate of return he expects on this investment is

Accepted Answer

A)   500 percent per year
B)   100 percent per year
C)   80 percent per year
D)   25 percent per year
E)   20 percent per yearF) All of the above
G) A) and B)

Question 6

Expectations that disposable income will increase in the future will

Accepted Answer

A)   shift the current consumption function up
B)   shift the current consumption function down
C)   result in a movement upward along the current consumption function
D)   make the current consumption function flatter
E)   make the current consumption function steeperF) B) and C)
G) None of the above

Question 7

If a household's income rises from $20,000 to $22,000 and its consumption spending rises from $19,000 to $20,500,then its

Accepted Answer

A)   marginal propensity to save is 0.70
B)   marginal propensity to save is 0.02
C)   marginal propensity to consume is 0.93
D)   marginal propensity to consume is 0.95
E)   marginal propensity to consume is 0.75F) None of the above
G) C) and D)

Question 8

The slope of the saving function is equal to the MPS.

Accepted Answer

A) True 
 B)False

Question 9

The relationship between consumption and income is

Accepted Answer

A)   negative and unstable
B)   positive and unstable
C)   negative and stable
D)   positive and stable
E)   impossible to describe without more dataF) A) and B)
G) A) and C)

Question 10

Which of the following is not investment spending?

Accepted Answer

A)   an increase in business inventories
B)   the extensive renovation of an old factory building
C)   the purchase of stock in Potomac Electric Company
D)   the construction of a new apartment building
E)   the purchase of a new silo for a farmF) A) and B)
G) A) and C)

Question 11

An increase in real disposable income will

Accepted Answer

A)   shift the autonomous net export function upward
B)   shift the autonomous net export function downward
C)   cause a rightward movement along the autonomous net export function
D)   cause a leftward movement along the autonomous net export function
E)   show no movement along or shift of the autonomous net export functionF) B) and D)
G) C) and D)

Question 12

An increase in the price level will

Accepted Answer

A)   make the consumption function steeper
B)   shift the consumption function downward
C)   result in a movement upward along the consumption function
D)   result in a movement downward along the consumption function
E)   make the consumption function flatterF) None of the above
G) B) and C)

Question 13

Suppose that when disposable income rises from $5.2 trillion to $6.0 trillion,consumption rises from $5.0 trillion to $5.6 trillion.What is the marginal propensity to save?

Accepted Answer

A)   0.25
B)   0.33
C)   0.75
D)   0.67
E)   0.07F) A) and B)
G) B) and C)

Question 14

A drop in stock prices will __________ net wealth and __________ consumption.

Accepted Answer

A)   reduce; increase
B)   reduce; decrease
C)   reduce; not change
D)   increase; increase
E)   increase; decreaseF) C) and E)
G) C) and D)

Question 15

Which of the following is true of the autonomous investment and saving functions?

Accepted Answer

A)   The autonomous investment function has a positive slope; the saving function is a horizontal line.
B)   The autonomous investment function has a negative slope; the saving function has a positive slope.
C)   The autonomous investment function is a horizontal line; the saving function has a positive slope.
D)   Both the autonomous investment function and the saving function slope upward.
E)   Both the autonomous investment function and the saving function slope downward.F) A) and D)
G) A) and C)

Question 16

If the U.S.price level decreases,other things equal,U.S.net exports will

Accepted Answer

A)   increase
B)   decrease
C)   remain constant,since net exports are assumed to be constant
D)   increase only if the marginal propensity to import also increases
E)   increase only if there is inflation abroadF) A) and C)
G) C) and E)

Question 17

Out of disposable income,households

Accepted Answer

A)   consume and save
B)   consume and invest
C)   save and invest
D)   consume,save,and pay taxes
E)   consume,save,pay taxes,and make transfer paymentsF) A) and D)
G) A) and E)

Question 18

If income increases by $100 and $75 of the increase is spent (consumed) ,the MPS equals

Accepted Answer

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

Question 19

A decrease in real disposable income will

Accepted Answer

A)   shift the autonomous net export function upward
B)   shift the autonomous net export function downward
C)   cause a rightward movement along the autonomous net export function
D)   cause a leftward movement along the autonomous net export function
E)   show no movement along or shift of the autonomous net export functionF) B) and D)
G) C) and E)

Question 20

More of society's resources will be channeled into capital when

Accepted Answer

A)   interest rates are high
B)   households decide to save less of their income
C)   businesspeople have optimistic expectations about the future
D)   corporate income taxes increase
E)   aggregate income decreasesF) A) and D)
G) A) and C)

Exam 9: Aggregate Expenditure

An increase in real disposable income will

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More of society's resources will be channeled into capital when

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Which of the following is true of the autonomous investment and saving functions?

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The slope of the consumption function equals the marginal propensity to consume.

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A decrease in real disposable income will

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Which of the following is not investment spending?

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If every time disposable income increases by $5 billion,consumption increases by $4 billion and saving increases by $1 billion,the MPC and MPS are,respectively,

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The slope of the saving function is equal to the MPS.

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Expectations that disposable income will increase in the future will

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An increase in the price level will

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If the U.S.price level decreases,other things equal,U.S.net exports will

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Which of the following is true of the relationship between disposable income and consumption?

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The relationship between consumption and income is

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A drop in stock prices will __________ net wealth and __________ consumption.

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Dennis spends $400 on a snowblower,expecting to earn $80 per year for each of the next five years clearing out his neighbors' driveways.The rate of return he expects on this investment is

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Out of disposable income,households

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Suppose that when disposable income rises from $5.2 trillion to $6.0 trillion,consumption rises from $5.0 trillion to $5.6 trillion.What is the marginal propensity to save?

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If a household's income rises from $20,000 to $22,000 and its consumption spending rises from $19,000 to $20,500,then its

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If income increases by $100 and $75 of the increase is spent (consumed) ,the MPS equals

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The partners in the Wonderwords word processing firm spend $12,000 on computers,hoping to earn an additional $1,000 per year with them.If the partners could earn 7 percent interest on a bank deposit they should

Correct AnswerverifiedShow Answer

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A drop in stock prices will net wealth and consumption.

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