c.
The marginal propensity to consume for the long run consumption function is almost equal to zero.
d.
The autonomous consumption is negative in long run consumption functions.
e.
The long run consumption function is represented by a straight line parallel to the horizontal axis.
57. When we assume that investment is autonomous we imply that:
a.
it is a fixed constant amount.
b.
it is independent of current real GDP.
c.
it is a positive function of interest rates.
d.
it is actually zero.
e.
it has no impact on consumption.
b
Moderate
MACR.BOYE.16.43 – ch. 09, 3
Knowledge
58. As a function of real GDP (real GDP being measured on the horizontal axis), autonomous investment is represented
by a(n):
a.
U-shaped curve.
b.
vertical line.
c.
positively sloped line.
d.
negatively sloped line.
e.
horizontal line.
MACR.BOYE.16.43 – ch. 09, 3
Knowledge
59. Which of the following is a determinant of investment?
a.
Technological change
b.
Net exports
c.
Demographics
b
MACR.BOYE.16.42 – ch. 09, 2
Economic Insight – Permanent Income, Life Cycles, and Consumption
Knowledge
d.
Nominal GDP
e.
Population
Table 9.2
$300,000
$335,000
9%
60. Refer to Table 9.2. If a firm purchases the machine by taking out a one-year loan, how much interest will the firm
have to pay?
a.
$301,500
b.
$30,150
c.
$270,000
d.
$27,000
e.
$9,000
d
Moderate
MACR.BOYE.16.43 – ch. 09, 3
Investment
Application
61. Refer to Table 9.2. If a firm purchases the machine by taking out a one-year loan, what is the firm’s profit from the
investment?
a.
$25,500
b.
$35,000
c.
$8,000
d.
$0
e.
$6,525
Challenging
MACR.BOYE.16.43 – ch. 09, 3
Application
Easy
MACR.BOYE.16.43 – ch. 09, 3
Investment
Knowledge
62. Refer to Table 9.2. If a firm purchases the machine by taking out a one-year loan, what happens to the firm’s rate of
return on the investment if the interest rate increases to 10 percent?
a.
It increases to 1.5 percent
b.
It increases to 0.15 percent
c.
It decreases to 1.5 percent
d.
It decreases to 1.7 percent
e.
It decreases to 0.17 percent
63. When the U.S. government removes investment tax credits:
a.
consumption spending falls.
b.
the return on investment increases.
c.
capacity utilization in the economy expands.
d.
the cost of capital increases.
e.
technological innovation advances more rapidly.
MACR.BOYE.16.43 – ch. 09, 3
64. Which of the following factors will not affect the profit expectations of business firms and change the level of
investment?
a.
Entry of new firms into the market
b.
Introduction of new taxes
c.
Announcement of new government subsidies
d.
The current level of GDP
e.
The marginal propensity to consume
MACR.BOYE.16.43 – ch. 09, 3
MACR.BOYE.16.43 – ch. 09, 3
65. When capacity utilization rate is high:
a.
the price level is likely to go up.
b.
consumption is likely to go down.
c.
investment is likely to increase.
d.
the rate of interest is likely to decrease.
e.
aggregate supply of goods is likely to remain constant.
66. Which of the following will cause the investment function to shift upward?
a.
A decrease in government subsidies to businesses
b.
An increase in business profits
c.
A decline in capacity utilization
d.
Expectations of higher business taxes
e.
An increase in the market rate of interest
MACR.BOYE.16.43 – ch. 09, 3
67. As capacity utilization in an economy rises:
a.
firms sell their fixed assets to remain solvent.
b.
the gap between the potential output and actual output widens.
c.
firms reduce their demand for labor.
d.
employment of inputs by firms declines.
e.
firms add more factories and machines and increase output.
MACR.BOYE.16.43 – ch. 09, 3
68. Which of the following is least likely to contribute to the volatility of investment spending?
MACR.BOYE.16.43 – ch. 09, 3
a.
Expectations about business conditions
b.
Changes in government spending
c.
Changes in tax laws
d.
Changes in capacity utilization
e.
Interest rate fluctuations
69. The second-largest component of aggregate expenditures in the United States is _____.
a.
consumption
b.
investment
c.
government expenditure
d.
imports
e.
exports
Easy
MACR.BOYE.16.44 – ch. 09, 4
Government Spending
Knowledge
70. Other things equal, when Europeans want to buy more grains from the United States:
a.
U.S. imports will increase.
b.
European exports will increase at every level of domestic income.
c.
U.S. exports will increase at every level of domestic income.
d.
the U.S. balance of payments will show a deficit.
e.
U.S. consumption spending will fall.
Easy
MACR.BOYE.16.44 – ch. 09, 4
Models
Net Exports
Application
71. All of the following would cause exports to decline, except:
a.
a depreciation of the domestic currency.
b.
a decline in foreign income.
b
Easy
MACR.BOYE.16.43 – ch. 09, 3
Investment
Comprehension
c.
stricter government regulations on international trade.
d.
a decline in foreign preferences for domestic goods.
e.
foreign import quotas on domestic products.
72. The net export function illustrates that:
a.
net exports are a positive function of domestic income.
b.
net exports are independent of domestic income.
c.
net exports are a negative function of domestic income.
d.
exports are a negative function of foreign income.
e.
exports are independent of foreign income.
Easy
MACR.BOYE.16.45 – ch. 09, 5
Net Exports
Knowledge
Revised
73. Suppose the marginal propensity to import for country A is 0.4. Calculate the change in the total value of imports of
the country if national income increases by $100,000.
a.
$16,000
b.
$20,000
c.
$60,000
d.
$40,000
e.
$25,000
Moderate
MACR.BOYE.16.45 – ch. 09, 5
Models
Net Exports
Application
74. An MPI of 0.4 indicates that for every 100 percent increase in domestic income:
a.
there is a 40 percent increase in investment.
b.
there is a $40 increase in investment.
Moderate
MACR.BOYE.16.44 – ch. 09, 4
Net Exports
Knowledge
c.
there is a 40 percent decline in imports.
d.
there is a $40 increase in imports.
e.
there is a 40 percent increase in imports.
75. Which of the following would cause a change in imports?
a.
A change in foreign income
b.
A change in foreign consumption
c.
A change in domestic tastes for foreign products
d.
A change in foreign tastes for domestic products
e.
A change in domestic investment spending
MACR.BOYE.16.45 – ch. 09, 5
Net Exports
76. What would be the impact of an increase in foreign income on the net export function?
a.
The net export function would shift upward.
b.
The net export function would shift downward.
c.
The slope of the net export function would increase.
d.
The slope of the net export function would decrease.
e.
There would be a movement up along the net export function.
MACR.BOYE.16.45 – ch. 09, 5
Net Exports
77. Which of the following statements is true?
a.
Real GDP is a positive function of net exports.
b.
In the 1980s, the United States experienced a large trade surplus with Japan.
c.
Positive net exports mean that the domestic country imports more than it exports.
MACR.BOYE.16.45 – ch. 09, 5
Net Exports
d.
Total U.S. net exports with Western Europe are zero.
e.
U.S. net exports are negative because of large trade deficits with other industrial nations.
78. Which of the following will cause the net export function to shift?
a.
A change in real GDP
b.
An increase in government spending
c.
An increase in investment spending
d.
A change in the exchange rate
e.
A change in the domestic interest rate
d
Moderate
MACR.BOYE.16.45 – ch. 09, 5
Net Exports
Knowledge
In the table given below Y represents the aggregate expenditure of the economy on C = consumption, I = investment, G =
government projects, and X = net exports.
Table 9.3
Aggregate Expenditures
Y
C
I
G
X
$0
$50
$75
$150
$40
$150
$125
$75
$150
$10
$300
$200
$75
$150
–$20
$450
$275
$75
$150
–$50
$600
$350
$75
$150
–$80
79. Refer to Table 9.3. Calculate the marginal propensity to consume in the economy.
a.
0.25
b.
0.50
c.
0.75
d.
0.80
e.
1.25
b
Moderate
MACR.BOYE.16.46 – ch. 09, 6
Moderate
MACR.BOYE.16.45 – ch. 09, 5
Models
Net Exports
Knowledge
80. Refer to Table 9.3. Compute the marginal propensity to save in the economy.
a.
0.10
b.
0.20
c.
0.25
d.
0.50
e.
0.75
d
Moderate
MACR.BOYE.16.46 – ch. 09, 6
Models
The Aggregate Expenditures Function
Application
81. Refer to Table 9.3. At an income level of $300, the average propensity to save equals:
a.
0.10.
b.
0.23.
c.
0.33.
d.
0.67.
e.
1.50.
Moderate
MACR.BOYE.16.46 – ch. 09, 6
The Aggregate Expenditures Function
Application
82. Refer to Table 9.3. The intercept of the C+ I+ G+ X function is at an aggregate expenditures level of:
a.
$125.
b.
$150.
c.
$275.
d.
$315.
e.
$335.
d
Challenging
MACR.BOYE.16.46 – ch. 09, 6
The Aggregate Expenditures Function
The Aggregate Expenditures Function
Application
83. According to Table 9.3, what is the marginal propensity to import?
a.
–0.20
b.
0.40
c.
–0.50
d.
0.75
e.
–0.80
84. In most derivations of the aggregate expenditures model, investment is assumed to be independent of real GDP. What
would be the effect on the aggregate expenditures (AE) function if investment spending were positively related to
income?
a.
The intercept of the AE function would rise.
b.
The slope of the AE function would become flatter.
c.
Both the slope and the intercept of the AE function would increase.
d.
The slope of the AE function would become steeper.
e.
The intercept of the AE function would increase, and its slope would become flatter.
Challenging
MACR.BOYE.16.46 – ch. 09, 6
United States – Reflective Thinking
The Aggregate Expenditures Function
Analysis
85. The aggregate expenditures function:
a.
has the same slope as the aggregate demand curve.
b.
is the key determinant of equilibrium real GDP in a fixed-price model.
c.
is negatively related to household consumption.
d.
is negatively related to net exports.
e.
is equal to C+I+G-X.
b
MACR.BOYE.16.46 – ch. 09, 6
The Aggregate Expenditures Function
The figure given below shows the aggregate expenditures function of an economy.
Figure 9.5
Challenging
MACR.BOYE.16.45 – ch. 09, 5
The Aggregate Expenditures Function
86. Refer to Figure 9.5. The amount of government spending is indicated by the distance _____.
a.
Y1Y2
b.
EF
c.
Y2Y3
d.
BC
e.
AB
87. Refer to Figure 9.5. Which of the following statements is true?
a.
Autonomous net exports equal the distance between A and C.
b.
Autonomous consumption is equal to the distance between A and C.
c.
There is a deficit in the merchandise and services account.
d.
Exports exceed imports for the country in question.
e.
Autonomous consumption is equal to the distance between 0 and C.
MACR.BOYE.16.46 – ch. 09, 6
The Aggregate Expenditures Function
MACR.BOYE.16.46 – ch. 09, 6
The Aggregate Expenditures Function
88. Refer to figure 9.5. The slope of the aggregate expenditures function (AE) is flatter than the C+I+G function because:
a.
the marginal propensity to consume is ususally less than 1.
b.
the marginal propensity to import is greater than 1.
c.
the slope of the net exports function is negative.
d.
investment(I) and government spending(G) are assumed to be autonomous.
e.
there is a leakage from the aggregate expenditures function in the form of savings.
89. Consumption, saving, and wealth all represent stock concepts because they are measured over a period of time.
a.
True
b.
False
False
Easy
MACR.BOYE.16.41 – ch. 09, 1
Consumption and Saving
Knowledge
90. Changes in autonomous consumption will affect the slope of the consumption function.
a.
True
b.
False
False
Easy
MACR.BOYE.16.41 – ch. 09, 1
Models
Consumption and Saving
Knowledge
91. An increase in disposable income will cause autonomous consumption to rise.
a.
True
b.
False
False
Easy
MACR.BOYE.16.41 – ch. 09, 1
United States – The Study of Economics, and Defi – The Study of Economics, and Definitions
Moderate
MACR.BOYE.16.46 – ch. 09, 6
The Aggregate Expenditures Function
Knowledge
92. Dissaving occurs when the consumption function lies below the 45-degree line.
a.
True
b.
False
False
Easy
MACR.BOYE.16.41 – ch. 09, 1
Knowledge
93. The marginal propensity to consume (MPC) is equal to the inverse of the marginal propensity to save (MPS).
a.
True
b.
False
False
Moderate
MACR.BOYE.16.41 – ch. 09, 1
Knowledge
94. As disposable income increases, consumption spending will rise, but it will rise by less than disposable income if the
MPS is positive.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.41 – ch. 09, 1
Models
Analysis
95. The consumption function has a positive slope while the savings function has a negative slope.
a.
True
b.
False
False
MACR.BOYE.16.41 – ch. 09, 1
Consumption and Saving
Knowledge
96. Suppose that the consumption function crosses the 45-degree line at a disposable income level of $800. Assume
further that saving equals $200 when disposable income is $1,300. This implies that the MPC must equal 0.6.
a.
True
b.
False
True
Challenging
MACR.BOYE.16.41 – ch. 09, 1
Consumption and Saving
Application
97. If disposable income rises from $15,000 to $20,000 and the marginal propensity to consume equals 0.9, then saving
must increase by $500.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.41 – ch. 09, 1
Consumption and Saving
Application
98. An increase in the marginal propensity to consume necessarily reduces the marginal propensity to save.
a.
True
b.
False
True
Easy
MACR.BOYE.16.41 – ch. 09, 1
Consumption and Saving
Knowledge
99. At the point where consumption equals disposable income, the average propensity to consume equals 1.
a.
True
b.
False
True
Consumption and Saving
Knowledge
100. Saving remaining constant, the average propensity to save declines with an increase in disposable income.
a.
True
b.
False
True
Moderate
Consumption and Saving
Knowledge
101. The average propensity to save (APS) is the proportion of disposable income that is saved.
a.
True
b.
False
True
Easy
MACR.BOYE.16.41 – ch. 09, 1
Consumption and Saving
Knowledge
102. Other things equal, an increase in the consumer confidence index tends to raise the average propensity to consume.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.42 – ch. 09, 2
Consumption and Saving
Knowledge
103. When disposable income is zero, consumption is also zero.
a.
True
b.
False
Moderate
MACR.BOYE.16.41 – ch. 09, 1
Consumption and Saving
Application
104. Households in America tend to consume more and more as they grow older.
a.
True
b.
False
True
MACR.BOYE.16.42 – ch. 09, 2
Economic Insight – Permanent Income, Life Cycles, and Consumption
Knowledge
105. Economists have proved that a substantial increase in income during a month does not affect consumption much in
the short run unless it is perceived as a permanent increase.
a.
True
b.
False
True
Easy
Models
Economic Insight – Permanent Income, Life Cycles, and Consumption
Knowledge
106. According to the permanent income hypothesis, when income rises above the permanent income level, the household
saves at a lower rate than the long-run MPS.
a.
True
b.
False
False
Easy
Economic Insight – Permanent Income, Life Cycles, and Consumption
107. Investment is considered to be negatively correlated with current real GDP.
False
Easy
Consumption and Saving
Knowledge
a.
True
b.
False
108. The sum of money spent by a person to purchase a new home is considered as a part of investment spending.
a.
True
b.
False
False
Easy
MACR.BOYE.16.43 – ch. 09, 3
Investment
Knowledge
Revised
109. Planned investment is inversely related to the interest rate because the higher the interest rate, the higher the rate of
return on investment projects.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.43 – ch. 09, 3
Investment
Knowledge
110. Suppose the Kwik Print Company considers an investment project that involves the purchase of a copier with an
expected output of $4,000. If the firm has to borrow $3,000 and the rate of return is 11.1 percent, then the interest rate
associated with the loan must be 20 percent.
a.
True
b.
False
True
MACR.BOYE.16.43 – ch. 09, 3
False
Easy
MACR.BOYE.16.43 – ch. 09, 3
Investment
Knowledge
111. Other things equal, a decrease in the cost of capital would be associated with an upward shift of the investment
function and, hence, with a rise in aggregate expenditures.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.43 – ch. 09, 3
Investment
Knowledge
112. The United States introduced investment tax credit in 1962 and has continued to offer it till date. This has reduced
the volatility of investments in the country.
a.
True
b.
False
False
Moderate
Investment
Knowledge
113. If capacity utilization by businesses remains constant, investment spending is likely to be the most volatile
component of aggregate expenditures in the United States.
a.
True
b.
False
False
Easy
Models
Investment
Knowledge
114. When government spending is added to consumption and planned investment, the slope of the aggregate expenditure
function increases.
a.
True
b.
False
False
Moderate
Investment
Application
115. Other things equal, when the U.S. dollar depreciates, domestic exports rise at every level of domestic income.
a.
True
b.
False
True
Easy
MACR.BOYE.16.45 – ch. 09, 5
Models
Net Exports
Knowledge
116. MPI refers to the percentage of additional domestic income spent on imports.
a.
True
b.
False
True
Easy
MACR.BOYE.16.45 – ch. 09, 5
Net Exports
Knowledge
117. The net export function is negatively sloped because exports are inversely related to domestic income.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.45 – ch. 09, 5
Net Exports
Knowledge
118. Other things equal, a marginal propensity to import of 0.8 implies that a $100 million increase in domestic income
will lead to an $80 million decrease in net exports.
a.
True
b.
False
False
MACR.BOYE.16.44 – ch. 09, 4
Government Spending
Knowledge
119. Suppose that the U.S. trade balance is positive. Hence, when the net export function is added to C+I+G, the slope of
the U.S. aggregate expenditures function will become steeper.
a.
True
b.
False
True
Challenging
MACR.BOYE.16.46 – ch. 09, 6
Application
120. Once macroeconomic equilibrium has been established in an economy, there is no tendency for real GDP to change,
even if there is a change in autonomous expenditure.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.46 – ch. 09, 6
The Aggregate Expenditures Function
Knowledge
Moderate
MACR.BOYE.16.45 – ch. 09, 5
Net Exports
Application