1)The marginal propensity to consume: A. is the ratio of disposable income to co
ID: 1214480 • Letter: 1
Question
1)The marginal propensity to consume: A. is the ratio of disposable income to consumption. B. is the proportion of disposable income that is consumed. C. minus the marginal propensity to save must equal 1. D. is the change in consumption relative to a change in disposable income.
2)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. consumption changes as the level of income changes.
3)Which of the following will shift the consumption function upward? A. A decrease in disposable income B. An increase in the interest rate C. An increase in net wealth D. An increase in disposable income
4)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 less than $1 trillion B. increase by $1 trillion C. increase by more than $1 trillion D. decrease by $1 trillion
5)The aggregate expenditure line shows total planned spending at each _____. A. consumption level B. price level, holding the level of income constant C. investment level D. income level, holding the price level constant
6)_____ is the reward savers earn for deferring consumption. A. Profit B. Dividend C. Wage D. Interest
7)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.
8)An aggregate demand curve can be drawn by: A. letting changes in the price level shift the aggregate expenditure line. B. letting changes in the level of income shift the aggregate expenditure line. C. shifting the 45-degree line. D. letting changes in autonomous spending shift the aggregate expenditure line.
9)An increase in the price level in an economy will _____. A. shift the aggregate expenditure line downward B. cause an upward movement along the aggregate expenditure line C. shift the aggregate expenditure line upward D. cause a downward movement along the aggregate expenditure line
10)An expansionary gap generally creates inflationary pressure in an economy. True or False
11)Which of the following is true of the short-run aggregate supply curve? A. It shows the relation between the interest rate and the quantity of capital goods firms supply, other things constant. B. It shows the relation between the price of labor and the aggregate quantity of labor workers supply, other things constant. C. It shows the relation between the inflation rate and the quantity of aggregate output firms supply, other things constant. D. It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant.
12)The real wage is equal to the: A. nominal wage net of taxes paid on wages. B. wage measured in terms of the dollar value of the goods and services it buys. C. wage measured in terms of the quantity of goods and services it buys. D. non-wage benefits received by workers.
13)The potential output of an economy is: A. the output level at which nominal GDP is equal to real GDP. B. less than the full-employment rate of output. C. also referred to as the natural rate of output. D. the output level at which inflation is very high.
14)If the actual price level is higher than the expected price level, the economy will: A. experience stagflation. B. experience a recession. C. have no structural unemployment. D. expand output in the short run.
Explanation / Answer
1. D. is the change in consumption relative to a change in disposable income.
2. D. consumption changes as the level of income changes.
3. D. An increase in disposable income
4. C. increase by more than $1 trillion
5. D. income level, holding the price level constant
6. D. Interest
7. C. It shows the magnified change in planned aggregate spending that arises from a change in equilibrium output.
8. D. letting changes in autonomous spending shift the aggregate expenditure line.
9. B. cause an upward movement along the aggregate expenditure line
10. True
11. D. It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant.
12. C. wage measured in terms of the quantity of goods and services it buys.
13. C. also referred to as the natural rate of output.
14. D. expand output in the short run.
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