Question 1

The fraction of an increase in income that is saved is referred to as the

Accepted Answer

A)  marginal propensity to save
B)  average propensity to save
C)  marginal propensity to consume
D)  average propensity to consume
E)  saving-consumption ratio (i.e.,saving divided by consumption spending) F) A) and C)
G) D) and E)

Question 2

A household's net wealth is the value of

Accepted Answer

A)  its current income minus the value of all its liabilities
B)  all its assets minus their tax liabilities
C)  all its assets minus the value of all its liabilities
D)  all its assets minus its income
E)  its current income minus its tax liabilitiesF) None of the above
G) A) and B)

Question 3

Purchases of existing commodities,such as gold and precious gems,are considered investment spending by economists.

Accepted Answer

A) True 
 B)False

Question 4

Exhibit 9-3 
-In Exhibit 9-3,the MPS is equal to

Accepted Answer

A)  0.25
B)  0.33
C)  0.67
D)  0.75
E)  1.33F) B) and D)
G) A) and B)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

If income increases by $100 and the MPC is 3/4 (0.75) ,then consumption increases by

Accepted Answer

A)  $25
B)  $66.66
C)  $50
D)  $33.33
E)  $75F) A) and B)
G) B) and D)

Question 7

Net wealth is a __________ variable.Consumption and income are __________ variables.

Accepted Answer

A)  stock,flow
B)  stock,stock
C)  stock,flat
D)  flow,stock
E)  flow,flowF) C) and D)
G) B) and E)

Question 8

The consumption function relates consumption spending to

Accepted Answer

A)  the price level
B)  interest rates
C)  disposable income
D)  expectations about the price level
E)  household wealthF) A) and C)
G) B) and C)

Question 9

An upward shift of the investment function (i.e.,the one that relates investment spending to income) could be caused by

Accepted Answer

A)  an increase in income
B)  a decrease in the interest rate
C)  an increase in the interest rate
D)  more pessimistic business expectations
E)  an increase in business taxesF) A) and B)
G) C) and D)

Question 10

Which of the following will not shift the consumption function upward?

Accepted Answer

A)  a drop in the price level
B)  an increase in net wealth
C)  a drop in the interest rate
D)  expectations of lower future income
E)  expectations of higher prices in the futureF) B) and E)
G) A) and B)

Question 11

Exhibit 9-3 
-In Exhibit 9-3,the MPC is equal to

Accepted Answer

A)  0.25
B)  0.33
C)  0.67
D)  0.75
E)  1.33F) A) and C)
G) A) and D)

Question 12

A decrease in the price level will

Accepted Answer

A)  shift the consumption function upward
B)  make the consumption function steeper
C)  result in a movement upward along the consumption function
D)  result in a movement downward along the consumption function
E)  have no effect on the consumption functionF) All of the above
G) A) and D)

Question 13

The primary determinant of saving is the interest rate.

Accepted Answer

A) True 
 B)False

Question 14

If a household's income falls from $26,000 to $24,000 and its saving falls from $1,000 to $500,then its

Accepted Answer

A)  marginal propensity to consume is 0.98
B)  marginal propensity to consume is 1.33
C)  marginal propensity to consume is 0.75
D)  marginal propensity to save is 0.02
E)  marginal propensity to save is 0.4F) A) and C)
G) A) and D)

Question 15

A decrease in the price level decreases net wealth and increases consumption spending.

Accepted Answer

A) True 
 B)False

Question 16

What is the effect on the consumption function of an increase in disposable income?

Accepted Answer

A)  The consumption function shifts upward.
B)  The consumption function shifts downward.
C)  There is movement upward along the consumption function.
D)  There is movement downward along the consumption function.
E)  The consumption function becomes steeper.F) D) and E)
G) A) and E)

Question 17

If a household's income falls from $20,000 to $17,000 and its consumption spending falls from $18,000 to $15,000,then its

Accepted Answer

A)  marginal propensity to consume is -0.67
B)  marginal propensity to consume is 0.88
C)  marginal propensity to consume is 0.20
D)  marginal propensity to save is zero
E)  marginal propensity to save is 0.12F) C) and E)
G) A) and D)

Question 18

As disposable income increases,consumption spending

Accepted Answer

A)  increases by the same amount
B)  decreases by the same amount
C)  increases by less than the increase in disposable income
D)  decreases by less than the increase in disposable income
E)  does not change at allF) C) and E)
G) B) and E)

Question 19

If disposable income increases,consumption spending increases and saving decreases.

Accepted Answer

A) True 
 B)False

Question 20

The slope of the consumption function equals the

Accepted Answer

A)  MPC
B)  MPS
C)  APC
D)  APS
E)  ratio of the APC to the APS (i.e.,APC divided by APS) F) B) and D)
G) B) and C)

Exam 9: Aaggregate Expenditure and Aggregate Demand

A household's net wealth is the value of

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If disposable income increases,consumption spending increases and saving decreases.

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The primary determinant of saving is the interest rate.

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If a household's income falls from $20,000 to $17,000 and its consumption spending falls from $18,000 to $15,000,then its

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If a household's income falls from $26,000 to $24,000 and its saving falls from $1,000 to $500,then its

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The fraction of an increase in income that is saved is referred to as the

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Which of the following will not shift the consumption function upward?

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As disposable income increases,consumption spending

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Net wealth is a __________ variable.Consumption and income are __________ variables.

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Exhibit 9-3 -In Exhibit 9-3,the MPC is equal to

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

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The slope of the consumption function equals the

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Purchases of existing commodities,such as gold and precious gems,are considered investment spending by economists.

Correct AnswerverifiedShow Answer

Exhibit 9-3 -In Exhibit 9-3,the MPS is equal to

Correct AnswerverifiedShow Answer

If income increases by $100 and the MPC is 3/4 (0.75) ,then consumption increases by

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The consumption function relates consumption spending to

Correct AnswerverifiedShow Answer

An upward shift of the investment function (i.e.,the one that relates investment spending to income) could be caused by

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What is the effect on the consumption function of an increase in disposable income?

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A decrease in the price level will

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A decrease in the price level decreases net wealth and increases consumption spending.

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Net wealth is a variable.Consumption and income are variables.

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