Question 1

The life-cycle hypothesis suggests that the economy's saving rate depends on all of the following except one. Which is the exception?

Accepted Answer

A)  the relative numbers of savers and dissavers
B)  the manner in which saving is taxed
C)  the convenience and reliability of saving institutions
D)  the relative cost of housing
E)  the rate of profitF) B) and D)
G) A) and B)

Question 2

Net exports

Accepted Answer

A)  increase as real domestic income increases
B)  decrease as real domestic income increases
C)  are independent of real domestic income
D)  are always positive
E)  are always negativeF) A) and E)
G) A) and B)

Question 3

As the U.S. price level increases, other things equal, U.S. products become

Accepted Answer

A)  more expensive abroad, which decreases U.S. exports
B)  less expensive abroad, which increases U.S. exports
C)  more expensive abroad, which has no effect on U.S. exports, since exports are assumed to be constant
D)  less expensive abroad, which has no effect on U.S. exports, since exports are assumed to be constant
E)  more expensive abroad, which increases U.S. exportsF) C) and D)
G) A) and D)

Question 4

An increase in the value of the U.S. dollar relative to other currencies will

Accepted Answer

A)  shift the autonomous net export function upward
B)  shift the autonomous net export function downward
C)  cause a rightward movement along the autonomous net export function
D)  cause a leftward movement along the autonomous net export function
E)  show no movement along or shift of the autonomous net export functionF) A) and B)
G) None of the above

Question 5

An increase in the MPC will cause the consumption function to become steeper (rotate upwards).

Accepted Answer

A) True 
 B)False

Question 6

The slope of the saving function is equal to the MPS.

Accepted Answer

A) True 
 B)False

Question 7

The partners in the Wonderwords word processing firm spend $12,000 on computers, hoping to earn an additional $1,000 per year with them. If the partners could earn 7 percent interest on a bank deposit they should

Accepted Answer

A)  put the $12,000 in the bank
B)  put $6,000 in the bank and spend only $6,000 on computers
C)  buy the computers because the rate of return on the computers is positive
D)  buy the computers only if they do not have to borrow the funds to buy the computers
E)  buy the computers because the rate of return on the computers exceeds 7 percentF) C) and E)
G) A) and B)

Question 8

Economists assume that the fundamental motive of investors is

Accepted Answer

A)  to maximize profit
B)  to maximize income
C)  to maximize the firm's growth
D)  to promote economic growth for the economy as a whole
E)  the desire to saveF) C) and D)
G) D) and E)

Question 9

According to the life-cycle model,

Accepted Answer

A)  saving increases over the typical individual's lifetime
B)  consumption decreases over the life cycle as individual save more for retirement
C)  people with high incomes save a smaller fraction of their incomes than do people with low income
D)  saving and consumption tend to vary in a systematic way over an individual's lifetime
E)  the saving rate for an economy as a whole increases over its lifetimeF) B) and D)
G) A) and B)

Question 10

A grocery store manager must decide whether to buy a rug cleaner to rent to customers. The cleaner costs $800. It is expected to yield $200 in income per year. What is the expected annual rate of return from the cleaner?

Accepted Answer

A)  $600
B)  $200
C)  400 percent
D)  75 percent
E)  25 percentF) B) and C)
G) B) and D)

Question 11

If the interest rate decreases, then there will be

Accepted Answer

A)  a rightward movement along the autonomous investment function
B)  a leftward movement along the autonomous investment function
C)  an upward shift of the autonomous investment function
D)  a downward shift of the autonomous investment function
E)  no movement along or shift of the autonomous investment functionF) A) and D)
G) C) and E)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

A firm's level of investment is tied to the interest rate

Accepted Answer

A)  only when the firm has to borrow funds to buy capital
B)  only when the firm has to borrow funds to buy stocks
C)  only when the firm already has the 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 fundsF) C) and D)
G) B) and D)

Question 14

The inverse of the slope of the consumption function equals the marginal propensity to save.

Accepted Answer

A) True 
 B)False

Question 15

The non-income determinants of consumption include all of the following except one. Which is the exception?

Accepted Answer

A)  net wealth
B)  the profitability of new investment
C)  the price level
D)  expectations
E)  the interest rateF) All of the above
G) A) and B)

Question 16

If disposable income increases, consumption spending increases and saving decreases.

Accepted Answer

A) True 
 B)False

Question 17

Although consumer spending has averaged about 90 percent of disposable income, in recent years the percentage of disposable income claimed by consumption has

Accepted Answer

A)  risen to about 96 percent
B)  risen to 100 percent
C)  risen to 99 percent
D)  fallen to about 76 percent
E)  risen to about 98 percentF) C) and E)
G) C) and D)

Question 18

If autonomous investment were measured on the vertical axis and disposable income were measured on the horizontal axis, what would the graph look like?

Accepted Answer

A)  a horizontal line
B)  a vertical line
C)  an upward-sloping line
D)  a downward-sloping line
E)  the line would first slope upward and then slope downwardF) B) and C)
G) C) and D)

Question 19

Disposable income is equal to consumption

Accepted Answer

A)  plus investment
B)  plus taxes
C)  plus saving
D)  minus taxes
E)  minus savingF) A) and C)
G) B) and D)

Question 20

An increase in the price level will

Accepted Answer

A)  make the consumption function steeper
B)  shift the consumption function downward
C)  result in a movement upward along the consumption function
D)  result in a movement downward along the consumption function
E)  make the consumption function flatterF) B) and D)
G) B) and C)

Exam 9: Aggregate Expenditure

An increase in the MPC will cause the consumption function to become steeper (rotate upwards).

Correct AnswerverifiedShow Answer

The non-income determinants of consumption include all of the following except one. Which is the exception?

Correct AnswerverifiedShow Answer

According to the life-cycle model,

Correct AnswerverifiedShow Answer

If autonomous investment were measured on the vertical axis and disposable income were measured on the horizontal axis, what would the graph look like?

Correct AnswerverifiedShow Answer

A grocery store manager must decide whether to buy a rug cleaner to rent to customers. The cleaner costs $800. It is expected to yield $200 in income per year. What is the expected annual rate of return from the cleaner?

Correct AnswerverifiedShow Answer

If the interest rate decreases, then there will be

Correct AnswerverifiedShow Answer

A firm's level of investment is tied to the interest rate

Correct AnswerverifiedShow Answer

As the U.S. price level increases, other things equal, U.S. products become

Correct AnswerverifiedShow Answer

The life-cycle hypothesis suggests that the economy's saving rate depends on all of the following except one. Which is the exception?

Correct AnswerverifiedShow Answer

The partners in the Wonderwords word processing firm spend $12,000 on computers, hoping to earn an additional $1,000 per year with them. If the partners could earn 7 percent interest on a bank deposit they should

Correct AnswerverifiedShow Answer

An increase in the price level will

Correct AnswerverifiedShow Answer

If disposable income increases, consumption spending increases and saving decreases.

Correct AnswerverifiedShow Answer

The inverse of the slope of the consumption function equals the marginal propensity to save.

Correct AnswerverifiedShow Answer

Economists assume that the fundamental motive of investors is

Correct AnswerverifiedShow Answer

Disposable income is equal to consumption

Correct AnswerverifiedShow Answer

An increase in the value of the U.S. dollar relative to other currencies will

Correct AnswerverifiedShow Answer

The slope of the saving function is equal to the MPS.

Correct AnswerverifiedShow Answer

Net exports

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Although consumer spending has averaged about 90 percent of disposable income, in recent years the percentage of disposable income claimed by consumption has

Correct AnswerverifiedShow Answer

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