Question : 14.5   Chapter Figures The above figure shows a nation’s consumption function. 1) : 1240572

 

14.5   Chapter Figures

 

The above figure shows a nation’s consumption function.

 

1) Using this consumption function, autonomous consumption is

A) $0.

B) between $1 and $2 trillion.

C) more than $2 trillion and less that $5 trillion.

D) more than $5 trillion and less than $8 trillion.

E) more than $8 trillion.

 

2) Using this consumption function, the marginal propensity to consume is

A) 0.

B) $1.5 trillion.

C) $2 trillion.

D) 1.33.

E) 0.75.

 

The figure above shows three different consumption functions for a nation.

 

3) Which of the following events could result in the consumption function shifting from CF0 to CF1?

A) an increase in disposable income

B) a decrease in disposable income

C) an increase in the real interest rate

D) a decrease in wealth

E) an increase in expected future income

 

4) Which of the following events could result in the consumption function shifting from CF0 to CF2?

A) an increase in disposable income

B) a decrease in disposable income

C) an increase in the real interest rate

D) an increase in wealth

E) an increase in expected future income

5) Which of the following events could result in the consumption function shifting from CF0 to CF2?

A) an increase in disposable income

B) a decrease in disposable income

C) a decrease in the real interest rate

D) a decrease in wealth

E) an increase in expected future income

 

 

The figure above shows two aggregate expenditure lines.

 

6) In the figure above, what is the size of the multiplier?

A) 0.25

B) 4.0

C) $2 trillion

D) $0.5 trillion

E) More information is needed to determine the size of the multiplier.

7) In the figure above, what would happen to the size of the multiplier if marginal income tax rates were increased?

A) The multiplier would rise in value.

B) The multiplier would fall in value but would not become negative.

C) The multiplier would not change in value.

D) The multiplier would fall in value and might become negative.

E) More information is needed to determine the effect on the size of the multiplier.

 

8) In the figure above, if the MPC increased, the aggregate expenditure lines would ________ and the multiplier would ________ in value.

A) become steeper; rise

B) become steeper; fall

C) become less steep; rise

D) not change; rise

E) not change; fall

 

9) In the figure above, if the marginal propensity to import increased, the aggregate expenditure lines would ________ and the multiplier would ________ in value.

A) become steeper; rise

B) become less steep; fall

C) become less steep; rise

D) not change; rise

E) not change; fall

14.6   Integrative Questions

 

1) The aggregate expenditure model predicts a business cycle expansion occurs when

A) autonomous expenditure increases.

B) aggregate supply increases.

C) potential GDP increases.

D) induced expenditure decreases.

E) the aggregate planned expenditure curve shifts downward.

 

2) Using the aggregate expenditure model, the equilibrium level of the aggregate expenditure can occur when the economy is producing

A) only at full employment.

B) only at above full employment.

C) only at below full employment.

D) at full employment, above full employment, or below full employment.

E) at either below full employment or at full employment but never at above full employment.

 

3) In the midst of the Great Depression, President Roosevelt in a radio address to the nation encouraged everyone to “spend ourselves into prosperity.” His advice reflected

A) Say’s Law.

B) the expenditure multiplier effect.

C) his view that there should be no saving and no dissaving.

D) the difference between actual aggregate expenditure and planned aggregate expenditure.

E) his view that induced expenditure was less important than autonomous expenditure.

4) Investment decreases by $300 billion, government expenditure is unchanged, and exports increase by $500 billion. As a result, autonomous expenditure ________, the total expenditure ________, and equilibrium real GDP ________.

A) decreases by $300 billion; decreases; decreases by more than $300 billion

B) increases by $500 billion; is unchanged; increases by more than $500 billion

C) is unchanged; is unchanged; is unchanged

D) increases by $800 billion; increases; increases by more than $800 billion

E) increases by $200 billion; increases; increases by more than $200 billion

 

5) Exports decrease by $500 billion, investment increases by $300 billion, and government expenditure increases by $200 billion. As a result, autonomous expenditures ________ , total expenditures ________ , and equilibrium real GDP ________.

A) decreases by $300 billion; decreases; decreases by more than $300 billion

B) is unchanged; is unchanged; is unchanged

C) decreases by $200 billion; decreases; decreases by more than $200 billion

D) increases by $500 billion; increases; increases by more than $500 billion

E) increases by $3500 billion; increases; increases by more than $300 billion

 

6) A ________ in the real interest rate ________ consumption expenditure and shifts the consumption function ________. 

A) fall; increases; upward

B) fall, decreases; upward

C) rise; decreases; upward

D) rise, increases; downward

E) fall; increases; downward

7) When firms reduce their target level of inventories, planned investment ________, and equilibrium expenditure and real GDP ________. 

A) falls; decrease

B) falls; increase

C) rises; decrease

D) rises; increase

E) falls; remains the same

 

8) When a(n) ________ in investment increases consumption and real GDP, part of the increase in expenditure is on ________, not ________ goods and services. 

A) increase; imports; foreign-produced

B) decrease; imports; U.S.-produced

C) decrease; exports ; U.S.-produced

D) increase; imports; U.S.-produced

E) increase; exports; U.S.-produced

 

9) When an expansion is triggered by a(n) ________ in autonomous expenditure, the economy turns the corner into ________, and aggregate planned expenditure exceeds real GDP. Firms’ inventories ________. 

A) increase; expansion; increase

B) increase; recession; increase

C) increase; recession; decrease

D) decrease; expansion; decrease

E) increase; expansion; decrease

10) When a recession is triggered by a(n) ________ in autonomous expenditure, and as the economy turns the corner into ________, real GDP exceeds aggregate planned expenditure and unplanned inventories ________. 

A) decrease; recession; decrease

B) decrease; recession; increase

C) decrease; expansion; increase

D) decrease; expansion; decrease

E) increase; recession; increase

 

11) To cut inventories, firms produce ________ and real GDP ________, which ________ people’s incomes. 

A) more; rises; raises

B) more; falls; lowers

C) less; falls; lowers

D) less; rises; lowers

E) less; rises; raises

 

12) The consumption function shifted upward from 1960 to 2013 because as economic growth brought ________ expected future income and ________ wealth, people chose to ________ their consumption expenditure from a given level of income.

A) higher; less; increase

B) higher; less; decrease

C) lower; greater; increase

D) higher; greater; increase

E) higher; greater; decrease

13) During the recession of 2009, the consumption function temporarily shifted ________ as a fall in house prices ________ wealth and encouraged people to ________ more. 

A) downward; lowered; spend

B) downward; raised; save

C) downward; raised; spend

D) upward; lowered; save

E) downward; lowered; save