True / False
1. Both President Bush and President Obama wanted tax cuts to stimulate consumer spending during the 2007-2009
recession.
a.
True
b.
False
True
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Issue: Demand management and the Ornery Consumer
2. The tax cuts of 2008 and 2009 reduced the disposable income of U.S. consumers.
a.
True
b.
False
False
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Issue: Demand management and the Ornery Consumer
3. Aggregate demand is the sum of total domestic spending by the private sector.
a.
True
b.
False
False
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
4. Aggregate demand is the total demand for the final goods and services produced in an economy.
a.
True
b.
False
True
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
5. Consumer spending is an injection in the circular flow of income and spending.
a.
True
b.
False
True
Moderate
6. Government spending is a leakage out of the circular flow of income and spending.
a.
True
b.
False
False
Moderate
7. Taxes add to and transfers subtract from the flow of income and spending.
a.
True
b.
False
False
Moderate
8. The consumption function shows an indirect relationship between consumer spending and disposable income.
a.
True
b.
False
False
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Consumer Spending and Income: The Important Relationship
9. Tax reductions should also reduce the amount of consumer expenditures.
a.
True
b.
False
False
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Consumer Spending and Income: The Important Relationship
10. Scatter diagrams are a useful way to depict the relationship between two variables.
a.
True
b.
False
True
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Reflective Thinking – BPROG: Analysis
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Consumer Spending and Income: The Important Relationship
11. A scatter diagram could help a policy maker decide on the size of a tax cut necessary to increase consumer
expenditures by a certain amount.
a.
True
b.
False
True
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Reflective Thinking – BPROG: Analysis
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Consumer Spending and Income: The Important Relationship
12. The marginal propensity to consume is calculated by dividing the change in consumer spending by the change in
disposable income.
a.
True
b.
False
True
Easy
13. The relationship between consumption and disposable income is very unreliable and unpredictable.
a.
True
b.
False
False
Moderate
14. The typical value for the MPC is less than 1.0.
a.
True
b.
False
True
Moderate
15. If consumers receive an increase in income of $1,000, their spending will increase by a smaller amount.
a.
True
b.
False
True
Moderate
16. The MPC can be used to predict the effect of a tax increase.
a.
True
b.
False
True
Moderate
17. The slope of the consumption function is equal to the marginal propensity to save.
a.
True
b.
False
False
Easy
18. A decrease in disposable income causes a shift in the consumption function.
a.
True
b.
False
False
Easy
19. A change in the value of consumer’s stock market holdings will cause a shift in the consumption function.
a.
True
b.
False
True
Difficult
20. If U.S. consumers become more optimistic about their future income and wealth, the consumption function will shift
upward.
a.
True
b.
False
True
Difficult
21. A savings account is an example of consumer income.
a.
True
b.
False
False
Easy
22. If households decrease the amount of bank account withdrawals, the consumption function may shift upward.
a.
True
b.
False
False
Difficult
23. When the price level falls, consumers may feel wealthier and the consumption function will shift upward.
a.
True
b.
False
Moderate
24. Changes in the price level affect household wealth more than household income.
a.
True
b.
False
True
Moderate
25. Bank accounts and bonds are examples of money-fixed assets.
a.
True
b.
False
True
Easy
26. A $500 government bond is a money-fixed asset.
a.
True
b.
False
True
Easy
27. The tax cuts of 2008 and 2009 were effective because consumers believed that they were temporary.
a.
True
b.
False
False
Moderate
28. Consumers increased consumption by a relatively small amount in 2008 and 2009 because they believed the tax cuts
were temporary.
a.
True
b.
False
True
Moderate
29. To economists, investment means buying stocks and bonds.
a.
True
b.
False
False
Easy
30. An example of investment is the purchase of machinery by a manufacturing company.
a.
True
b.
False
True
Moderate
31. National income minus personal taxes net of transfer payments equals disposable income.
a.
True
b.
False
True
Moderate
32. Government transfer payments are income earned by individuals who work for the federal government.
a.
True
b.
False
False
Moderate
33. Government purchases are included in national product.
a.
True
b.
False
True
Easy
34. Financial investments, such as mutual fund purchases, are included in the national income component.
a.
True
b.
False
False
Easy
35. Capital goods are counted the same as consumer goods in the national product accounts.
a.
True
b.
False
True
Easy
36. The value of both exports and imports are added to the value of national product.
a.
True
b.
False
False
Moderate
37. U.S. imports rise when income in the United States increases.
a.
True
b.
False
True
Moderate
38. If inflation rises more quickly in the United States than in France, U.S. exports to France should rise.
a.
True
b.
False
False
Difficult
39. The purchase of a new house is included in government spending.
a.
True
b.
False
False
Easy
40. An economic boom in one country usually causes a recession in other countries.
a.
True
b.
False
False
Difficult
41. National income and domestic product must be equal.
a.
True
b.
False
True
Moderate
42. For those in the lowest tax bracket, each dollar tax cut increases disposable income by about $1.33.
a.
True
b.
False
False
Moderate
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Consumer Spending and Income: The Important Relationship
43. Consumers most likely decide on their current consumption spending by looking at their short-run income prospects.
a.
True
b.
False
False
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Factors That Shift the Consumption Function
Multiple Choice
44. When aggregate demand decreases rapidly, the economy is likely to experience
a.
inflation.
b.
an economic boom.
c.
economic growth.
d.
recession.
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Issue: Demand management and the Ornery Consumer
45. Governments can affect the level of aggregate demand in a direct way by changing
a.
government spending.
b.
exports.
c.
taxes.
d.
transfer payments.
a
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Issue: Demand management and the Ornery Consumer
46. In 1975, Congress passed a tax rebate to spur consumer spending. Consumers:
a.
spent the entire amount of the tax savings, boosting the economy, as planned
b.
did not spend any of the amount of the tax savings
c.
saved a substantial share of the tax savings and spent the rest
d.
saved a small portion of the tax savings, and spent the rest
c
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Issue: Demand management and the Ornery Consumer
47. Consumer spending represents about what fraction of total spending in the economy?
a.
b.
c.
d.
e.
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Issue: Demand management and the Ornery Consumer
48. In which of the following years was a tax cut ineffective in stimulating aggregate demand?
a.
1964
b.
1975
c.
1981
d.
1999
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Issue: Demand management and the Ornery Consumer
49. Aggregate demand is the total demand for
a.
all intermediate and final goods.
b.
all monetary investments.
c.
real and financial investments.
d.
all final goods and services.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
50. If a U.S. citizen buys a car produced in Germany, this transaction will add to
a.
U.S. aggregate demand.
b.
U.S. aggregate supply.
c.
German aggregate demand.
d.
German imports.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
51. Melissa purchases shares in a government bond mutual fund. Is this included in the aggregate demand component
“Investment”?
a.
Yes, if it is a domestic mutual fund.
b.
Yes, if the purchase is made out of current income.
c.
No, unless the funds are deposited in a domestic financial institution.
d.
No, it would never be included.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Reflective Thinking – BPROG: Analysis
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
52. The “investment” component of aggregate demand will include all of the following except
a.
expenditures of business firms on new plants.
b.
expenditures of business firms on new equipment.
c.
resales of existing physical assets.
d.
household spending on new homes.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Reflective Thinking – BPROG: Analysis
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
53. Which of the following is considered to be an investment in economists’ point of view?
a.
Serena buys bonds issued by Citibank.
b.
John purchases a new house.
c.
Venus invests hundred thousand dollars in Bear Stearns stock.
d.
Allen sells the old truck he used for transporting goods.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Reflective Thinking – BPROG: Analysis
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
54. The net export component of aggregate demand is defined as U.S.
a.
imports minus U.S. exports.
b.
imports plus U.S. exports.
c.
exports minus U.S. imports.
d.
exports minus taxes and customs duties.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
55. Which of the following should be subtracted while calculating aggregate demand of the U.S.?
a.
Pakistan’s purchase of F-16s from the U.S.
b.
Computers imported by China from the U.S.
c.
Memorabilia purchases in the U.S. by a foreign tourist.
d.
A U.S. firm’s purchase of German machinery.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
56. Aggregate demand is a ____ rather than a ____.
a.
fixed number, concept
b.
schedule, fixed number
c.
set number, concept
d.
government aggregate, private aggregate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
57. Aggregate demand is the sum of
a.
C + I + G + (X − IM).
b.
C + I + X.
c.
C + I + X − IM.
d.
C + I + G.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
58. National income is
a.
the sum of all wages and salaries, interest, rent, and profits in the economy.
b.
equal to the money value of national output.
c.
the before-tax income of all individuals in the economy.
d.
All of the above are correct.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
59. The difference between national income and disposable income is
a.
residential investment.
b.
federal deficits.
c.
net exports.
d.
financial investment.
e.
the amount of taxes collected.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
60. Aggregate demand is defined as the total spending
a.
of all consumers, business firms, government agencies, and foreigners on final goods and services produced in
the United States.
b.
by all consumers, business firms, government agencies, and foreigners in the United States.
c.
consumers, businesses, government agencies, and foreigners wish to make in one year.
d.
of consumers, businesses, and government agencies on final output.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
61. Which of the following would be counted as investment in the national income accounts?
a.
the purchase of a newly issued stock
b.
the purchase of a newly built apartment house
c.
the purchase of a newly minted coin
d.
the payment of tuition at a private college
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
62. The largest component of aggregate demand is
a.
investment spending.
b.
consumer spending.
c.
government spending.
d.
total imports.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Aggregate Demand, Domestic Product, and National Income
63. Which of the following would be added to U.S. national income?
a.
an American consumer buying French wine
b.
an American business selling aircraft to British Airways
c.
a Swedish firm selling mobile phones to Americans
d.
a French firm buying a Swedish cellular phone
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
64. The circular flow diagram is best described as a(n)
a.
abstraction of little value in macroeconomics.
b.
exact representation of the cause and effect relationship between spending and employment.
c.
model that clarifies the relationship between spending and income.
d.
model to explain the relationship between the federal deficit and tax revenues.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Circular Flow of Spending, Production, and Income
65. Saving is a leakage in the sense that
a.
saving is lost to the economy and ultimately leads to stagnation.
b.
the financial system often makes negative profits.
c.
it often accompanies a trade deficit.
d.
consumers spend less than their total income.
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Circular Flow of Spending, Production, and Income
66. In economic analysis, which of the following is considered an injection?
a.
saving
b.
taxes
c.
imports
d.
exports
Easy
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Circular Flow of Spending, Production, and Income
67. Government spending is an injection in the sense that it
a.
increases the amount of total spending.
b.
increases the size of the federal deficit.
c.
decreases the amount of household saving.
d.
decreases the amount of taxes paid.
a
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Circular Flow of Spending, Production, and Income
68. Which of the following is the injection into the circular flow model?
a.
Money deposited in a savings account.
b.
Income earned through exports.
c.
Goods imported from abroad.
d.
Taxes paid by the individuals.
Moderate
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Circular Flow of Spending, Production, and Income
69. Why is it true that domestic product and national income must be equal?
a.
The IRS national accounting system assures that taxes equal total income.
b.
The total amount of spending must equal total national sales.
c.
The value of final product must equal the sum of resource income that produced it.
d.
The total amount of income earned is eventually spent.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Circular Flow of Spending, Production, and Income
70. Disposable income can be defined as national product
a.
minus federal and state taxes.
b.
minus taxes plus transfers.
c.
minus indirect taxes.
d.
plus taxes plus transfers.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Circular Flow of Spending, Production, and Income
71. In the circular flow model, which of the following is considered a leakage?
a.
investment spending
b.
business spending
c.
household saving
d.
total exports
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
The Circular Flow of Spending, Production, and Income