Question 1

If the consumption function is C = 1,000 + 0.87Y, then what is the marginal propensity to consume?

Accepted Answer

A)   1,000
B)   0.87
C)   0.13
D)   870
E)   None of theseF) A) and C)
G) B) and E)

Question 2

Changes in the factors that underlie potential GDP growth

Accepted Answer

A)   are the major sources of economic fluctuations.
B)   evolve too quickly to be able to explain economic fluctuation.
C)   are as important as changes in aggregate demand in explaining economic fluctuations.
D)   evolve too slowly to be able to explain economic fluctuations.
E)   were, until the 1920s, a valid explanation of economic fluctuations.F) A) and B)
G) None of the above

Question 3

The consumption relationship in this chapter assumes that interest and wealth do not affect consumption

Accepted Answer

A)   because the interest rate effect cancels out the wealth effect.
B)   in order to keep the analysis manageable at this stage.
C)   because economists do not understand how interest rates and wealth affect consumption.
D)   because interest rates and wealth have little effect on consumption.
E)   because data on interest rates and wealth are hard to acquireF) A) and B)
G) B) and C)

Question 4

If there is an increase in government purchases, real GDP will

Accepted Answer

A)   increase by more than the amount of the purchases.
B)   increase by less than the amount of the purchases.
C)   not change.
D)   increase by the amount of the purchases.
E)   decrease by less than the amount of the purchases.F) A) and E)
G) None of the above

Question 5

Between 2001 and 2007

Accepted Answer

A)   the United States economy was in recession.
B)   the United States economy moved upward and millions of jobs were created.
C)   the United States economy grew, but not many jobs were created.
D)   the United States economy moved downward, but still many jobs were created.
E)   the United States economy remained stationary.F) A) and D)
G) C) and D)

Question 6

Which of the following is true?

Accepted Answer

A)   Potential GDP is determined by the available supply of labor, capital, and technology only in the long run.
B)   Real GDP is determined by aggregate demand only in the short run.
C)   Potential GDP is equal to aggregate demand in the long run.
D)   Real GDP is determined by aggregate demand only in the long run.
E)   Potential and real GDP are always equal.F) D) and E)
G) A) and C)

Question 7

An increase in the marginal propensity to consume results in

Accepted Answer

A)   the expenditure line shifting up in a parallel direction.
B)   no change in the expenditure line.
C)   the expenditure line becoming steeper.
D)   the expenditure line shifting down in a parallel direction.
E)   the expenditure line becoming flatter.F) A) and B)
G) C) and E)

Question 8

-According to Exhibit 23-6, line abd shows the path of potential GDP. In Year 2, suppose the expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in Year 3, the economy is at point c, then

Accepted Answer

A)  	the expenditure line has shifted up the 45-degree line more than it would have if real GDP equaled potential GDP in Year 3.
B)  	the expenditure line has shifted down the 45-degree line.
C)  	the expenditure line has shifted up the 45-degree line and equals a level of income greater than real GDP.
D)  	the expenditure line has shifted up the 45-degree line to a point where real GDP equals potential GDP in Year 3.
E)  	potential GDP has risen, and we've moved to a new point of spending balance.F) All of the above
G) B) and E)

Question 9

Potential GDP growth is relatively smoother than aggregate demand growth.

Accepted Answer

A) True 
 B)False

Question 10

Income depends on consumption, but consumption does not depend on income.

Accepted Answer

A) True 
 B)False

Question 11

If foreigners decide to increase their purchases of U.S.-made goods by $15 million, real GDP will

Accepted Answer

A)   remain unchanged.
B)   increase by more than $15 million.
C)   increase by less than $15 million.
D)   increase by $15 million.
E)   decrease by more than $15 million.F) B) and C)
G) B) and D)

Question 12

Each of the four spending components depends on income.

Accepted Answer

A) True 
 B)False

Question 13

If real GDP is less than spending, output will rise.

Accepted Answer

A) True 
 B)False

Question 14

The following table shows the relationship between income and consumption in an economy.

Assume that investment (I) is $5 billion, government purchases (G) are $4 billion, and net exports (X) are $1 billion.

(A)What is the numerical value of the marginal propensity to consume?

(B)Construct a table that is analogous to the one presented in the text for this economy. What is the level of income at the point of spending balance?

(C)For this level of income, calculate national saving. Is national saving equal to investment plus net exports?

(D)Suppose the above problem is modified to include taxes. Suppose first that, at any level of income, consumers must pay taxes equal to $3 billion. Find the new level of spending balance by modifying the table. Hint: If consumers have to pay taxes, this is income that they cannot use for consumption. Verify again that national saving is equal to investment plus net exports. Find private and government saving.

(E)Graphically illustrate what happens to spending balance when the government increases taxes by $3 million.

Accepted Answer

(A)The value of the marginal propensity ...

Question 15

If two successive levels of disposable personal income are $160 and $190 billion, respectively, and if the change in consumption spending is $20 billion between these two levels of disposable personal income, then the MPC will equal

Accepted Answer

A)   .50.
B)   .67.
C)   .80.
D)   .20.
E)   1.50.F) B) and E)
G) B) and C)

Question 16

Spending balance occurs when people consume according to the consumption function.

Accepted Answer

A) True 
 B)False

Question 17

The components that make up aggregate expenditures are

Accepted Answer

A)   consumption and government purchases.
B)   investment, government purchases, and net exports.
C)   consumption, investment, government purchases, and net exports.
D)   income and consumption.
E)   consumption and investment.F) A) and B)
G) A) and C)

Question 18

Suppose that the expenditure line initially  intersects the 45-degree line at a point where potential GDP is equal to real GDP. Now, suppose over the next year the economy goes into a boom. Draw a graph showing what happens to the expenditure line as the economy moves into a boom.

Accepted Answer

Initially, the expenditure line is at E<...

Question 19

During economic fluctuations

Accepted Answer

A)   changes in the interest rate are the major factor affecting consumption.
B)   income has little effect on consumption.
C)   wealth is the major factor affecting consumption.
D)   changes in income have a large effect on consumption.
E)   there is little movement in consumption.F) A) and B)
G) All of the above

Question 20

The size of the MPC determines how a change in spending affects income.

Accepted Answer

A) True 
 B)False

Exam 11: The Nature and Causes of Economic Fluctuations

Income depends on consumption, but consumption does not depend on income.

Correct Answer
verified

The consumption relationship in this chapter assumes that interest and wealth do not affect consumption

Correct Answer
verified

Which of the following is true?

Correct Answer
verified

The size of the MPC determines how a change in spending affects income.

Correct Answer
verified

Changes in the factors that underlie potential GDP growth

Correct Answer
verified

Correct Answer
verified
(A)The value of the marginal propensity ...
View Answer

Potential GDP growth is relatively smoother than aggregate demand growth.

Correct Answer
verified

If there is an increase in government purchases, real GDP will

Correct Answer
verified

During economic fluctuations

Correct Answer
verified

The components that make up aggregate expenditures are

Correct Answer
verified

If foreigners decide to increase their purchases of U.S.-made goods by $15 million, real GDP will

Correct Answer
verified

If the consumption function is C = 1,000 + 0.87Y, then what is the marginal propensity to consume?

Correct Answer
verified

Spending balance occurs when people consume according to the consumption function.

Correct Answer
verified

Each of the four spending components depends on income.

Correct Answer
verified

If real GDP is less than spending, output will rise.

Correct Answer
verified

If two successive levels of disposable personal income are $160 and $190 billion, respectively, and if the change in consumption spending is $20 billion between these two levels of disposable personal income, then the MPC will equal

Correct Answer
verified

An increase in the marginal propensity to consume results in

Correct Answer
verified

-According to Exhibit 23-6, line abd shows the path of potential GDP. In Year 2, suppose the expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in Year 3, the economy is at point c, then

Correct Answer
verified

Suppose that the expenditure line initially intersects the 45-degree line at a point where potential GDP is equal to real GDP. Now, suppose over the next year the economy goes into a boom. Draw a graph showing what happens to the expenditure line as the economy moves into a boom.

Correct Answer
verified
Initially, the expenditure line is at E<...
View Answer

Between 2001 and 2007

Correct Answer
verified

Exam 11: The Nature and Causes of Economic Fluctuations

Income depends on consumption, but consumption does not depend on income.

Correct AnswerverifiedShow Answer

The consumption relationship in this chapter assumes that interest and wealth do not affect consumption

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

The size of the MPC determines how a change in spending affects income.

Correct AnswerverifiedShow Answer

Changes in the factors that underlie potential GDP growth

Correct AnswerverifiedShow Answer

Correct Answerverified(A)The value of the marginal propensity ...View AnswerShow Answer

Potential GDP growth is relatively smoother than aggregate demand growth.

Correct AnswerverifiedShow Answer

If there is an increase in government purchases, real GDP will

Correct AnswerverifiedShow Answer

During economic fluctuations

Correct AnswerverifiedShow Answer

The components that make up aggregate expenditures are

Correct AnswerverifiedShow Answer

If foreigners decide to increase their purchases of U.S.-made goods by $15 million, real GDP will

Correct AnswerverifiedShow Answer

If the consumption function is C = 1,000 + 0.87Y, then what is the marginal propensity to consume?

Correct AnswerverifiedShow Answer

Spending balance occurs when people consume according to the consumption function.

Correct AnswerverifiedShow Answer

Each of the four spending components depends on income.

Correct AnswerverifiedShow Answer

If real GDP is less than spending, output will rise.

Correct AnswerverifiedShow Answer

If two successive levels of disposable personal income are $160 and $190 billion, respectively, and if the change in consumption spending is $20 billion between these two levels of disposable personal income, then the MPC will equal

Correct AnswerverifiedShow Answer

An increase in the marginal propensity to consume results in

Correct AnswerverifiedShow Answer

-According to Exhibit 23-6, line abd shows the path of potential GDP. In Year 2, suppose the expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in Year 3, the economy is at point c, then

Correct AnswerverifiedShow Answer

Suppose that the expenditure line initially intersects the 45-degree line at a point where potential GDP is equal to real GDP. Now, suppose over the next year the economy goes into a boom. Draw a graph showing what happens to the expenditure line as the economy moves into a boom.

Correct AnswerverifiedInitially, the expenditure line is at E<...View AnswerShow Answer

Between 2001 and 2007

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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(A)The value of the marginal propensity ...
View Answer

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Initially, the expenditure line is at E<...
View Answer

Correct Answer
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