Question 1

Suppose the Kwik Print Company considers an investment project that involves the purchase of a copier with an expected output of $4,000. If the firm has to borrow $3,000 and the rate of return is 11.1 percent, then the interest rate associated with the loan must be 20 percent.

Accepted Answer

A) True 
 B)False

Question 2

As an household's wealth increases, it will experience a(n) :

Accepted Answer

A)   increase in its MPC.
B)   decrease in autonomous consumption.
C)   decrease in its MPS.
D)   increase in autonomous consumption.
E)   increase in autonomous saving.F) D) and E)
G) B) and D)

Question 3

The sum of consumption and saving is called _____.

Accepted Answer

A)   net investment
B)   net income
C)   personal income
D)   disposable income
E)   transfer paymentF) A) and C)
G) None of the above

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The figure given below represents the consumption function of a country.?Figure 9.3
 
-According to Figure 9.3, autonomous consumption equals:

Accepted Answer

A)   -$200.
B)   $0.
C)   $100.
D)   $200.
E)   $400.F) A) and B)
G) D) and E)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Suppose that the consumption function crosses the 45-degree line at a disposable income level of $800. Assume further that saving equals $200 when disposable income is $1,300. This implies that the MPC must equal 0.6.

Accepted Answer

A) True 
 B)False

Question 8

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:

Accepted Answer

A)   autonomous consumption is less than zero.
B)   saving occurs.
C)   disposable income is negative
D)   consumption is greater than disposable income.
E)   autonomous consumption is zero.F) A) and B)
G) D) and E)

Question 9

Which of the following will cause the investment function to shift upward?

Accepted Answer

A)   A decrease in government subsidies to businesses
B)   An increase in business profits
C)   A decline in capacity utilization
D)   Expectations of higher business taxes
E)   An increase in the market rate of interestF) C) and D)
G) A) and B)

Question 10

Which of the following variables is a flow concept?

Accepted Answer

A)   Gross domestic product
B)   Assets
C)   Wealth
D)   Money supply
E)   SavingF) C) and D)
G) A) and B)

Question 11

Which of the following variables do not change autonomous consumption?

Accepted Answer

A)   Demographics
B)   Taxation
C)   Expectation
D)   Wealth
E)   Disposable incomeF) A) and C)
G) A) and B)

Question 12

The sum of money spent by a person to purchase a new home is considered as a part of investment spending.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is a determinant of investment?

Accepted Answer

A)   Technological change
B)   Net exports
C)   Demographics
D)   Nominal GDP
E)   PopulationF) None of the above
G) All of the above

Question 14

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?

Accepted Answer

A)   Saving exists because consumption is smaller than disposable income.
B)   Saving does not exist because consumption exceeds disposable income.
C)   The corresponding section of the consumption function lies below the 45-degree line.
D)   Autonomous consumption is equal to zero.
E)   The slope of the consumption function becomes negative.F) C) and D)
G) A) and D)

Question 15

The figure given below represents the consumption function of a country.?Figure 9.3
 
-Refer to Figure 9.3. Calculate the marginal propensity to consume.

Accepted Answer

A)   0.7
B)   0.1
C)   0.4
D)   0.25
E)   0.5F) A) and E)
G) A) and C)

Question 16

The figure given below shows the consumption functions of an economy.?Figure 9.4
 
-Refer to the Figure 9.4. If the economy is in equilibrium at A, which of the following is most likely to occur if consumers expect a period of rapid economic expansion?

Accepted Answer

A)   The equilibrium will move from point A to point F.
B)   The equilibrium will move from point A to point C.
C)   There will be a new equilibrium disposable income at point G.
D)   The equilibrium will remain at point A.
E)   There will be a new equilibrium disposable income at point E.F) C) and D)
G) D) and E)

Question 17

The figure given below shows the consumption functions of an economy.?Figure 9.4
 
-Refer to Figure 9.4. Which of the following could explain a downward shift of the consumption function from C₁ to C₃?

Accepted Answer

A)   An increase in household wealth
B)   A decrease in the proportion of young people in the population
C)   An increase in the size of the population
D)   A decrease in consumer confidence
E)   An autonomous decrease in savingF) C) and D)
G) B) and E)

Question 18

Identify the correct statement.

Accepted Answer

A)   Autonomous consumption equals saving when disposable income is equal to zero.
B)   Saving is equal to consumption when autonomous consumption is zero.
C)   The savings function always has a positive intercept when autonomous consumption is positive.
D)   The consumption and saving function intersect each other when disposable income is zero.
E)   Autonomous consumption is positive even when disposable income is zero.F) B) and D)
G) All of the above

Question 19

If it is assumed that there are absolutely no taxes in an economy, then aggregate consumption will be drawn as a function of:

Accepted Answer

A)   disposable income.
B)   real GDP.
C)   government expenditure.
D)   private income.
E)   government transfers.F) B) and D)
G) B) and C)

Question 20

Suppose two successive levels of disposable personal income are $16 and $21 billion, respectively, and the change in consumption spending between these two levels of disposable personal income is $2 billion, then the MPC will be equal to _____.

Accepted Answer

A)   0.12
B)   0.8
C)   0.7
D)   0.4
E)   0.04F) C) and D)
G) B) and D)

Exam 9: Aggregate Expenditures

Which of the following is a determinant of investment?

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The sum of money spent by a person to purchase a new home is considered as a part of investment spending.

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The figure given below represents the consumption function of a country.?Figure 9.3 -According to Figure 9.3, autonomous consumption equals:

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The sum of consumption and saving is called _____.

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

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The figure given below shows the consumption functions of an economy.?Figure 9.4 -Refer to Figure 9.4. Which of the following could explain a downward shift of the consumption function from C₁ to C₃?

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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:

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If it is assumed that there are absolutely no taxes in an economy, then aggregate consumption will be drawn as a function of:

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The figure given below represents the consumption function of a country.?Figure 9.3 -Refer to Figure 9.3. Calculate the marginal propensity to consume.

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The figure given below shows the consumption functions of an economy.?Figure 9.4 -Refer to the Figure 9.4. If the economy is in equilibrium at A, which of the following is most likely to occur if consumers expect a period of rapid economic expansion?

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As an household's wealth increases, it will experience a(n) :

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Suppose two successive levels of disposable personal income are $16 and $21 billion, respectively, and the change in consumption spending between these two levels of disposable personal income is $2 billion, then the MPC will be equal to _____.

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Which of the following variables is a flow concept?

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Suppose the Kwik Print Company considers an investment project that involves the purchase of a copier with an expected output of $4,000. If the firm has to borrow $3,000 and the rate of return is 11.1 percent, then the interest rate associated with the loan must be 20 percent.

Correct AnswerverifiedShow Answer

Which of the following will cause the investment function to shift upward?

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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?

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

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Identify the correct statement.

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Suppose that the consumption function crosses the 45-degree line at a disposable income level of $800. Assume further that saving equals $200 when disposable income is $1,300. This implies that the MPC must equal 0.6.

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Which of the following variables do not change autonomous consumption?

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