Exhibit 11-1 Disposable income and consumption data Income (Y)Change in
Disposable Income
Consumption (C)
0 500
1,000 1,000 1,400
2,000 1,000 2,200
3,000 1,000 2,900
4,000 1,000 3,500
5,000 1,000 4,000 In Exhibit 11-1, when disposable income is increased from $2,000 to
$3,000 to $4,000,
a. total consumption increases by $1,000.
b. the marginal propensity to consume remains constant.
c. the marginal propensity to consume increases from 0.6 to 0.7.
d. the marginal propensity to consume decreases from 0.8 to 0.7.
e. the marginal propensity to consume decreases from 0.7 to 0.6.
Use the table below to answer the following question. Income Consumption
(Dollars) (Dollars)
45,000 40,000
50,000 44,000 What is the marginal propensity to consume?
a. 0.80.
b. 0.88.
c. 0.89.
d. 1.25.
The nation has its own MPC. When national income increases from $300 billion to
$400 billion, national consumption increases from $300 billion to $360 billion. At Y =
$400 billion, the MPC is:
a. 0.2.
b. 0.5.
c. 0.6.
d. 0.67.
e. 1.33.
Lewis Corporation reported the following information for the year ended December 31,
2015:
What was the economic effect of the payment of Lewis’ dividends?
a. The dividend reduced net income for 2015.
b. The dividend should be equal to net income if the company’s accounting equation is
in balance.
c. The dividends reduce total retained earnings for the year.
d. The dividends must be paid whenever Lewis Corp. reports net income.
In the aggregate expenditures model, a tax cut causes a(n):
a. upward shift in the aggregate expenditures curve.
b. downward shift in the aggregate expenditures curve.
c. shift in the 45-degree line.
d. rightward movement along the aggregate expenditures curve.
e. leftward movement along the aggregate expenditures curve.
Which financial statement would you analyze to determine if a company distributed any
of its profits to its shareholders?
a. Balance Sheet
b. Statement of Retained Earnings
c. Income Statement
d. Statement of Public Accounting
As production of a good increases, opportunity costs rise because:
a. there will be more inefficiency.
b. people always prefer having more goods.
c. of inflationary pressures.
d. workers are not equally suited to all tasks.
Assume General Motors has decided to build an assembly plant in St. Louis. The plant
will employ 1,000 full-time workers at an annual wage of $40,000 each. If the marginal
propensity to consume in St. Louis is 2/3, what change in income will result from
operation of the plant for one year?
a. $26.7 million.
b. $40 million.
c. $80 million.
d. $120 million.
If an economy’s population grows at 3 percent and real GDP grows at 2 percent, then:
a. per capita real GDP is declining.
b. the economy’s standard of living is increasing.
c. per capita real GDP is negative.
d. per capita real GDP is growing.
e. the economy is experiencing unemployment.
Using the income approach, the largest portion of GDP is:
a. employee compensation.
b. net interest.
c. rent.
d. profits.
e. depreciation.
Exhibit 9-1 GDP and consumption data GDP
ConsumptionAggregate ExpendituresUnplanned inventory
$0 $0.5
1 1.0
2 1.5
3 2.0
4 2.5
5 3.0
6 3.5
7 4.0
8 4.5
As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1
trillion, net exports are -$0.5 trillion, and GDP is $2 trillion, then:
a. inventory depletion is -$1.5 trillion.
b. inventory accumulation is -$2.0 trillion.
c. inventory depletion is -$0.5 trillion.
d. inventory accumulation is $0.5 trillion.