ECON MACRO 5th Edition McEachern

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Chapter 09 Aggregate Demand

TRUEFALSE

1. If consumption is greater than income, saving must be negative.​

(A) True

(B) False

Answer : (A)

2. As disposable income decreases, saving decreases.​

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (A)

4. An increase in the marginal propensity to consume (MPC) will cause the consumption function to
become steeper.​

(A) True

(B) False

Answer : (A)

5. The slope of the consumption function is equal to the marginal propensity to save (MPS).​

(A) True

(B) False

Answer : (B)

6. An increase in the interest rate will increase consumption spending.​

(A) True
(B) False

Answer : (B)

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

(A) True

(B) False

Answer : (B)

8. The higher the opportunity cost of borrowing, the higher the amount of investment, other things
constant.​

(A) True

(B) False

Answer : (B)

9. An increase in the interest rate, other things constant, decreases the amount of investment
spending.​

(A) True

(B) False

Answer : (A)

10. An economy's investment demand curve shows the inverse relationship between the quantity of
investment demanded and the market interest rate, other things held constant.​

(A) True

(B) False

Answer : (A)

11. The main determinants of investment are the interest rates and expected profit.​

(A) True

(B) False

Answer : (A)
12. When economists say investment is autonomous, they mean that investment is independent of
the level of saving.​

(A) True

(B) False

Answer : (B)

13. The current level of investment depends on the current level of income.​

(A) True

(B) False

Answer : (B)

14. Exports minus imports equal net exports.​

(A) True

(B) False

Answer : (A)

15. Aggregate expenditure means total or combined spending.​

(A) True

(B) False

Answer : (A)

16. Movement along the aggregate expenditure line is caused by a change in the level of income.

(A) True

(B) False

Answer : (A)

17. If there are no unintended changes in inventories, the economy is at its equilibrium level of real
gross domestic product (GDP) demanded.​

(A) True

(B) False

Answer : (A)
18. If current aggregate expenditure equals current production, an economy is in equilibrium.​

(A) True

(B) False

Answer : (A)

19. A change in consumers' expectations about the future will shift both the aggregate expenditure
curve and the aggregate demand curve.​

(A) True

(B) False

Answer : (A)

20. Movement along the aggregate demand curve may be caused by a change in autonomous
investment spending.​

(A) True

(B) False

Answer : (B)

21. Only a change in the price level can cause shifts in both the aggregate expenditure line and the
aggregate demand curve.​

(A) True

(B) False

Answer : (B)

MULTICHOICE

22. Historically, consumption spending in the United States has _____.​

(A) ​fluctuated greatly with changes in the level of income

(B) remained approximately constant as a percentage of income​

(C) decreased as a percentage of income​

(D) varied inversely with the inflation rate​

(E) ​varied inversely with the interest rate

Answer : (B)

23. The most important determinant of a household's consumption spending is:​

(A) ​its disposable income.

(B) the in-kind transfers received by the household.​

(C) the level of education of the members of the household.​

(D) the interest rate.

(E) ​the ratio of wage to non-wage income of the household.

Answer : (A)

24. Which of the following is true of disposable income?​

(A) ​It excludes transfer payments.

(B) ​It is the portion of income that is used solely for consumption.

(C) ​It is that part of total earned income that is paid to the government in the form of taxes.

(D) It is the difference between income and saving.​

(E) ​It equals consumption expenditures plus saving.

Answer : (E)

25. The difference between consumption spending and disposable income _____.​

(A) ​decreases as income increases

(B) stays proportionally the same as income increases​

(C) decreases if the interest rate increases​

(D) equals the amount of taxes paid​

(E) equals saving​

Answer : (E)

26. The table given below shows the disposable income and consumption of a household. In the
table below, the level of saving at a disposable income of $1,200 is:

Table 9.1
​
 Disposable ​Consumption ($)
Income ($)
1,000 800
1,100 880
1,200 960
1,300 1,040
1,400 1,120​

(A) $80​

(B) $240​

(C) $950​

(D) $1,200​

(E) $1,300​

Answer : (B)

27. The table given below shows the disposable income and consumption of a household. In the
table below, saving:​
​Table 9.1
​
Disposable ​Consumption ($)
Income ($)
1,000 800
1,100 880
1,200 960
1,300 1,040
1,400 1,120

(A) ​decreases as disposable income increases.

(B) ​decreases as disposable income decreases.

(C) ​remains constant as disposable income increases.

(D) ​is negative at a disposable income of $1,000.

(E) ​is negative at a disposable income of $1,400.

Answer : (B)

28. As disposable income increases, _____.​

(A) ​consumption and saving both increase

(B) consumption increases and saving decreases​

(C) consumption and saving both decrease​

(D) consumption decreases but saving increases​

(E) saving increases, but we cannot predict what happens to consumption​

Answer : (A)

29. The consumption function assumes that:​

(A) ​only disposable income affects consumption.

(B) only the price level affects consumption.​

(C) many factors other than disposable income affect consumption, and each is allowed to vary along
the consumption function.​

(D) factors other than disposable income affect consumption, but those are held constant along the
consumption function.​

(E) only consumer expectations affect consumption.​

Answer : (D)

30. The consumption function relates consumption spending to _____.​

(A) ​the price level

(B) interest rates​

(C) disposable income​

(D) expectations about the price level​

(E) household wealth​

Answer : (C)

31. Which of the following is true of the relationship between disposable income and consumption?​

(A) ​Disposable income and consumption are both dependent variables.

(B) Disposable income and consumption are both independent variables.​

(C) Disposable income is the dependent variable and consumption is the independent variable.​

(D) Consumption is the dependent variable and disposable income is the independent variable.​

(E) Disposable income and consumption are negatively related to each other.​

Answer : (D)

32. The marginal propensity to consume is:​

(A) ​the relationship between a change in consumption and a change in income.

(B) the relationship between a change in consumption and a change in saving.​

(C) ​the relationship between changes in consumption and changes in net wealth.

(D) ​the ratio of income to consumption at any given level of income.

(E) the ratio of total consumption to total saving.​

Answer : (A)

33. The marginal propensity to consume:​

(A) ​is the proportion of disposable income that is consumed.

(B) ​is the ratio of disposable income to consumption.

(C) ​is the change in consumption relative to a change in disposable income.

(D) ​minus the marginal propensity to save must equal 1.

(E) ​is greater than 1 at all levels of income.

Answer : (C)

34. If the marginal propensity to consume, MPC, is less than 1 and a household's disposable income
increases by $2,000, the household's consumption will _____.​

(A) ​increase by less than $2,000

(B) increase by $2,000​

(C) decrease if the total income of the household is above $100,000​

(D) remain the same unless the change in income significantly affects the household's wealth​

(E) increase by more than $2,000​

Answer : (A)

35. If a household's income rises from $46,000 to $46,700 and its consumption spending rises from
$35,800 to $36,400, then its:​

(A) ​marginal propensity to consume is 0.86.

(B) marginal propensity to consume is 0.99.​

(C) marginal propensity to consume is 0.98.​

(D) marginal propensity to save is 0.01.​

(E) marginal propensity to save is 0.86.​

Answer : (A)

36. 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:​

(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 0.​

(E) marginal propensity to save is 0.12.​

Answer : (D)

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

(A) ​marginal propensity to consume is 0.98

(B) marginal propensity to consume is 1.33​

(C) marginal propensity to consume is 0.25​

(D) marginal propensity to save is 0.02​

(E) marginal propensity to save is 0.25​

Answer : (E)

38. Suppose an increase in disposable income from $3 trillion to $3.2 trillion increases consumption
from $2.5 trillion to $2.6 trillion. The marginal propensity to consume is _____.​

(A) ​0.1

(B) 0.2​

(C) 0.5​

(D) 0.8​

(E) 0.9​

Answer : (C)

39. If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an
economy, then consumption spending will increase by:​

(A) ​$6 billion.

(B) $14 billion.​

(C) $20 billion.​

(D) $28 billion.​

(E) $67 billion.​

Answer : (B)

40. The fraction of an increase in income that is saved is referred to as the _____.​

(A) ​marginal propensity to save

(B) average propensity to save​

(C) marginal propensity to consume​

(D) average propensity to consume​

(E) saving-consumption ratio​

Answer : (A)

41. The sum of the marginal propensity to consume (MPC) and the marginal propensity to save
(MPS) equals:​

(A) ​0.5.

(B) the multiplier.​

(C) the slope of the consumption function.​

(D) 1.0.​

(E) the slope of the saving function.​

Answer : (D)

42. If income increases by $100 and saving increases by $25, the slope of the consumption function
equals _____.​

(A) ​1/4

(B) 1/5​

(C) 1/2​
(D) 3/4​

(E) 3/5​

Answer : (D)

43. The slope of the consumption function shows how:​

(A) ​consumption changes over time.

(B) consumption changes as household size changes.​

(C) consumption changes as the price level changes.​

(D) income changes as the level of consumption changes.​

(E) consumption changes as the level of income changes.​

Answer : (E)

44. Along the consumption function, an increase in disposable income will:​

(A) ​cause autonomous consumption to rise.

(B) shift the consumption function upward.​

(C) cause a corresponding downward shift of the saving function.​

(D) cause a movement along the given consumption function.​

(E) shift the consumption function downward.​

Answer : (D)

45. Which of the following will not shift the consumption function?​

(A) ​A change in household wealth

(B) A change in the price level​

(C) A change in household disposable income​

(D) A change in the level of unemployment​

(E) A change in the rate of interest​

Answer : (C)

46. Which of the following is least likely to cause a shift of the consumption function?​

(A) ​A change in the level of saving

(B) A change in consumer expectations about future prices​

(C) A change in household wealth​

(D) A change in investment spending​

(E) A change in the interest rate​

Answer : (D)

47. A decrease in disposable income will:​

(A) ​shift the consumption function upward.

(B) shift the consumption function downward.​

(C) cause an upward movement along the consumption function.​

(D) cause a downward movement along the consumption function.​

(E) make the consumption function flatter.​

Answer : (D)

48. An increase in net wealth will:​

(A) ​increase consumption and saving at each level of income.

(B) increase saving and decrease consumption at each level of income.​

(C) decrease consumption and saving at each level of income.​

(D) increase consumption and decrease saving at each level of income.​

(E) have no effect on consumption because consumption is a function of income.​

Answer : (D)

49. A decrease in net wealth will _____.​

(A) ​shift the consumption function downward

(B) make the consumption function steeper​

(C) cause an upward movement along the consumption function​

(D) cause a downward movement along the consumption function​

(E) make the consumption function flatter​

Answer : (A)
50. Which of the following will shift the consumption function upward?​

(A) A decrease in disposable income​

(B) ​An increase in disposable income

(C) ​An increase in the interest rate

(D) ​Expectations of lower future prices

(E) ​An increase in net wealth

Answer : (E)

51. A decrease in stock prices will _____ the net wealth of households and _____ consumption.​

(A) ​reduce; increase

(B) reduce; decrease​

(C) reduce; not change​

(D) increase; increase​

(E) increase; decrease​

Answer : (B)

52. Which of the following will shift the consumption function upward?​

(A) ​A decrease in stock prices

(B) An increase in stock prices​

(C) A higher price level​

(D) A lower disposable income​

(E) A higher disposable income​

Answer : (B)

53. An upward shift of the consumption function might be caused by:​

(A) ​an increase in disposable income.

(B) a decrease in disposable income.​

(C) a decrease in the price level.​

(D) a decrease in household wealth.​

(E) an increase in the interest rate.​

Answer : (C)

54. An increase in the price level will:​

(A) ​make the consumption function flatter.

(B) make the consumption function steeper.​

(C) increase consumption because wages will increase.​

(D) decrease consumption because falling interest rates make it cheaper to borrow.​

(E) ​decrease consumption because the value of net wealth will decrease.

Answer : (E)

55. A decrease in the price level will _____.​

(A) ​shift the consumption function upward

(B) make the consumption function steeper​

(C) result in an upward movement along the consumption function​

(D) result in a downward movement along the consumption function​

(E) shift the consumption function downward​

Answer : (A)

56. _____ is the reward savers earn for deferring consumption.​

(A) ​Dividend

(B) Wage​

(C) Rent​

(D) Profit​

(E) Interest​

Answer : (E)

57. Which of the following will shift the consumption function upward?​

(A) ​A lower interest rate

(B) An increase in the interest rate​

(C) An increase in disposable income​

(D) A decrease in disposable income​

(E) Expectations of lower prices in the future​

Answer : (A)

58. A higher interest rate will:​

(A) ​shift the consumption function upward.

(B) shift the consumption function downward.​

(C) make the consumption function steeper.​

(D) make the consumption function flatter.​

(E) cause an upward movement along the consumption function.​

Answer : (B)

59. Expectations that the price level will increase in the future will:​

(A) ​shift the current consumption function upward.

(B) make the current consumption function steeper.​

(C) make the current consumption function flatter.​

(D) result in a downward movement along the current consumption function.​

(E) shift the current consumption function downward.​

Answer : (A)

60. Expectations that the price level will decrease in the future will _____.​

(A) ​make the current consumption function flatter

(B) shift the current consumption function downward​

(C) result in an upward movement along the current consumption function​

(D) result in a downward movement along the current consumption function​

(E) make the current consumption function steeper​

Answer : (B)

61. Expectations that disposable income will increase in the future will _____.​
(A) ​shift the current consumption function upward

(B) shift the current consumption function downward​

(C) result in an upward movement along the current consumption function​

(D) make the current consumption function flatter​

(E) make the current consumption function steeper​

Answer : (A)

62. A household that expects a decrease in disposable income in the future will _____.​

(A) ​increase its current consumption spending

(B) decrease its current consumption spending​

(C) maintain its current consumption spending​

(D) first increase its current consumption spending and then decrease spending when income falls​

(E) first decrease its current consumption spending and then increase spending when income falls​

Answer : (B)

63. A firm's level of investment depends on the market interest rate:​

(A) ​only when the firm has to borrow funds to invest in new equipment.

(B) only when the firm has to borrow funds to buy stocks and bonds.​

(C) only when the firm already has sufficient funds and could lend them.​

(D) because the interest rate represents the opportunity cost of investing in capital.​

(E) because investments are always made with borrowed funds.​

Answer : (D)

64. The market interest rate is important to the investment decision of firms:​

(A) ​only when funds are borrowed from financial intermediaries.

(B) only when firms have the money to invest in capital.​

(C) regardless of whether funds must be borrowed or firms have the funds on hand.​

(D) only when firms have funds on hand and are ready to lend them.​

(E) only when firms purchase new equipment rather than a new building.​
Answer : (C)

65. If the market interest rate equals 8 percent, the opportunity cost of the last new investment
project undertaken would approximately be equal to _____.​

(A) ​zero percent

(B) 4 percent​

(C) infinity​

(D) 8 percent​

(E) 16 percent​

Answer : (D)

66. An increase in the market interest rate, other things equal, will _____.​

(A) ​have no effect on investment

(B) increase the amount invested since the rate of return will be lower​

(C) increase the amount invested because income will increase​

(D) reduce the amount invested because the opportunity costs of investing will be higher​

(E) increase the amount invested because the rate of return will be higher​

Answer : (D)

67. Less of an economy's resources will be channeled into building new factories and equipment
when:​

(A) ​interest rates are high.

(B) households decide to save more of their income.​

(C) firms are optimistic about their future profits.​

(D) aggregate income increases.​

(E) an economy has a trade deficit.​

Answer : (A)

68. On a graph showing investment along the vertical axis and income along the horizontal axis,
_____.​

(A) ​the investment line will be downward sloping

(B) the investment line will be upward sloping​

(C) the investment line will be horizontal​

(D) the investment line will be vertical​

(E) the investment line will be U-shaped​

Answer : (C)

69. If the market interest rate decreases, then there will be _____.​

(A) ​an upward movement along the investment demand curve

(B) a downward movement along the investment demand curve​

(C) a rightward shift of the investment demand curve​

(D) a leftward shift of the investment demand curve​

(E) no movement along or shift of the investment demand curve​

Answer : (B)

70. Which of the following is most likely to cause a rightward shift of the investment demand curve?

(A) ​An increase in income

(B) A decrease in the market interest rate​

(C) An improvement in business expectations​

(D) An increase in the market rate of interest​

(E) A decrease in income​

Answer : (C)

71. Which of the following will shift the investment demand curve rightward?​

(A) ​Higher interest rates

(B) Gloomy sales expectations​

(C) A cut in corporate taxes that raises after-tax profits​

(D) A decrease in the marginal propensity to consume​

(E) An increase in aggregate income​

Answer : (C)
72. A technological change that positively affects business expectations will:​

(A) ​cause a rightward shift of the investment demand curve.

(B) cause a leftward shift of the investment demand curve.​

(C) cause an upward movement along the investment demand curve.​

(D) cause a downward movement along the investment demand curve.​

(E) make the investment demand curve upward sloping.​

Answer : (A)

73. Data on annual percentage changes in real GDP, consumption, and investment in the United
States shows that fluctuations in investment _____.​

(A) ​are noticeably smaller during expansions than during recessions

(B) are roughly similar to fluctuations in consumption​

(C) are roughly similar to fluctuations in GDP​

(D) are closely followed by economic forecasters because those fluctuations often signal that a
recession will occur​

(E) account for most of the variability in GDP​

Answer : (E)

74. Identify the correct statement.​

(A) ​During a recession, investment decreases while consumption increases.

(B) During a recession, investment increases while consumption decreases.​

(C) During a recession, investment is constant while consumption increases.​

(D) ​Annual variations in investment are larger than annual variations in consumption.

(E) ​Annual variations in investment are smaller than annual variations in consumption.

Answer : (D)

75. Fluctuations in investment:​

(A) ​account for almost all of the variability in gross domestic product (GDP) only during expansions.

(B) ​account for little of the variability in gross domestic product (GDP).

(C) ​account for almost all of the variability in gross domestic product (GDP) only during recessions.
(D) ​are larger during expansions than during recessions.

(E) ​account for more of the variability in gross domestic product (GDP) than consumption.

Answer : (E)

76. Which of the following is true of government purchases?​

(A) ​They are positively related to current income.

(B) They are negatively related to current income.​

(C) They are directly related to taxes.​

(D) They are decided by public officials.​

(E) They depend on the market rate of interest.​

Answer : (D)

77. Which of the following is true of net taxes?​

(A) ​The level of net taxes varies directly with the level of transfer payments.

(B) The level of net taxes varies inversely with the level of transfer payments.​

(C) Net taxes must always be less than zero.​

(D) Net taxes increase when income tax rates are reduced.​

(E) Net taxes increase when income decreases.​

Answer : (B)

78. Net taxes are:​

(A) ​taxes plus transfer payments.

(B) taxes minus transfer payments.​

(C) an injection into the economic system.​

(D) consumption after taxes.​

(E) government spending minus taxes.​

Answer : (B)

79. Which of the following is not an example of a government purchase?​

(A) ​Salaries of teachers in public schools

(B) Chinese toys to be sold in stores​

(C) Purchase of military aircrafts​

(D) Construction of an interstate highway​

(E) Building a public school​

Answer : (B)

80. Government outlays equal:​

(A) ​the difference between government expenditures and government revenues.

(B) the sum of government expenditures and government revenues.​

(C) the sum of government purchases and transfer payments.​

(D) the difference between government purchases and transfer payments.​

(E) the ratio of government purchases to transfer payments.​

Answer : (C)

81. An increase in real disposable income will:​

(A) ​increase the value of net exports of a country.

(B) decrease the value of net exports of a country.​

(C) increase government purchases.​

(D) ​decrease government purchases.

(E) ​increase net taxes.

Answer : (B)

82. The amount of U.S. exports to the rest of the world is primarily determined by _____.​

(A) ​the real disposable income in the United States

(B) the real disposable income in other nations​

(C) the real interest rate in other nations​

(D) the real interest rate in the United States​

(E) the government budget deficits in other nations​

Answer : (B)
83. Identify the correct statement about net exports.​

(A) ​The value of net exports increases as real domestic income increases.

(B) The value of net exports increases as real domestic income decreases.​

(C) The value of net exports is dependent on the amount of government purchases.​

(D) The value of net exports is always positive.​

(E) The value of net exports is always negative.​

Answer : (B)

84. If incomes in the United States increase, other things equal, then U.S. _____.​

(A) ​imports increase and exports remain constant

(B) exports increase and imports decrease​

(C) imports decrease and exports decrease​

(D) imports remain constant and exports increase​

(E) net exports remains constant​

Answer : (A)

85. An increase in income in other countries, other things equal, would cause U.S. _____.​

(A) ​exports to decrease and imports to increase

(B) exports to increase and imports to increase​

(C) imports to decrease and exports to decrease​

(D) imports to increase and exports to remain unchanged​

(E) imports to remain unchanged and exports to increase​

Answer : (E)

86. The aggregate expenditure line shows total planned spending at each _____.​

(A) ​consumption level

(B) ​investment level

(C) ​income level, holding the price level constant

(D) ​price level, holding the level of income constant

(E) ​interest rate, holding the price level constant

Answer : (C)

87. In an economy without a government and without international transactions, aggregate

expenditure at each level of income is equal to:​

(A) ​consumption plus saving.

(B) planned investment plus saving.​

(C) disposable income plus the price level.​

(D) consumption plus planned investment.​

(E) planned investment minus saving.​

Answer : (D)

88. Which of the following best describes aggregate expenditure?​

(A) ​C + I + G + (X − M)

(B) C + S + G + (X − M)​

(C) C + I + G + (X + M)​

(D) C + I + T + (X − M)​

(E) C + I + T + (X + M)​

Answer : (A)

89. In the simple aggregate expenditure model, the slope of the aggregate expenditure line depends
on:​

(A) ​interest rates.

(B) real gross domestic product.​

(C) the price level.​

(D) the marginal propensity to consume.​

(E) the marginal propensity to save.​

Answer : (D)

90. The aggregate expenditure line is drawn on a graph that measures:​

(A) ​real GDP on the horizontal axis and aggregate expenditure on the vertical axis.
(B) aggregate expenditure on the horizontal axis and real GDP on the vertical axis.​

(C) consumption on the horizontal axis and aggregate expenditure on the vertical axis.​

(D) aggregate expenditure on the horizontal axis and consumption on the vertical axis.​

(E) investment on the horizontal axis and aggregate expenditure on the vertical axis.​

Answer : (A)

91. The aggregate output demanded for a given price level occurs at the point where:​

(A) ​an economy reaches the full employment of labor.

(B) aggregate expenditure equals real GDP.​

(C) actual aggregate expenditures exceeds real GDP.

(D) inventories of goods and services are increasing.​

(E) ​inventories of goods and services are decreasing.

Answer : (B)

92. The table given below shows the values of different components of aggregate expenditure of an
economy. The equilibrium level of gross domestic product (GDP) is _____.​

Table 9.2

(Trillions of Dollars)
​Real Net Disposable Consumption Saving Planned Government Net Planned
GDP Taxes Income (C) (S) Investment Purchases Exports Aggregate
(Y) (NT) (Y − NT) (I) (G) (X − Expenditures
M) C+I+G+(X−M)
5.0 1.0 4.0 3.9 0.1 1.0 1.0 -0.7 5.2
5.5 1.0 4.5 4.3 0.2 1.0 1.0 -0.7 5.6
6.0 1.0 5.0 4.7 0.3 1.0 1.0 -0.7 6.0
6.5 1.0 5.5 5.1 0.4 1.0 1.0 -0.7 6.4
7.0 1.0 6.0 5.5 0.5 1.0 1.0 -0.7 6.8

(A) ​$5.0 trillion

(B) $5.5 trillion​

(C) $6.0 trillion​

(D) $6.5 trillion​

(E) ​$7.0 trillion

Answer : (C)

93. The table given below shows the values of different components of aggregate expenditure of an
economy. At the equilibrium level of gross domestic product (GDP), saving equals _____.​

Table 9.2

(Trillions of Dollars)
​Real Net Disposable Consumption Saving Planned Government Net Planned
GDP Taxes Income (C) (S) Investment Purchases Exports Aggregate
(Y) (NT) (Y − NT) (I) (G) (X − Expenditures
M) C+I+G+(X−M)
5.0 1.0 4.0 3.9 0.1 1.0 1.0 -0.7 5.2
5.5 1.0 4.5 4.3 0.2 1.0 1.0 -0.7 5.6
6.0 1.0 5.0 4.7 0.3 1.0 1.0 -0.7 6.0
6.5 1.0 5.5 5.1 0.4 1.0 1.0 -0.7 6.4
7.0 1.0 6.0 5.5 0.5 1.0 1.0 -0.7 6.8

(A) ​$0.4 trillion

(B) $0.1 trillion​

(C) $0.5 trillion​

(D) $0.2 trillion​

(E) ​$0.3 trillion

Answer : (E)

94. The table given below shows the values of different components of aggregate expenditure of an
economy. The marginal propensity to consume (MPC) equals:​

Table 9.2

​
(Trillions of Dollars)
​Real Net Disposable Consumption Saving Planned Government Net Planned
GDP Taxes Income (C) (S) Investment Purchases Exports Aggregate
(Y) (NT) (Y − NT) (I) (G) (X - M) Expenditures
C+I+G+(X−M)
5.0 1.0 4.0 3.9 0.1 1.0 1.0 -0.7 5.2
5.5 1.0 4.5 4.3 0.2 1.0 1.0 -0.7 5.6
6.0 1.0 5.0 4.7 0.3 1.0 1.0 -0.7 6.0
6.5 1.0 5.5 5.1 0.4 1.0 1.0 -0.7 6.4
7.0 1.0 6.0 5.5 0.5 1.0 1.0 -0.7 6.8
(A) ​0.20 or 1/5.

(B) ​0.40 or 2/5.

(C) ​0.80 or 4/5.

(D) ​0.90 or 9/10.

(E) ​0.60 or 3/5.

Answer : (C)

95. The table given below shows the values of different components of aggregate expenditure of an
economy. The marginal propensity to save (MPS) equals _____.​

Table 9.2

(Trillions of Dollars)
​Real Net Disposable Consumption Saving Planned Government Net Planned
GDP Taxes Income (C) (S) Investment Purchases Exports Aggregate
(Y) (NT) (Y − NT) (I) (G) (X − Expenditures
M) C+I+G+(X−M)
5.0 1.0 4.0 3.9 0.1 1.0 1.0 -0.7 5.2
5.5 1.0 4.5 4.3 0.2 1.0 1.0 -0.7 5.6
6.0 1.0 5.0 4.7 0.3 1.0 1.0 -0.7 6.0
6.5 1.0 5.5 5.1 0.4 1.0 1.0 -0.7 6.4
7.0 1.0 6.0 5.5 0.5 1.0 1.0 -0.7 6.8

(A) ​0.80 or 4/5

(B) ​0.60 or 3/5

(C) ​0.40 or 2/5

(D) ​0.10 or 1/10

(E) 0.20 or 1/5​

Answer : (E)

96. Suppose at a particular level of real gross domestic product (GDP), there are no unintended
inventory adjustments. In this context, which of the following is true?​

(A) ​Real GDP is less than the equilibrium level of real GDP demanded.

(B) Real GDP is greater than the equilibrium level of real GDP demanded.​

(C) ​Real GDP equals the equilibrium level of real GDP demanded.
(D) ​At equilibrium real GDP, there is no inflation.

(E) ​At equilibrium real GDP, there is no saving.

Answer : (C)

97. At the equilibrium level of real gross domestic product (GDP), unplanned inventory adjustment
equals _____.​

(A) ​planned investment

(B) saving​

(C) zero​

(D) actual investment​

(E) consumption​

Answer : (C)

98. Which of the following is illustrated by the distance between the aggregate expenditure line and
the 45-degree line at each level of real GDP?​

(A) ​The level of saving in an economy

(B) Unplanned inventory change​

(C) Planned investment undertaken in an economy​

(D) The marginal propensity to save​

(E) The marginal propensity to consume​

Answer : (B)

99. If planned spending exceeds planned output in an economy, the result is a(n) _____.​

(A) ​increase in inventories

(B) decrease in gross domestic product​

(C) decrease in imports​

(D) ​increase in government purchases

(E) ​unintended decrease in inventories

Answer : (E)

100. The figure given below shows the income-expenditure model. At point C, _____.​
​

Figure 9.1

(A) consumption expenditure exceeds disposable income

(B) producers experience an unexpected loss of inventory​

(C) aggregate expenditure is exactly equal to real GDP​

(D) real GDP exceeds aggregate expenditure​

(E) producers experience an unexpected accumulation of inventory​

Answer : (B)

101. The figure given below shows the income-expenditure model. Which of the following best
describes the situation at point B?​

Figure 9.1
​

(A) ​Consumption expenditure exceeds disposable income

(B) Real GDP exceeds aggregate expenditure​

(C) Aggregate expenditure is exactly equal to real GDP​

(D) Aggregate expenditure exceeds real GDP​

(E) Producers experience an unexpected accumulation of inventory​

Answer : (B)

102. In the income-expenditure framework, if planned aggregate expenditures are greater than real
gross domestic product (GDP), _____.​

(A) ​the price level will fall

(B) consumption will fall​

(C) inventories will increase​

(D) inventories will decrease​

(E) consumption will decrease​

Answer : (D)

103. In the income-expenditure framework, if planned aggregate expenditures are less than real
gross domestic product (GDP), _____.​

(A) saving will increase​

(B) the price level will increase​

(C) inventories will increase​

(D) inventories will decrease​

(E) consumption will decrease​

Answer : (C)

104. When current production of goods and services in an economy is greater than planned
aggregate expenditure, _____.​

(A) ​inventories of goods and services will increase

(B) firms will increase production to replenish depleted inventories​

(C) businesses and households will increase planned aggregate spending​

(D) the price level will automatically rise to restore equilibrium in the economy​

(E) leakages must equal planned injections​

Answer : (A)

105. The table given below shows the real gross domestic product (GDP), consumption, and planned
investment in an economy. The marginal propensity to consume (MPC) in the economy is:​

Table 9.3

Real ​Consumption ($) Planned

GDP ($) Investment ($)
0 140 100
100 220 100
200 300 100
300 380 100
400 460 100
500 540 100
600 620 100
700 700 100
800 780 100
900 860 100
1,000 940 100
1,100 1,020 100
1,200 1,100 100
1,300 1,180 100

(A) ​0.
(B) 0.2.​

(C) 0.8.​

(D) 0.9.​

(E) ​80.

Answer : (C)

106. The table given below shows the real gross domestic product (GDP), consumption, and planned
investment in an economy. The marginal propensity to save (MPS) in the economy is _____.​

Table 9.3

Real ​Consumption ($) Planned

GDP ($) Investment ($)
0 140 100
100 220 100
200 300 100
300 380 100
400 460 100
500 540 100
600 620 100
700 700 100
800 780 100
900 860 100
1,000 940 100
1,100 1,020 100
1,200 1,100 100
1,300 1,180 100

(A) ​0

(B) 0.1​

(C) 0.2​

(D) 0.8​

(E) 20​

Answer : (C)

107. An increase in autonomous investment in an economy will _____.​

(A) ​shift the aggregate expenditure line upward

(B) shift the aggregate expenditure line downward​

(C) result in an upward movement along the aggregate expenditure line​

(D) result in a downward movement along the aggregate expenditure line​

(E) increase aggregate expenditures only at high levels of income​

Answer : (A)

108. In the income-expenditure model, if autonomous investment decreases by $10 billion, _____.​

(A) ​the aggregate expenditure line shifts upward by $10 billion

(B) planned saving increases by $10 billion​

(C) the aggregate expenditure line shifts downward by $10 billion​

(D) planned saving decreases by $10 billion​

(E) the equilibrium level of real GDP demanded increases by $10 billion​

Answer : (C)

109. In the income-expenditure model, if autonomous saving increases by $15 billion, _____.​

(A) ​the aggregate expenditure line shifts upward by $15 billion

(B) planned investment increases by $15 billion​

(C) the aggregate expenditure line shifts downward by $15 billion​

(D) planned investment decreases by $15 billion​

(E) the equilibrium level of real GDP demanded decreases by $15 billion​

Answer : (C)

110. If households save $30 billion more at each level of income and the marginal propensity to
consume (MPC) is 0.9, the aggregate expenditure line will _____.​

(A) ​intersect the 45-degree line at a real GDP of $30 billion

(B) shift upward by $30 billion​

(C) shift downward by $30 billion​

(D) shift upward by $300 billion because of the multiplier effect​

(E) shift downward by $300 billion because of the multiplier effect​

Answer : (C)
111. If households save $40 billion less at each level of income and the marginal propensity to
consume (MPC) is 0.8, the aggregate expenditure line will _____.​

(A) ​intersect the 45-degree line at a real GDP of $40 billion

(B) shift upward by $40 billion​

(C) shift downward by $40 billion​

(D) shift upward by $200 billion because of the multiplier mechanism​

(E) shift downward by $200 billion because of the multiplier mechanism​

Answer : (B)

112. The fraction of a change in disposable income that is consumed is called _____.​

(A) ​autonomous consumption

(B) induced consumption​

(C) the multiplier​

(D) the marginal propensity to consume​

(E) the marginal propensity to save​

Answer : (D)

113. Which of the following best describes the simple spending multiplier?​

(A) ​It shows the magnified change in planned aggregate spending that arises from a change in
output.

(B) It shows the magnified change in equilibrium output demanded that arises from a change in
income.​

(C) It shows the magnified change in planned aggregate spending that arises from a change in
equilibrium output.​

(D) It shows the magnified change in equilibrium output demanded that arises from a given initial
change in planned aggregate spending.​

(E) It shows the change in planned aggregate spending that arises from a change in real output.​

Answer : (D)

114. If the spending multiplier is greater than 1.0, a $200 billion increase in autonomous investment
will cause:​

(A) ​equilibrium investment to increase by less than $200 billion.

(B) ​equilibrium investment to decrease by more than $200 billion.

(C) ​equilibrium real GDP demanded to increase by more than $200 billion.

(D) ​equilibrium real GDP demanded to decrease by less than $200 billion.

(E) ​equilibrium saving to decrease by more than $200 billion.

Answer : (C)

115. If the marginal propensity to consume (MPC) equals 0.9, the multiplier is _____.​

(A) ​1

(B) 2​

(C) 5​

(D) 10​

(E) 12​

Answer : (D)

116. Assume an economy is in equilibrium at a real GDP of $5 trillion. If aggregate expenditure (AE)
increases by $1 trillion, the economy's equilibrium real GDP is likely to _____.​

(A) ​increase by $1 trillion

(B) increase by more than $1 trillion​

(C) increase by less than $1 trillion​

(D) decrease by $1 trillion​

(E) decrease by more than $1 trillion​

Answer : (B)

117. If investment increases by $100 and, as a result, gross domestic product (GDP) ultimately
increases by $200, the multiplier equals _____.​

(A) ​1

(B) 2​

(C) 3​

(D) 4​

(E) 5​
Answer : (B)

118. If the marginal propensity to consume (MPC) is 4/5, the value of the simple multiplier is:​

(A) ​4.

(B) 1/5.​

(C) 4/5.​

(D) 5/4.​

(E) 5.​

Answer : (E)

119. Increases in the marginal propensity to consume (MPC), other things constant, _____.​

(A) ​increase the value of the multiplier

(B) decrease the value of the multiplier​

(C) increase the marginal propensity to save​

(D) shift the aggregate expenditure curve downward​

(E) cause a downward movement along the aggregate expenditure curve​

Answer : (A)

120. If the simple spending multiplier is 8, the marginal propensity to consume is _____.​

(A) ​1/8

(B) 1/4​

(C) 4/5​

(D) 7/8​

(E) 8​

Answer : (D)

121. If the marginal propensity to save (MPS) is 0.25, the simple multiplier is _____.​

(A) ​25

(B) 75​

(C) 5​
(D) 3/4​

(E) 4​

Answer : (E)

122. The smaller the marginal propensity to save, other things constant, _____.​

(A) ​the smaller the marginal propensity to consume

(B) the larger the multiplier​

(C) the smaller the multiplier​

(D) the flatter the consumption function​

(E) the steeper the saving function​

Answer : (B)

123. The smaller the marginal propensity to save, other things constant, _____.​

(A) ​the smaller the marginal propensity to consume

(B) the larger the marginal propensity to consume​

(C) the smaller the multiplier​

(D) the flatter the consumption function​

(E) the steeper the saving function​

Answer : (B)

124. The smaller the marginal propensity to save, other things constant, _____.​

(A) ​the smaller the marginal propensity to consume

(B) the smaller the multiplier​

(C) the flatter the consumption function​

(D) the steeper the consumption function​

(E) the steeper the saving function​

Answer : (D)

125. The larger the marginal propensity to save, other things constant, _____.​

(A) ​the larger the marginal propensity to consume

(B) the larger the multiplier​

(C) the flatter the consumption function​

(D) the flatter the saving function​

(E) the steeper the consumption function​

Answer : (C)

126. Which of the following is true of the simple spending multiplier?​

(A) ​It equals the ratio of the marginal propensity to consume to the marginal propensity to save.

(B) It equals the difference between the marginal propensity to save and the marginal propensity to
consume.​

(C) It is the reciprocal of the marginal propensity to save.​

(D) It is the reciprocal of the marginal propensity to consume.​

(E) ​It is the sum of the marginal propensity to consume and the marginal propensity to save.

Answer : (C)

127. If the marginal propensity to save (MPS) is 1/8, the value of the simple spending multiplier is:​

(A) ​8.

(B) 1/8.​

(C) 2.​

(D) 1/2.​

(E) 4.​

Answer : (A)

128. If the marginal propensity to consume (MPC) in your classmate's nation is 3/5 and the marginal
propensity to save (MPS) in your country is 1/10, which of the following must be true?​

(A) ​The spending multiplier is larger in your classmate's nation than in your country.

(B) The spending multiplier is smaller in your classmate's nation than in your country.​

(C) Autonomous consumption is higher in your classmate's nation than in your country.​

(D) Autonomous consumption is lower in your classmate's nation than in your country.​

(E) Total consumption is lower in your classmate's nation than in your country.​
Answer : (B)

129. If the simple spending multiplier is 10, the marginal propensity to save (MPS) is:​

(A) ​1/10.

(B) 9/10.​

(C) 1/9.​

(D) 10/9.​

(E) 9.​

Answer : (A)

130. Which of the following is not true about a change in the price level?​

(A) ​It will shift the aggregate demand curve.

(B) It will shift the aggregate expenditure curve.​

(C) It will result in a new value of equilibrium real GDP demanded.​

(D) It will change the real value of dollar-denominated assets.​

(E) It will shift the consumption function.​

Answer : (A)

131. An aggregate demand curve can be drawn by:​

(A) ​shifting the 45-degree line.

(B) letting changes in autonomous spending shift the aggregate expenditure line.​

(C) letting changes in the price level shift the aggregate expenditure line.​

(D) letting changes in the level of income shift the aggregate expenditure line.​

(E) letting changes in real GDP shift the aggregate expenditure line.​

Answer : (C)

132. The aggregate demand curve of an economy illustrates the relationship between:​

(A) ​interest rates and income levels.

(B) the price level and real gross domestic product (GDP).​

(C) the price level and interest rates.​

(D) ​income levels and real gross domestic product (GDP).

(E) ​real income levels and nominal income levels.

Answer : (B)

133. The aggregate demand curve of an economy:​

(A) ​is downward sloping.

(B) first declines and then becomes positively sloped.​

(C) is horizontal.​

(D) is vertical.​

(E) first rises and then becomes negatively sloped.​

Answer : (A)

134. An increase in the price level in an economy will _____.​

(A) ​shift the aggregate expenditure line upward

(B) shift the aggregate expenditure line downward​

(C) cause an upward movement along the aggregate expenditure line​

(D) cause a downward movement along the aggregate expenditure line​

(E) shift the aggregate demand curve downward​

Answer : (B)

135. An increase in the price level in an economy will _____.​

(A) ​shift the aggregate demand curve to the right

(B) shift the aggregate demand curve to the left​

(C) increase the quantity of real gross domestic product (GDP) demanded​

(D) decrease the quantity of real gross domestic product (GDP) demanded​

(E) increase the aggregate expenditure​

Answer : (D)

136. Which of the following is an effect of an increase in the price level in an economy?​

(A) ​The real value of dollar-denominated assets will fall.

(B) The aggregate expenditure line will shift upward.​

(C) The equilibrium real gross domestic product will increase.​

(D) There will be a downward movement along the aggregate demand curve of the economy.​

(E) The aggregate demand curve of the economy will shift rightward.​

Answer : (A)

137. Which of the following is an effect of an increase in the price level in an economy?​

(A) ​The real value of dollar-denominated assets will increase.

(B) The aggregate expenditure line will shift upward.​

(C) The equilibrium real gross domestic product will decrease.​

(D) There will be downward movement along a particular aggregate demand curve.​

(E) The aggregate demand curve will shift rightward.​

Answer : (C)

138. Identify the correct statement.​

(A) ​An increase in the price level in an economy will increase the real value of dollar-denominated
assets.

(B) An increase in the price level in an economy will shift the aggregate expenditure line upward.​

(C) An increase in the price level in an economy will decrease the equilibrium level of output
demanded.​

(D) An increase in the price level in an economy will cause an upward movement along the
aggregate demand curve.

(E) ​An increase in the price level in an economy will shift the aggregate demand curve rightward.

Answer : (D)

139. If the price level in an economy increases, other things constant, consumption spending is
likely to _____.​

(A) ​increase because real income increases

(B) decrease because real income increases​

(C) increase because the real value of wealth increases​

(D) decrease because the real value of wealth decreases​

(E) increase because nominal income increases​

Answer : (D)

140. An increase in the U.S. price level, other things constant, will _____.​

(A) ​increase U.S. exports and decrease U.S. imports

(B) increase U.S. exports and leave U.S. imports unchanged​

(C) decrease U.S. exports and increase U.S. imports​

(D) decrease U.S. exports and leave U.S. imports unchanged​

(E) leave both U.S. exports and U.S. imports unchanged​

Answer : (C)

141. As the U.S. price level rises relative to price levels in other countries, U.S. _____.​

(A) ​consumption and net exports will both decrease

(B) consumption and net exports will both increase​

(C) consumption would increase and net exports will decrease​

(D) consumption would decrease and net exports will increase​

(E) consumption and net exports will remain constant​

Answer : (A)

142. A decrease in the price level in an economy will _____.​

(A) ​shift the aggregate expenditure line upward

(B) ​shift the aggregate expenditure line downward

(C) ​cause an upward movement along the aggregate expenditure line

(D) ​cause a downward movement along the aggregate expenditure line

(E) ​shift the aggregate demand curve leftward

Answer : (A)

143. A decrease in the price level in an economy will _____.​

(A) ​shift the aggregate demand curve to the right

(B) shift the aggregate demand curve to the left​

(C) increase the level of aggregate quantity demanded​

(D) decrease the level of aggregate quantity demanded​

(E) shift the aggregate expenditure line downward​

Answer : (C)

144. A decrease in the price level in an economy is likely to cause a:​

(A) ​decrease in the real value of dollar-denominated assets.

(B) downward shift of the aggregate expenditure line.​

(C) decrease in the equilibrium level of output demanded.​

(D) downward movement along the aggregate demand curve.​

(E) leftward shift of the aggregate demand curve.​

Answer : (D)

145. A decrease in the price level in an economy will _____.​

(A) ​increase the real value of dollar-denominated assets

(B) shift the aggregate expenditure line downward​

(C) decrease the equilibrium level of output demanded​

(D) cause an upward movement along the aggregate demand curve​

(E) shift the aggregate demand curve leftward​

Answer : (A)

146. A decrease in the price level in an economy implies that _____.​

(A) ​the spending multiplier will be equal to the marginal propensity to consume

(B) there will be an increase in investment​

(C) there will be a decrease in investment​

(D) the value of the spending multiplier will be equal to one​

(E) the value of the spending multiplier will be equal to zero​

Answer : (B)

147. If the price level in an economy decreases, other things constant, people consume _____.​
(A) ​more because nominal income falls

(B) less because nominal income rises​

(C) more because the real value of their wealth increases​

(D) less because real income decreases​

(E) less because the real value of their wealth decreases​

Answer : (C)

148. A decrease in the U.S. price level, other things constant, will _____.​

(A) ​stimulate U.S. exports, pushing the aggregate demand curve to the right

(B) stimulate U.S. imports, pushing the aggregate demand curve to the right​

(C) stimulate U.S. exports but discourage imports, causing a downward movement along a given
aggregate demand curve​

(D) discourage U.S. exports but stimulate imports, causing an upward movement along a given
aggregate demand curve​

(E) not affect U.S. net exports, so the aggregate quantity demanded will remain constant​

Answer : (C)

149. If the level of autonomous spending in an economy increases at a given price level, _____.​

(A) ​the aggregate expenditure line shifts upward and the economy moves upward along the
aggregate demand curve

(B) the aggregate expenditure line shifts downward and the economy moves upward along the
aggregate demand curve​

(C) the aggregate expenditure line shifts upward and the aggregate demand curve shifts to the right​

(D) the aggregate expenditure line shifts downward and the aggregate demand curve shifts to the
left​

(E) the aggregate expenditure curve shifts upward and the aggregate demand curve shifts to the left​

Answer : (C)

150. An increase in planned investment will shift the _____.​

(A) ​aggregate demand curve rightward

(B) aggregate demand curve leftward​

(C) aggregate supply curve rightward​

(D) aggregate supply curve leftward​

(E) consumption function upward​

Answer : (A)
Another random document with
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Whitehouse, Cope, 72
Willcocks, Sir William: work of, on Rosetta Barrage, 48, 49; report of, on Nile
Dam, 73; cited, 128; otherwise mentioned, 44, 64
Wingate, Sir Reginald: position of, 185; age of, 197; quoted on possibilities of
irrigation, 235, 236
Wodehouse, General, 166

Yusuf Pasha, 162

Zeila, 153
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Zubehr, 150, 152, 155, 157, 163
 THE END

BILLING AND SONS, LTD., PRINTERS, GUILDFORD

 MAP OF
EGYPT and the SOUDAN
1904

London: Stanford’s Geogl. Estabt.

(Large-size)
London: Edward Arnold.
 FOOTNOTES:

[1]1 metre = about 39 inches.

[2]A cubic metre of water equals, roughly, 1 ton.
[3]For the purpose of illustration, it is interesting to compare the
discharge of the Thames at Teddington:
Cubic Metres per
Second.
During June the average discharge for the twenty
35
years ending 1902 was
The average in June, 1903, was 178
The discharge on June 21, 1903, was 387
On February 21, 1900, it was 533
And on November 18, 1894 (greatest on record), it
1,065
was
I have given the discharge in cubic metres per second, the unit
generally in use on the Nile. On the Thames the figures are
usually given in gallons per day, which sounds much more
imposing. If the number of cubic metres per second is multiplied
by about 1,900,000, it gives approximately the number of gallons
per day. But, after all, the discharge of the Thames in June, 1903,
was not so very far below that of the Nile during the same month.
[4]The Egyptian peasant, however, refuses to accept the
prosaic evidence of his eyes about these rats, and, like the stout
conservative he is, prefers to believe the old tradition that they
turn to mud during the flood season. Many a man will gravely
assert that he has himself observed the transformation actually in
progress.
[5]1 Kantar = nearly 100 lbs.
[6]Cf. p. 71.
[7]Estimated. £E1 = £1 0s. 6d.
[8]Estimated.
 Transcriber's note:

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