Deck 9: Aggregate Demand Appendix: the Keynesian Cross

Question 1

If,in the aggregate,consumers spend 75 cents of every extra dollar received,then the

A)APC is 1.25.
B)APC is 0.75.
C)MPC is 0.75.
D)MPS is 0.75.

Answer 1

MPC is 0.75.

Question 2

Which of the following statements is not true about the consumption function?

A)The equation is written as C = a + bY_D.
B)It indicates the rate of consumer spending that will take place at various disposable income levels.
C)It indicates that consumption is inversely related to disposable income.
D)It shows how consumption is influenced by disposable income.

Answer 2

It indicates that consumption is inversely related to disposable income.

Question 3

Aggregate demand is the total quantity of output

A)Demanded if the economy is in equilibrium.
B)Demanded at alternative price levels in a given time period.
C)Producers are willing and able to supply at alternative price levels.
D)Consumers actually buy.

Answer 3

Demanded at alternative price levels in a given time period.

Question 4

Which of the following is not a determinant of autonomous consumption?

A)The disposable income level.
B)Taxes.
C)The availability of credit.
D)The price level.

Question 5

The consumption function implies that

A)Disposable income inversely influences consumption.
B)Consumption increases as disposable income increases.
C)Autonomous consumption changes when people have low incomes.
D)None of the choices are correct.

Question 6

If consumption is $340 and saving is $20,then disposable income

A)Is $340.
B)Is $360.
C)Is $320.
D)Cannot be determined from the information given.

Question 7

The combination of price level and real output that is compatible with both aggregate demand and aggregate supply is the definition of

A)Full-employment GDP.
B)Disposable income.
C)Macro equilibrium.
D)Real expenditures.

Question 8

The MPC indicates the portion of

A)An additional dollar of disposable income that will be saved.
B)An additional dollar of disposable income that will be spent.
C)Total income that will be saved.
D)Total income that will be spent.

Question 9

Which of the following is not a determinant of autonomous consumption?

A)Wealth.
B)Technology.
C)Tax policy.
D)Consumer confidence.

Question 10

The components of aggregate demand are

A)Consumption,government spending,net exports,and investment.
B)Consumption,exports,imports,and disposable income.
C)Consumption,inventory,government spending,and disposable income.
D)Exports, imports, investment, and disposable income.

Question 11

The MPC + MPS must always equal

A)The slope of the consumption function.
B)1.
C)The APC.
D)0.

Question 12

Given that C = $500 + 0.8Y_D,if the level of disposable income is $1,000,the level of saving is

A)$300.
B)-$300.
C)$500.
D)-$1,300.

Question 13

Suppose the MPC in an economy is 0.9.The APC is initially 0.95 and disposable income is $4 billion.If disposable income increases to $14 billion,what is the new level of consumption?

A)$13.3 billion.
B)$12.8 billion.
C)$9 billion.
D)$12.6 billion.

Question 14

Under what conditions would the APC equal the MPC at all levels of disposable income?

A)When autonomous consumption equals 0.
B)When there is saving at very high levels of disposable income.
C)When disposable income is greater than consumption.
D)When the aggregate expenditure line is horizontal.

Question 15

Given that C = $1,000 + 0.60Y_D,if the level of disposable income is $1,000,the level of saving is

A)$600.
B)$400.
C)-$600.
D)-$300.

Question 16

The marginal propensity to consume can be found by dividing

A)Total consumption by total saving.
B)Total consumption by the number of people consuming.
C)The change in total consumption by the change in disposable income.
D)Disposable income by total consumption.

Question 17

If the MPC is 0.60 and disposable income increases from $20,000 billion to $22,000 billion,consumption will increase by

A)$2,000 billion.
B)$800 billion.
C)$1,200 billion.
D)It is always equal to or greater than 1.

Question 18

According to Keynesian theory,which of the following is not true at each short-term macro equilibrium?

A)The economy may or may not be at full employment.
B)The aggregate demand curve intersects the aggregate supply curve.
C)All macroeconomic goals are achieved.
D)Producers are selling everything they currently produce.

Question 19

Consumption expenditures

A)Account for approximately two-thirds of total spending.
B)Include purchases of new and used goods by consumers.
C)Are equal to disposable personal income plus personal saving.
D)Are equal to consumer spending plus transfer payments.

Question 20

Given a consumption function of C = $25 + 0.75Y_D,the average propensity to consume equals 1 when disposable income equals

A)$25.
B)$75.
C)$100.
D)-$300.

Question 21

Suppose the consumption function is C = $200 + 0.85Y_D.If disposable income is $400,consumption is

A)$200.
B)$540.
C)$340.
D)$185.

Question 22

An increase in the income-dependent portion of the consumption function would correspond to a

A)Shift of the consumption function upward.
B)Shift of the consumption function downward.
C)Movement along the consumption function to the right.
D)Movement along the consumption function to the left.

Question 23

Suppose the consumption function is C = $100 + 0.85Y_D.If disposable income is $400,saving is

A)-$40.00.
B)$40.00.
C)-$15.00.
D)$15.00.

Question 24

If firms become more pessimistic about future sales,then

A)The AD curve will shift to the right.
B)The AD curve will shift to the left.
C)There will be a rightward movement along the AD curve.
D)There will be a leftward movement along the AD curve.

Question 25

In a graph with disposable income on the horizontal axis and consumption on the vertical axis,the intersection of the 45-degree line with the

A)Consumption function indicates zero saving.
B)Aggregate spending curve indicates full employment.
C)Full-employment output indicates equilibrium (macro).
D)Aggregate demand curve indicates equilibrium.

Question 26

With respect to the aggregate demand curve,improved consumer confidence would

A)Shift the curve rightward.
B)Shift the curve leftward.
C)Move the economy down along the curve.
D)Move the economy up along the curve.

Question 27

Which of the following causes a movement along the investment demand curve?

A)A change in expenditures.
B)A change in technology.
C)A change in the rate of interest.
D)The current level of income.

Question 28

If consumption and investment spending decline,then state and local government spending is likely to

A)Decline,leading to more economic instability.
B)Increase,leading to more economic instability.
C)Decline,leading to less economic instability.
D)Increase, leading to less economic instability.

Question 29

Which of the following will cause the aggregate demand curve to shift to the left?

A)A decrease in consumer and business confidence because of a terrorist attack.
B)A decrease in the interest rate.
C)A decrease in business taxes.
D)An improvement in technology.

Question 30

Using the disposable income level at which the consumption function intersects the 45-degree line,we can identify

A)Full employment at the intersection point.
B)An inflationary gap to the right of the intersection point.
C)Dissaving to the left of the intersection point.
D)Dissaving to the right of the intersection point.

Question 31

The investment demand curve would shift to the left because of

A)The discovery of more efficient production methods.
B)Expectations of a recession.
C)Higher interest rates.
D)A lower current income level for the economy.

Question 32

Which government sector has the ability to respond countercyclically to the economy?

A)State only.
B)Federal only.
C)Local only.
D)Federal, state, and local.

Question 33

State and local purchases of goods and services account for approximately _______ percent of total government purchases.

A)25
B)50
C)67
D)75.

Question 34

If tax policies become less favorable,then

A)The AD curve will not be affected.
B)There will be a movement to the right along the AD curve.
C)The AD curve will shift to the left.
D)The AD curve will shift to the right.

Question 35

The line described by the consumption function C = a + bY_D will change its slope when

A)The MPC changes.
B)Consumer confidence changes.
C)Disposable income changes.
D)The APS changes.

Question 36

If the investment demand curve shifts to the left,then

A)The AD curve will shift to the left.
B)The AD curve will shift to the right.
C)The AD curve will not be affected.
D)There will be upward movement along the AD curve.

Question 37

Investment spending includes expenditures on all of the following except

A)Stocks and bonds.
B)Equipment.
C)Inventory.
D)Plants or office buildings.

Question 38

Given that autonomous consumption equals $1,000,disposable income equals $20,000,and the MPC equals 0.80,the level of

A)Saving equals $4,000.
B)Saving equals $19,000.
C)Consumption equals $17,000.
D)Consumption equals $16,000.

Question 39

If autonomous consumption decreases,then

A)The AD curve will shift to the right.
B)The AD curve will shift to the left.
C)There will be a movement to the left along the AD curve.
D)The AD curve will not be affected.

Question 40

Which of the following is not considered to be an important determinant of investment?

A)Current disposable income.
B)Expectations.
C)Interest rates.
D)Technological change.

Question 41

Which of the following is eliminated when output equals full-employment GDP?

A)Cyclical unemployment.
B)Demand-pull inflation.
C)The need for autonomous consumption.
D)Net exports.

Question 42

When aggregate expenditures fall below the full-employment level of output,which of the following types of unemployment is most likely to increase?

A)Cyclical.
B)Seasonal.
C)Frictional.
D)Structural.

Question 43

Use the following table to answer the questions : Table9.2:

Complete Table 9.2.(Data are expressed in billions of dollars. ) Given the information in Table 9.2,saving is equal to $200 billion at an output level of

A)$500 billion.
B)$600 billion.
C)$700 billion.
D) $800 billion.

Question 44

A recessionary gap implies that

A)Aggregate demand is less than aggregate supply at the full-employment price level.
B)The unemployment rate is falling.
C)Aggregate demand exceeds aggregate supply at the full-employment price level.
D)Inventories are being depleted faster than producers desire.

Question 45

Income transfers,such as unemployment insurance,welfare benefits,and food stamps,

A)Help stabilize aggregate demand.
B)Destabilize aggregate demand.
C)Have almost no impact on aggregate demand.
D)Shift aggregate demand to the left during a recession.

Question 46

Which of the following will cause an increase in U.S.imports?

A)An increase in U.S.consumer confidence.
B)An increase in foreign consumer income.
C)An increase in foreign business investment.
D)A decrease in U.S. wealth.

Question 47

Use the following table to answer the questions : Table9.2:

Complete Table 9.2.(Data are expressed in billions of dollars. ) Given the information in Table 9.2,saving equals investment at an income of

A)$500 billion.
B)$600 billion.
C)$700 billion.
D)$800 billion.

Question 48

Keynes was concerned that at macroeconomic equilibrium in a laissez faire free market economy,full employment

A)And price stability might not continue simultaneously.
B)Would continue but price stability might not.
C)Might not continue but price stability would.
D)None of the choices are correct.

Question 49

Which of the following most likely occurs when an inflationary gap exists?

A)A bidding war for available goods and services.
B)More layoffs.
C)Rising inventories.
D)Excessive saving.

Question 50

Which of the following will cause a decrease in U.S.gross exports?

A)An increase in foreign consumer income.
B)A decrease in foreign business purchases of U.S.output.
C)An increase in foreign wealth.
D)None of the choices are correct.

Question 51

Which of the following is not a component of aggregate demand?

A)Consumption.
B)Investment.
C)Productivity.
D)Net exports.

Question 52

Which of the following is true when an economy produces at full employment,but consumers,government,businesses,and the foreign sector do not buy all the output?

A)Inventories are depleted.
B)There is a recessionary gap.
C)Unemployment falls.
D)The price level rises.

Question 53

Which of the following will cause an increase in U.S.gross exports?

A)An increase in foreign consumer income.
B)A decrease in foreign business investment.
C)An increase in U.S.consumer income.
D)An increase in U.S. imports.

Question 54

A recessionary gap

A)Would cause a depletion of inventories.
B)Would occur if total output were less than aggregate demand.
C)Is the amount by which the rate of actual spending falls short of full-employment GDP.
D)Is the amount by which total spending exceeds GDP.

Question 55

Use the following table to answer the questions : Table9.1:

What is the rate of saving when income equals $1,000 billion in Table 9.1?

A)$100 billion.
B)$150 billion.
C)$250 billion.
D)Zero.

Question 56

The economy will not reach and maintain its goals of full employment and price stability unless the economy is

A)At full employment and the price level is stable.
B)Above full employment and the price level is stable.
C)Below full employment and the price level is stable.
D)None of the choices are correct.

Question 57

Which of the following lists all the components that are included in aggregate demand?

A)Consumption,government spending,net exports,and investment.
B)Government spending,saving,consumption,and investment.
C)Investment,imports,exports,consumption,and taxes.
D)Net exports, government spending, consumption, and transfer payments.

Question 58

According to Keynes,cyclical unemployment is caused by too

A)Much aggregate demand.
B)Little aggregate demand.
C)Much aggregate supply.
D)Little aggregate supply.

Question 59

Which of the following occurs when the spending on final goods and services exceeds full-employment GDP?

A)Inventory accumulation.
B)Unemployment.
C)Inflationary gap.
D)Recessionary gap.

Question 60

Use the following table to answer the questions : Table9.1:

What is the rate of saving when income equals $300 billion in Table 9.1?

A)Zero.
B)$50 billion.
C)$10 billion.
D)-$290 billion.

Question 61

Use the following table to answer the questions : Table9.2:

Complete Table 9.2.(Data are expressed in billions of dollars. ) the full-employment level of income (Y_F)in Table 9.2 is $800 billion,

A)The economy is in equilibrium.
B)There is a recessionary gap of $25 billion.
C)There is an inflationary gap of $250 billion.
D)There is a recessionary gap of $275 billion.

Question 62

A decrease in U.S.exports to Japan can be represented by

A)The aggregate expenditure curve shifting upward.
B)The aggregate expenditure curve shifting downward.
C)A rightward movement along the aggregate expenditure curve.
D)A leftward movement along the aggregate expenditure curve.

Question 63

Use the following figure to answer the questions : Figure9.1:

In Figure 9.1,at an income level of $2,000 billion,

A)Consumption equals $1,500 billion.
B)Saving equals $0.
C)The MPC equals 0.80.
D)There is dissaving.

Question 64

Use the following figure to answer the questions : Figure9.6:

In Figure 9.6,if full employment occurs at Q_C, then aggregate demand is

A)Too great,causing cyclical unemployment.
B)Too small,causing demand-pull inflation.
C)Too small,causing cyclical unemployment.
D)Just right.

Question 65

One In the News article titled "Consumer Confidence Index at All-Time Low" indicates that consumer confidence decreased.As a result,which of the following is most likely to happen?

A)Autonomous consumption will decrease.
B)Total spending will increase.
C)Investment will increase.
D)Government spending will decrease.

Question 66

Use the following figure to answer the questions : Figure9.6:

In Figure 9.6,if full employment occurs at Q_A, then aggregate demand is

A)Just right,causing no cyclical unemployment.
B)Too great,causing an inflationary gap.
C)Too small,causing an inflationary gap.
D)Too great, causing a recessionary gap.

Question 67

One In the News article titled "News Release: Personal Income and Outlays" says,"Personal consumption expenditure (PCE)increased 95 billion,or 1.0 percent." An increase in spending is likely the result of

A)An increase in saving.
B)An increase in income.
C)An increase in taxes.
D)A decrease in economic growth.

Question 68

Use the following figure to answer the questions : Figure9.1:

Using Figure 9.1,dissaving occurs at all income levels

A)Above $2,000 billion.
B)Above $3,000 billion.
C)Below $2,000 billion.
D)Below $3,000 billion.

Question 69

Use the following figure to answer the questions : Figure9.3:

the MPC in the economy depicted in Figure 9.3

A)Is constant.
B)Increases steadily as disposable income increases.
C)Decreases steadily as disposable income increases.
D)Equals 1.0.

Question 70

Use the following figure to answer the questions : Figure9.5:

In Figure 9.5,a movement from Point A to Point C would result from

A)An improvement in technology.
B)An improvement in expectations for future sales.
C)A decrease in the interest rates.
D)An decrease in disposable income.

Question 71

Assume there is a decrease in government purchases and exports.Currently there is a recessionary gap,which implies that

A)Inventories are accumulating.
B)Inventories are being depleted.
C)Desired spending is greater than output.
D)Investment is greater than saving.

Question 72

In Figure 9.2,if the consumption function shifts from C₁ to C_2, it can be determined that the

A)MPC and APC have increased at each income level.
B)MPC and APC have decreased at each income level.
C)MPC has increased and the APC has stayed the same at each income level.
D)APC has increased and the MPC has stayed the same at each income level.

Question 73

Use the following figure to answer the questions : Figure9.5:

A movement from Point A to Point B in Figure 9.5 would result in

A)A decrease in aggregate demand.
B)A decrease in both aggregate demand and aggregate supply.
C)An increase in aggregate demand.
D)An increase in aggregate demand and a decrease in aggregate supply.

Question 74

If we assume that government expenditure,investment,and net exports are not affected by income,the slope of the consumption function equals

A)APC.
B)The change in income divided by the change in consumption.
C)The slope of the aggregate expenditure curve.
D)APS.

Question 75

Use the following table to answer the questions : Table9.2:

Complete Table 9.2.(Data are expressed in billions of dollars. ) If the full-employment level of income (Y_F)in Table 9.2 is $700 billion,

A)The economy is in equilibrium.
B)There is a recessionary gap of $250 billion.
C)There is an inflationary gap of $450 billion.
D)There is an inflationary gap of $700 billion.

Question 76

Use the following figure to answer the questions : Figure9.1:

Using Figure 9.1,the amount of autonomous consumption is

A)$500 billion.
B)$750 billion.
C)Different at every income level.
D)Equal to disposable income when the consumption line crosses the 45-degree line.

Question 77

A sudden increase in confidence by the business community could best be represented by

A)The consumption curve shifting downward.
B)The AS curve shifting downward.
C)An aggregate expenditure curve shifting upward.
D)An aggregate expenditure curve shifting downward.

Question 78

Use the following figure to answer the questions : Figure9.3:

According to Figure 9.3,which of the following is true?

A)Dissaving occurs at disposable income levels above $20 billion.
B)Consumption is $10 billion when disposable income is zero.
C)The APC is greater than 1 at disposable income levels above $20 billion.
D)At a disposable income level of $20 billion, consumption is zero.

Question 79

Use the following figure to answer the questions : Figure9.1:

According to Figure 9.1,saving equals zero at an income level of

A)$0.
B)$1,000 billion.
C)$2,000 billion.
D)$500 billion.

Question 80

One In the News article titled,"News Release: Personal Income and Outlays" says that personal income increased $20 billion,or 0.17 percent,and consumers are likely to spend more if

A)Income increases.
B)Saving increases.
C)Interest rates increase.
D)Taxes increase.