Question 1

The consumption function shows the relationship between real consumption spending and

Accepted Answer

A)   real wealth
B)   the interest rate
C)   expectations
D)   real disposable income
E)   debtF) None of the above
G) D) and E)

Question 2

If the marginal propensity to consume is 0.8,what is the value of the expenditure multiplier?

Accepted Answer

A)   0.2
B)   0.8
C)   1.25
D)   5.0
E)   8.0F) D) and E)
G) All of the above

Question 3

If the marginal propensity to consume is 0.5 and disposable income increases by $10,000,by how much will consumption spending increase?

Accepted Answer

A)   $10,000
B)   $500
C)   $50
D)   $5,000
E)   $9,524F) C) and D)
G) B) and E)

Question 4

The short-run macro model

Accepted Answer

A)   relies on the market-clearing assumption
B)   is used primarily for long-run analysis
C)   is used primarily for short-run analysis
D)   focuses on the supply of and demand for resources
E)   focuses on fluctuations in the financial markets to explain fluctuations in real GDPF) C) and E)
G) A) and C)

Question 5

Use the table below to find the marginal propensity to consume.

Accepted Answer

A)   the marginal propensity to consume cannot be determined from the information given
B)   0.4
C)   0.5
D)   0.6
E)   0.8F) All of the above
G) B) and E)

Question 6

A recession causes

Accepted Answer

A)   transfer payments and corporate profits to increase
B)   military spending and corporate profits to increase
C)   unemployment to increase and transfer payments to decrease
D)   transfer payments to increase and corporate profits to decrease
E)   household income and government transfer payments to decreaseF) A) and B)
G) All of the above

Question 7

A change in autonomous consumption causes a movement along the aggregate expenditure line,while a change in consumption that depends on income causes a shift of the aggregate expenditure line.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following serve as automatic stabilizers?

Accepted Answer

A)   Transfer payments
B)   Prices
C)   Imports
D)   All of the above serve as automatic stabilizers
E)   None of the above serve as automatic stabilizersF) A) and D)
G) C) and D)

Question 9

Net exports are

Accepted Answer

A)   total exports minus total imports
B)   what foreigners earn in the United States minus what US citizens earn abroad
C)   always positive because the United States has always had a positive trade balance.
D)   total imports minus total exports
E)   total exports minus depreciationF) C) and E)
G) C) and D)

Question 10

The slope of the aggregate expenditure line is

Accepted Answer

A)   less than zero
B)   less than 1.0
C)   equal to 1.0
D)   greater than 1.0
E)   the same as the slope of the 45-degree lineF) C) and D)
G) B) and D)

Question 11

In the short-run macro model,if GDP = $5 trillion and aggregate expenditure = $4.6 trillion,we would expect

Accepted Answer

A)   prices to fall until the additional $0.4 trillion of output was sold
B)   prices to rise
C)   output to rise because businesses anticipate that buyers will spend more in the future to compensate for weak spending in this period
D)   inventories to rise by $0.4 trillion
E)   inventories to shrink by $0.4 trillionF) All of the above
G) C) and D)

Question 12

Approximately how long does it take for the successive increases in spending and output to be completed after an initial increase in investment spending?

Accepted Answer

A)   Two years
B)   Ten years
C)   Six years
D)   One year
E)   Five yearsF) B) and E)
G) All of the above

Question 13

The largest component of aggregate expenditure is

Accepted Answer

A)   consumption spending
B)   government purchases
C)   net exports
D)   capital expenditures
E)   investment spendingF) D) and E)
G) B) and D)

Question 14

If an economy is at equilibrium,it will also be operating at full employment.

Accepted Answer

A) True 
 B)False

Question 15

If aggregate expenditure was less than GDP,which of the following would happen?

Accepted Answer

A)   Inventories would shrink and GDP would drop in future periods.
B)   Inventories would grow and GDP would drop in future periods.
C)   Inventories would shrink and GDP would increase in future periods.
D)   Inventories would grow and GDP would increase in future periods.
E)   Inventories would not change and GDP would drop in future periods.F) C) and D)
G) A) and E)

Question 16

The marginal propensity to consume is always

Accepted Answer

A)   a negative number
B)   larger than 1.0
C)   larger than 10
D)   greater than zero and less than 0.5
E)   greater than zero and less than 1.0F) None of the above
G) C) and D)

Question 17

Which of the following components of spending is not treated as a given value in the short-run macro model?

Accepted Answer

A)   Net exports
B)   Imports
C)   Investment spending
D)   Consumption spending
E)   Government spendingF) A) and B)
G) B) and E)

Question 18

In the short-run macro model,if firms produce more output than they sell,those firms will

Accepted Answer

A)   increase the prices of their products
B)   decrease their output
C)   increase their output
D)   cut back on their consumption spending
E)   increase the prices of their products and reduce the amount of output they produceF) A) and D)
G) A) and C)

Question 19

Where can equilibrium GDP be found on a graph?

Accepted Answer

A)   Where the consumption function crosses the 45-degree line
B)   Where the 45-degree line crosses the investment function
C)   Where the aggregate expenditure function crosses the 45-degree line
D)   Where total output is equal to the unplanned inventory change
E)   Where the next exports function crosses the 45-degree lineF) A) and C)
G) A) and B)

Question 20

If net taxes decrease by $500 billion,both household disposable income and consumption spending will increase by $500 billion.

Accepted Answer

A) True 
 B)False

Exam 23: The Short-Run Macro Model

The short-run macro model

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If aggregate expenditure was less than GDP,which of the following would happen?

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Which of the following serve as automatic stabilizers?

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Which of the following components of spending is not treated as a given value in the short-run macro model?

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A recession causes

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The largest component of aggregate expenditure is

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The marginal propensity to consume is always

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If net taxes decrease by $500 billion,both household disposable income and consumption spending will increase by $500 billion.

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The consumption function shows the relationship between real consumption spending and

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In the short-run macro model,if GDP = $5 trillion and aggregate expenditure = $4.6 trillion,we would expect

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Approximately how long does it take for the successive increases in spending and output to be completed after an initial increase in investment spending?

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Where can equilibrium GDP be found on a graph?

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If the marginal propensity to consume is 0.8,what is the value of the expenditure multiplier?

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Use the table below to find the marginal propensity to consume.

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If an economy is at equilibrium,it will also be operating at full employment.

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In the short-run macro model,if firms produce more output than they sell,those firms will

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If the marginal propensity to consume is 0.5 and disposable income increases by $10,000,by how much will consumption spending increase?

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A change in autonomous consumption causes a movement along the aggregate expenditure line,while a change in consumption that depends on income causes a shift of the aggregate expenditure line.

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Net exports are

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The slope of the aggregate expenditure line is

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