Question 1

Consumption spending in any one period that is determined by income in that period is explained by the

Accepted Answer

A)   current income hypothesis.
B)   disposable personal income theory of consumption.
C)   transitory income theory of consumption.
D)   permanent income hypothesis.E) A) and C)
F) A) and B)

Question 2

Figure 13-5 P = Planned Investment. Consider a simple economy where AE = C + IP, and IP is autonomous. What is the value of AE when Y = $12,000 billion? A)  $2,000 billion B)  $8,000 billion C)  $11,000 billion D)  $12,000 billion" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 13-5. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JIP = Planned Investment. Consider a simple economy where AE = C + IP, and IP is autonomous. What is the value of AE when Y = $12,000 billion?

Accepted Answer

A)   $2,000 billion
B)   $8,000 billion
C)   $11,000 billion
D)   $12,000 billionE) A) and B)
F) A) and D)

Question 3

According to the current income hypothesis,

Accepted Answer

A)   a change in income regarded as temporary will not affect consumption much since it will have little effect on average lifetime income.
B)   regardless of whether a change in disposable personal income is permanent or temporary; people will change consumption by moving along the consumption function.
C)   a change in income regarded as permanent will have a greater impact on saving than on consumption.
D)   a change in income regarded as temporary will have a greater impact on saving than on consumption.E) None of the above
F) A) and B)

Question 4

According to the permanent income hypothesis,

Accepted Answer

A)   a change in income regarded as permanent will have a greater impact on saving than on consumption.
B)   a change in income regarded as temporary will have a greater impact on saving than on consumption.
C)   regardless of whether a change in disposable personal income is permanent or temporary; people will change consumption by moving along the consumption function.
D)   a change in income regarded as temporary will not affect consumption much since it will have little effect on average lifetime income.E) B) and C)
F) A) and D)

Question 5

Which of the following statements is false?

Accepted Answer

A)   Two individuals who have the same current income but different permanent incomes are likely to make very similar savings decisions.
B)   An individual with a relatively low current income but a high permanent income might save little or nothing now, expecting to save for retirement and for bequests later.
C)   A person with a relatively low income now with no expectation of higher income later might try to save some now to provide for retirement or bequests later.
D)   A decision to save a certain amount determines how much will be available for future consumption.E) B) and D)
F) B) and C)

Question 6

The marginal propensity to consume is given by

Accepted Answer

A)   the change in consumption divided by the change in saving.
B)   the change in consumption divided by the change in disposable personal income.
C)   consumption divided by the change in disposable personal income.
D)   consumption divided by disposable income.E) A) and D)
F) All of the above

Question 7

Table 13-2
 
-Refer to Table 13-2. Consider a simple economy that is made up of only two sectors, households and firms, and that investment is autonomous. Further, disposable personal income = real GDP. Suppose that actual real GDP in this economy is $300 billion in a particular period. We would expect to see

Accepted Answer

A)   unintended reductions in inventory, planned investment will exceed actual investment.
B)   unintended reductions in inventory, planned investment will be less than actual investment.
C)   unintended increases in inventory, planned investment will exceed actual investment.
D)   unintended increases in inventory, planned investment will be less than actual investment.E) C) and D)
F) All of the above

Question 8

Table 13-1
 
-Refer to Table 13-1. When disposable personal income is $100, what is the amount of personal saving?

Accepted Answer

A)   −$40
B)   −$20
C)   $0
D)   $20E) B) and C)
F) All of the above

Question 9

Suppose the consumption function is C = $500 + 0.8Y. If Y = $1,000, then autonomous consumption is

Accepted Answer

A)   $500.
B)   $800.
C)   $1,000.
D)   $1,300.E) None of the above
F) C) and D)

Question 10

According to the permanent income hypothesis,

Accepted Answer

A)   consumption in any period depends on the stable annual income that people expect to earn in their jobs.
B)   the amount of income that people require depends on the amount of consumption they need and want to undertake.
C)   consumption in any period depends on the average annual income people expect to receive for the rest of their lives.
D)   the amount of personal saving depends on the amount of consumption people plan to undertake when they retire.E) None of the above
F) A) and B)

Question 11

Figure 13-1 
-Refer to Figure 13-1. Assuming that the relationship between consumption and disposable personal income remains linear throughout its entire range, if disposable personal income were zero, what would personal saving be?

Accepted Answer

A)   −$200 billion
B)   $0
C)   $200 billion
D)   $400 billionE) A) and D)
F) B) and C)

Question 12

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to save is 0.1?

Accepted Answer

A)   1
B)   4
C)   5
D)   10E) C) and D)
F) None of the above

Question 13

The interest rate effect suggests that

Accepted Answer

A)   domestic investments fall when foreign interest rates rise relative to domestic interest rates.
B)   changes in the price level affect the real purchasing power of money and therefore the money supply.
C)   changes in the price level affect the real quantity of money held by households and firms and therefore the interest rate.
D)   changes in the price level affect the level of real income and therefore consumption.E) All of the above
F) A) and B)

Question 14

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift upwards?

Accepted Answer

A)   Foreign economies go into a recession and buy less domestically produced goods.
B)   Households become more present oriented and decrease the autonomous component of saving.
C)   Firms expect future profits to fall and cut investments accordingly.
D)   The government cuts spending on healthcare.E) B) and D)
F) B) and C)

Question 15

Figure 13-3 1. What will cause an upward shift to curve C2? A)  an increase in the amount consumed as disposable personal income increases. B)  an increase in consumption at any level of disposable personal income C)  an increase in the price level D)  an increase in transfer payments" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 13-3. Suppose the consumption function is given by curve C1. What will cause an upward shift to curve C2?

Accepted Answer

A)   an increase in the amount consumed as disposable personal income increases.
B)   an increase in consumption at any level of disposable personal income
C)   an increase in the price level
D)   an increase in transfer paymentsE) B) and C)
F) A) and B)

Question 16

What is the international trade effect?

Accepted Answer

A)   It is the tendency for exports to fall and imports to rise when the domestic price level falls relative to the foreign price level.
B)   It is the tendency for exports to rise and imports to fall when the domestic price level falls relative to the foreign price level.
C)   It is the tendency for domestic investments to fall when foreign interest rates rise relative to domestic interest rates.
D)   It is the tendency for exchange rates to fall when foreign interest rates rise relative to domestic interest rates.E) All of the above
F) None of the above

Question 17

The slope of the aggregate expenditures curve is given by

Accepted Answer

A)   aggregate expenditures ÷ ∆real GDP where ∆= change in.
B)   aggregate expenditures ÷ real GDP.
C)   ∆aggregate expenditures ÷ real GDP.
D)   ∆aggregate expenditures ÷ ∆real GDP.E) A) and B)
F) All of the above

Question 18

In the aggregate expenditures model, if a $40 billion increase in autonomous investment leads to an increase in equilibrium real GDP of $100 billion at the initial price level, then the multiplier is 2.5.

Accepted Answer

A) True 
 B)False

Question 19

Difficulty: Medium Figure 13-4 P = Planned Investment. Suppose AE = C + IP, and IP is autonomous. At a real GDP of $7,000 billion A)  planned investment is greater than actual investment. B)  planned investment equals actual investment. C)  planned investment is less than actual investment. D)  there will be no unplanned investment." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 13-4. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JIP = Planned Investment. Suppose AE = C + IP, and IP is autonomous. At a real GDP of $7,000 billion

Accepted Answer

A)   planned investment is greater than actual investment.
B)   planned investment equals actual investment.
C)   planned investment is less than actual investment.
D)   there will be no unplanned investment.E) B) and C)
F) A) and B)

Exam 13: Consumption and the Aggregate Expenditures Model

In the aggregate expenditures model, if a $40 billion increase in autonomous investment leads to an increase in equilibrium real GDP of $100 billion at the initial price level, then the multiplier is 2.5.

Correct Answer
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Correct Answer
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Difficulty: Medium Figure 13-4 -Refer to Figure 13-4. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI_P = Planned Investment. Suppose AE = C + I_P, and I_P is autonomous. At a real GDP of $7,000 billion

Correct Answer
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The slope of the aggregate expenditures curve is given by

Correct Answer
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According to the permanent income hypothesis,

Correct Answer
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According to the current income hypothesis,

Correct Answer
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What is the international trade effect?

Correct Answer
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Suppose the consumption function is C = $500 + 0.8Y. If Y = $1,000, then autonomous consumption is

Correct Answer
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Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift upwards?

Correct Answer
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The marginal propensity to consume is given by

Correct Answer
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According to the permanent income hypothesis,

Correct Answer
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Table 13-1 -Refer to Table 13-1. When disposable personal income is $100, what is the amount of personal saving?

Correct Answer
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Figure 13-3 -Refer to Figure 13-3. Suppose the consumption function is given by curve C₁. What will cause an upward shift to curve C₂?

Correct Answer
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Figure 13-5 -Refer to Figure 13-5. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI_P = Planned Investment. Consider a simple economy where AE = C + I_P, and I_P is autonomous. What is the value of AE when Y = $12,000 billion?

Correct Answer
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Consumption spending in any one period that is determined by income in that period is explained by the

Correct Answer
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In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to save is 0.1?

Correct Answer
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Figure 13-1 -Refer to Figure 13-1. Assuming that the relationship between consumption and disposable personal income remains linear throughout its entire range, if disposable personal income were zero, what would personal saving be?

Correct Answer
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The interest rate effect suggests that

Correct Answer
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Which of the following statements is false?

Correct Answer
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Exam 13: Consumption and the Aggregate Expenditures Model

In the aggregate expenditures model, if a $40 billion increase in autonomous investment leads to an increase in equilibrium real GDP of $100 billion at the initial price level, then the multiplier is 2.5.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Difficulty: Medium Figure 13-4 -Refer to Figure 13-4. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JIP = Planned Investment. Suppose AE = C + IP, and IP is autonomous. At a real GDP of $7,000 billion

Correct AnswerverifiedShow Answer

The slope of the aggregate expenditures curve is given by

Correct AnswerverifiedShow Answer

According to the permanent income hypothesis,

Correct AnswerverifiedShow Answer

According to the current income hypothesis,

Correct AnswerverifiedShow Answer

What is the international trade effect?

Correct AnswerverifiedShow Answer

Suppose the consumption function is C = $500 + 0.8Y. If Y = $1,000, then autonomous consumption is

Correct AnswerverifiedShow Answer

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift upwards?

Correct AnswerverifiedShow Answer

The marginal propensity to consume is given by

Correct AnswerverifiedShow Answer

According to the permanent income hypothesis,

Correct AnswerverifiedShow Answer

Table 13-1 -Refer to Table 13-1. When disposable personal income is $100, what is the amount of personal saving?

Correct AnswerverifiedShow Answer

Figure 13-3 -Refer to Figure 13-3. Suppose the consumption function is given by curve C1. What will cause an upward shift to curve C2?

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Figure 13-5 -Refer to Figure 13-5. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JIP = Planned Investment. Consider a simple economy where AE = C + IP, and IP is autonomous. What is the value of AE when Y = $12,000 billion?

Correct AnswerverifiedShow Answer

Consumption spending in any one period that is determined by income in that period is explained by the

Correct AnswerverifiedShow Answer

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the marginal propensity to save is 0.1?

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Figure 13-1 -Refer to Figure 13-1. Assuming that the relationship between consumption and disposable personal income remains linear throughout its entire range, if disposable personal income were zero, what would personal saving be?

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The interest rate effect suggests that

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Which of the following statements is false?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Difficulty: Medium Figure 13-4 -Refer to Figure 13-4. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI_P = Planned Investment. Suppose AE = C + I_P, and I_P is autonomous. At a real GDP of $7,000 billion

Correct Answer
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Figure 13-3 -Refer to Figure 13-3. Suppose the consumption function is given by curve C₁. What will cause an upward shift to curve C₂?

Correct Answer
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Figure 13-5 -Refer to Figure 13-5. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI_P = Planned Investment. Consider a simple economy where AE = C + I_P, and I_P is autonomous. What is the value of AE when Y = $12,000 billion?

Correct Answer
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