c.
an increase in the value of real wealth
d.
an increase in the price level
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Factors that Shift the Consumption Function
134. If the stock market falls by 25 percent next year and remains down, what is most likely to happen to the consumption
function?
a.
It will shift upward.
b.
It will shift downward.
c.
It will not shift, but people will move downward along the consumption function.
d.
It will not shift, but people will move upward along the consumption function.
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Factors that Shift the Consumption Function
135. Which of the following will most likely have the greatest effect on an individual’s consumption function?
a.
winning a small amount in the lottery
b.
a one-time tuition grant
c.
a week of high overtime pay
d.
an inheritance paying a modest annual dividend
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Factors that Shift the Consumption Function
136. Which of the following will most likely cause movement along the consumption function?
a.
a change in disposable income
b.
a change in interest rates
c.
a change in tastes
d.
a change in consumers’ expectations
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Factors that Shift the Consumption Function
137. Which of the following will most likely cause a shift in the consumption function?
a.
b.
c.
d.
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Factors that Shift the Consumption Function
138. A decrease in the price level will most likely have what effect on the consumption function?
a.
It will shift upward.
b.
It will shift downward.
c.
It will cause movement downward along the function.
d.
It will cause movement upward along the function.
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Factors that Shift the Consumption Function
139. A once-and-for-all jump in the price level would initially cause a(n)
a.
upward shift in the consumption function.
b.
upward movement along the consumption function.
c.
downward shift in the consumption function.
d.
downward movement along the consumption function.
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Factors that Shift the Consumption Function
140. A sudden decrease in consumers’ wealth-resulting, for example, from a stock market crash-would initially cause a(n)
a.
downward movement along the consumption function.
b.
downward shift of the consumption function.
c.
upward movement along the consumption function.
d.
upward shift of the consumption function.
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Factors that Shift the Consumption Function
141. Suppose the stock market rises, causing a rapid increase in consumers’ wealth. This would lead to
a.
a downward movement along the consumption function.
b.
a downward shift of the consumption function.
c.
an upward movement along the consumption function.
d.
an upward shift of the consumption function.
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Factors that Shift the Consumption Function
142. Most older persons regularly spend more than their current disposable income. How is this possible?
a.
They receive government transfer payments.
b.
They work to supplement their retirement income.
c.
They borrow and increase their debt levels.
d.
They withdraw funds from accumulated wealth.
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Factors that Shift the Consumption Function
143. Why does an increase in the price level tend to cause the consumption function to shift downward?
a.
An increase in the price level decreases disposable income.
b.
An increase in the price level increases the demand for fixed money assets.
c.
An increase in the price level decreases the value of fixed money assets.
d.
An increase in the price level decreases saving and increases debt.
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Factors that Shift the Consumption Function
144. According to economists, how does an increase in the inflation rate affect the consumption function?
a.
It shifts the function upward.
b.
It shifts the function downward.
c.
It causes movement upward along the function.
d.
It causes movement downward along the function.
e.
It has no predictable effect on the function.
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Factors that Shift the Consumption Function
145. Most statistical studies on the relationship between real interest rates and saving conclude that higher real interest
rates
a.
increase saving.
b.
tend to decrease saving.
c.
tend to decrease both consumption and saving.
d.
have no effect on saving.
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Factors that Shift the Consumption Function
146. If real interest rates decrease, we generally expect
a.
saving to increase.
b.
saving to decrease.
c.
consumption spending to decrease.
d.
no significant change in saving.
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Factors that Shift the Consumption Function
147. Lower real interest rates
a.
tend to shift the consumption function upward.
b.
have no significant effect on consumption.
c.
tend to shift the consumption function downward.
d.
tend to move the consumer upward along the consumption function.
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Factors that Shift the Consumption Function
148. If consumers’ expectations about future income are very optimistic, then we should expect
a.
the consumption function to shift downward.
b.
consumers to move up along the consumption function.
c.
the consumption function to shift upward.
d.
consumers to move down along the consumption function.
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Factors that Shift the Consumption Function
149. We should expect the consumption function to shift downward if
a.
real interest rates rise.
b.
price levels fall.
c.
consumers become more optimistic about future incomes.
d.
consumers become more pessimistic about future incomes.
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Factors that Shift the Consumption Function
150. If the consumption function shifts downward, which of the following is the most likely cause?
a.
Consumers become more optimistic.
b.
The price level increased.
c.
Consumers’ incomes increase.
d.
Real interest rates decrease.
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Factors that Shift the Consumption Function
151. A major employer in a small town announces upcoming major layoffs of employees. What should we expect to
happen to the consumption functions of the affected employees?
a.
the consumption functions will shift upward.
b.
most employees will move upward along their consumption functions
c.
the consumption functions will shift downward
d.
most employees will move downward along their consumption functions
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Factors that Shift the Consumption Function
152. Most people base their current consumption spending at least partially on
a.
short-run debt.
b.
long-run debt.
c.
long-run real interest rates.
d.
long-run income.
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Issue Revisited: Why Temporary Tax Cuts Have Only Modest Effects on Spending
153. The main reason that the 1975, 2008, and 2009 tax cuts did not have a large effect on GDP is that they were
a.
temporary surcharges rather than permanent surcharges.
b.
permanent surcharges rather than temporary surcharges.
c.
temporary tax cuts rather than a permanent tax cuts.
d.
permanent tax cuts rather than a temporary tax cuts.
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Issue Revisited: Why Temporary Tax Cuts Have Only Modest Effects on Spending
154. The tax cut of 2009 had little significant effect on consumer spending because it
a.
was not large enough.
b.
was perceived as temporary.
c.
came too early in the year.
d.
was subtracted from 2008 taxes due.
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Issue Revisited: Why Temporary Tax Cuts Have Only Modest Effects on Spending
155. If personal taxes are cut temporarily, the resulting
a.
increase in personal saving would be larger than if they were cut permanently.
b.
decrease in personal saving would be larger than if they were cut permanently.
c.
decrease in personal saving would be smaller than if they were cut permanently.
d.
increase in personal saving would be smaller than if they were cut permanently.
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Issue Revisited: Why Temporary Tax Cuts Have Only Modest Effects on Spending
156. The U.S. experience with tax cuts and tax increases since 1975 suggests that
a.
tax cuts always stimulate consumption spending.
b.
tax changes have a stable and predictable effect on consumption spending.
c.
temporary tax changes are less effective than permanent changes.
d.
tax changes have no effect on consumption spending.
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Issue Revisited: Why Temporary Tax Cuts Have Only Modest Effects on Spending
157. Why do permanent tax cuts have a greater impact on consumption than temporary tax cuts?
a.
Permanent tax cuts have a greater effect on expected long-run inflation.
b.
Permanent tax cuts are perceived as minor while temporary tax cuts are larger and more effective.
c.
Permanent tax cuts cause movement along the consumption function, while temporary tax cuts shift the
consumption function.
d.
Permanent tax cuts affect expectations of long-run income more than temporary tax cuts.
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Issue Revisited: Why Temporary Tax Cuts Have Only Modest Effects on Spending
158. The most volatile component of aggregate demand is
a.
consumption spending.
b.
government spending.
c.
investment spending.
d.
net exports.
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The Extreme Variability of Investment
159. Which of the following is not a factor that influences investment spending?
a.
transfer payment policy
b.
business confidence
c.
business expectations
d.
technical change
a
Moderate
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The Extreme Variability of Investment
160. Suppose the federal government wants to encourage businesses to increase investment spending. Which policy may
be the most effective?
a.
an increase in corporate income taxes
b.
an increase in real interest rates
c.
an increase in warnings of a coming recession
d.
an increase in tax deductions for investment spending
Moderate
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The Extreme Variability of Investment
161. U.S. imports are most likely to increase when
a.
U.S. GDP decreases.
b.
U.S. unemployment rates fall.
c.
U.S. prices fall.
d.
foreign prices rise.
Moderate
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The Determinants Of Net Exports
162. If the Japanese economy is currently suffering from a recession we should expect U.S. exports to Japan to
a.
decrease.
b.
increase.
c.
remain the same.
d.
increase only if the Japanese Yen depreciates.
LEARNING OBJECTIVES:
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NATIONAL STANDARDS:
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The Determinants Of Net Exports
163. The book that is the basis for modern macroeconomic theory is
a.
The Wealth of Nations.
b.
Principles of Political Economy.
c.
The General History of Money and Banking.
d.
The General Theory of Employment, Interest, and Money.
LEARNING OBJECTIVES:
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NATIONAL STANDARDS:
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Appendix: National Income Accounting
164. The system of measurement for expressing macroeconomic data is called
a.
national income accounting.
b.
balance of payment accounting.
c.
generally accepted accounting principles.
d.
double entry bookkeeping.
LEARNING OBJECTIVES:
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Appendix: National Income Accounting
165. When computing gross domestic product, government services are valued at the
a.
price consumers pay for them.
b.
value of the resources used to produce them.
c.
value of comparable outputs from the private sector.
d.
value of taxes collected from consumers.
LEARNING OBJECTIVES:
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Appendix: National Income Accounting
166. One difficulty of computing the value of GDP is that there are no market prices for
a.
exports and imports.
b.
business investments.
c.
government goods and services.
d.
resource values.
c
Easy
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Appendix: National Income Accounting
167. The one category of goods that are not sold but are, nevertheless, included in GDP is
a.
inventories.
b.
imports.
c.
consumer services.
d.
exports.
a
Easy
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Appendix: National Income Accounting
168. Goods produced that go into inventories are
a.
not counted in GDP.
b.
only counted in GDP when they are ultimately sold.
c.
counted in GDP even though they are not sold.
d.
counted if they completely depreciate within the calendar year.
c
Moderate
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Appendix: National Income Accounting
169. Which of the following observations concerning GDP calculations is true?
a.
Goods and services produced by governments are valued at market price.
b.
Inventories are treated as if they are yet to be sold.
c.
Goods produced but not sold during the year are counted in that year’s GDP.
d.
Goods that firms add to their inventories do not count in the GDP.
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Appendix: National Income Accounting
170. Inventories are goods that can be considered as “purchased” by
a.
the firms that produce them.
b.
the consumers that ultimately buy them.
c.
the government since they are tax deductible.
d.
no one since they are not counted as part of GDP.
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Appendix: National Income Accounting
171. Investment goods are counted in GDP because they are
a.
intermediate goods.
b.
purchased in their final form.
c.
usually exported as foreign investment.
d.
deductible business expenses.
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Appendix: National Income Accounting
172. Gross private domestic investment in the United States consists of three components:
a.
stocks, bonds, and mutual funds.
b.
automobiles, trucks, and houses.
c.
plant, equipment, & software, houses, and inventories.
d.
plant, equipment, & software, houses, and net exports.
c
Easy
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Appendix: National Income Accounting
173. Which of the following is not part of the investment component of GDP?
a.
residential construction
b.
plant, equipment, and software
c.
net imports
d.
business structures
c
Easy
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Appendix: National Income Accounting
174. Residential construction (new houses and apartments) are included in which component of GDP?
a.
government purchases
b.
retail spending
c.
investment spending
d.
net exports
c
Easy
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Appendix: National Income Accounting
175. The purchase of stocks and bonds is included in which component of GDP?
a.
saving
b.
investment
c.
consumer spending
d.
They are not included in GDP.
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Appendix: National Income Accounting
176. Among the following, which would not be considered part of the investment component of GDP?
a.
manufacturers’ equipment
b.
buying corporate stock
c.
new houses
d.
business structures
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Appendix: National Income Accounting
177. In the national income accounts, the symbol G represents the
a.
government production of goods and services.
b.
volume of goods and services purchased by the federal government.
c.
value of goods and services purchased by the federal government.
d.
value of goods and services purchased by all levels of government.
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Appendix: National Income Accounting
178. GDP can be calculated as the final demand for goods and services by consumers, businesses,
a.
and governments.
b.
and foreigners.
c.
governments, and foreigners.
d.
governments, and financial institutions.
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