Question 1

The amount of autonomous consumption in an economy is measured by the:
A) the intercept of the consumption function when disposable income is positive.
B) the intercept of the consumption function where actual consumption is above the 45-degree line.
C) the intercept of the consumption function when disposable income is zero.
D) the intercept of the consumption function where actual consumption is above the 45-degree line
E) the intercept of the consumption function when disposable income is negative

Accepted Answer

Autonomous consumption is the amount of consumption that does not depend on disposable income. Therefore, it is measured by the intercept of the consumption function when disposable income is zero, as this is the level of consumption that is independent of income.

Question 2

Keynesian economics developed in response to:
A) the Great Depression of the 1930s.
B) the inflation following World War II.
C) economic growth during the 1950s.
D) the Vietnam War.
E) the oil embargo in the 1970s.

Accepted Answer

Keynesian economics developed as a response to the Great Depression of the 1930s, as British economist John Maynard Keynes proposed that government intervention, such as increased spending and lowered taxes, could stimulate demand and revive the economy.

Question 3

The part of the disposable income that is not consumed by households is:
A) given away in the form of taxes.
B) given away as charity.
C) saved.
D) deducted as a depreciation cost.
E) spent on imports.

Accepted Answer

The disposable income that is not consumed by households can either be saved or invested.

Question 4

The 45-degree line used in a consumption function represents:
A) the saving function.
B) all points at which saving equals disposable income.
C) all points at which consumption equals saving.
D) all points at which all disposable income is consumed.
E) the aggregate income of the economy.

Accepted Answer

The answer of The 45-degree line used in a consumption...

Question 5

The sum of consumption and saving is called _____.
A) net investment
B) net income
C) personal income
D) disposable income
E) transfer income

Accepted Answer

The sum of consumption and saving is called disposable income, which is the income that individuals have available for spending and saving after taxes and other mandatory charges are deducted from their income.

Question 6

Autonomous consumption is defined as:
A) the domestic consumption that does not depend on the exchange rate.
B) the consumption expenditures incurred by the government.
C) the level of consumption that does not depend on income.
D) an equilibrium condition that needs to be met for the model to work.
E) the part of consumption that is related to investment.

Accepted Answer

Autonomous consumption refers to the level of consumption that does not depend on income. It is considered a fixed amount of consumption that individuals engage in regardless of their income level. Choices A, B, D, and E are incorrect as they do not define autonomous consumption.

Question 7

Which of the following variables is a flow concept?
A) Gross domestic product
B) Assets
C) Wealth
D) Money supply
E) Saving

Accepted Answer

Flow concepts are variables that represent a quantity per unit of time, and saving is a flow concept because it represents the amount of income that is not spent during a period of time. Gross domestic product (A) and money supply (D) are both stock concepts, meaning they represent a quantity at a point in time. Assets (B) and wealth (C) are also stock concepts, representing a total quantity at a point in time.

Question 8

The income net of taxes is called _____.
A) real income
B) disposable income
C) nominal income
D) taxable income.
E) personal income.

Accepted Answer

Disposable income refers to the income that is left with an individual after the taxes and other deductions have been made. It can be used for consumption or savings.

Question 9

In the country of Marzipana, total consumption in Year 1 was $56,000 million and in Year 2 was 60,000 million. It has been observed that each time disposable income changes in this country by $100, consumption changes by $70. Using this information compute the change in disposable income from Year 1 to Year 2.
A) Disposable income increased by $2,800 million in Year 2.
B) Disposable income decreased by $2,000 million in Year 2.
C) Disposable income increased by $2,000 million in Year 2.
D) Disposable income increased by $4,500 million in Year 2.
E) Disposable income decreased by $2,600 million in Year 2.

Accepted Answer

The answer of In the country of Marzipana, total consumption...

Question 10

The figure given below represents the saving function of an economy.
Figure 9.1
 
-Refer to Figure 9.1. Which of the following statements is true for real GDP levels below $400 billion?
A) Saving exists because consumption is smaller than disposable income.
B) Saving does not exist because consumption exceeds disposable income.
C) The corresponding section of the consumption function lies below the 45-degree line.
D) Autonomous consumption is equal to zero.
E) The slope of the consumption function becomes negative.

Accepted Answer

When real GDP levels are below $400 billion, consumption exceeds disposable income, meaning saving does not exist.

Question 11

The figure given below represents the saving function of an economy.
Figure 9.1
 
-Refer to Figure 9.1. An increase in autonomous consumption would be illustrated by:
A) an upward shift of the saving function.
B) a downward shift of the saving function.
C) a downward shift of the corresponding consumption function.
D) a movement to the right along the saving function.
E) a movement to the left along the saving function.

Accepted Answer

Autonomous consumption is consumption that is not influenced by income or other economic variables. An increase in autonomous consumption would lead to a decrease in saving at every level of income, which would be illustrated by a downward shift of the saving function. Therefore, the correct choice is B.

Question 12

Dissaving occurs when:
A) disposable income is greater than consumption.
B) consumption is greater than disposable income.
C) consumption is equal to disposable income.
D) consumption is greater than personal income.
E) consumption is less than personal income.

Accepted Answer

Dissaving occurs when consumption (spending) is greater than disposable income (income after taxes and transfers). This means that individuals are spending more than they are earning, and may be drawing down savings or going into debt.

Question 13

The figure given below represents the saving function of an economy.
Figure 9.1
 
-Refer to Figure 9.1. At the real GDP level of $400 billion, which of the following statements is true?
A) There is dissaving.
B) Saving is equal to $10 billion.
C) Consumption is equal to disposable income.
D) The slope of the saving function is equal to zero.
E) The slope of the consumption function is equal to zero.

Accepted Answer

The answer of The figure given below represents the saving...

Question 14

A key assumption of the Keynesian model of macroeconomics is a fixed _____.
A) interest rate
B) price level
C) exchange rate
D) real GDP
E) unemployment level

Accepted Answer

The Keynesian model assumes a fixed price level in the short run, meaning that changes in aggregate demand will primarily affect output and employment rather than prices.

Question 15

Which of the following is a stock variable?
A) Government spending
B) Investment
C) Daily household consumption
D) Saving
E) Wealth

Accepted Answer

Wealth is a stock variable as it represents the total value of assets a person or entity holds at a specific point in time, as opposed to a flow variable which measures the changes over a period of time.

Question 16

Identify the correct statement with respect to consumption and saving function.
A) Both the consumption function and the saving function have negative slopes.
B) As disposable income declines, consumption and saving increase.
C) The consumption function has a negative slope while the saving function has a positive slope.
D) As disposable income rises, consumption and saving increase.
E) The consumption function has a positive slope while the saving function has a negative slope.

Accepted Answer

As disposable income rises, households typically increase their consumption spending, as they have more money to spend. However, they also typically increase their saving, as they want to set aside some of this additional income for future needs. Thus, both consumption and saving increase as disposable income rises, leading to a positive slope for both the consumption function and the saving function. Option A is incorrect as both consumption and saving functions have positive slopes. Option B is incorrect as there is an inverse relationship between disposable income and consumption/saving. Option C is incorrect as the consumption function has a positive slope while the saving function has a negative slope. Option E is incorrect for the same reason as option C.

Question 17

The figure given below represents the saving function of an economy.
Figure 9.1
 
-Refer to Figure 9.1. When disposable income equals zero:
A) autonomous consumption equals zero.
B) the maximum amount of saving equals $10 billion.
C) autonomous income equals $10 billion.
D) autonomous consumption equals $10 billion.
E) consumption is negative.

Accepted Answer

Autonomous consumption is the level of consumption when disposable income is zero, which is given as $10 billion in the scenario.

Question 18

Suppose two successive levels of disposable personal income are $16 and $21 billion, respectively, and the change in consumption spending between these two levels of disposable personal income is $2 billion, then the MPC will equal _____.
A) 0.12
B) 0.8
C) 0.7
D) 0.4
E) 0.04

Accepted Answer

The answer of Suppose two successive levels of disposable personal...

Question 19

Identify the correct statement.
A) Autonomous consumption equals saving when disposable income is equal to zero.
B) Saving is equal to consumption when autonomous consumption is zero.
C) The savings function always has a positive intercept when autonomous consumption is positive.
D) The consumption and saving function intersect each other when disposable income is zero.
E) Autonomous consumption is positive even when disposable income is zero.

Accepted Answer

Autonomous consumption refers to the minimum level of consumption that occurs even when disposable income is zero. This means that even if someone has no income, they will still consume some basic goods and services, such as food and shelter. Therefore, autonomous consumption is typically positive, which makes option E the correct statement.

Question 20

The consumption function illustrates that:
A) saving increases as disposable income decreases.
B) consumption increases as saving increases.
C) consumption increases as disposable income increases.
D) consumption increases as disposable income decreases.
E) consumption increases as investment increases.

Accepted Answer

The consumption function illustrates that consumption increases as disposable income increases. This is the basic premise of the consumption function, which is a relationship between disposable income and consumption. As disposable income increases, individuals have more disposable income available for spending and consumption increases.

Quiz 9: Aggregate Expenditures

The amount of autonomous consumption in an economy is measured by the:

Keynesian economics developed in response to:

The part of the disposable income that is not consumed by households is:

The 45-degree line used in a consumption function represents:

The sum of consumption and saving is called _____.

Autonomous consumption is defined as:

Which of the following variables is a flow concept?

The income net of taxes is called _____.

The figure given below represents the saving function of an economy. Figure 9.1 -Refer to Figure 9.1. Which of the following statements is true for real GDP levels below $400 billion?

The figure given below represents the saving function of an economy. Figure 9.1 -Refer to Figure 9.1. An increase in autonomous consumption would be illustrated by:

Dissaving occurs when:

The figure given below represents the saving function of an economy. Figure 9.1 -Refer to Figure 9.1. At the real GDP level of $400 billion, which of the following statements is true?

A key assumption of the Keynesian model of macroeconomics is a fixed _____.

Which of the following is a stock variable?

Identify the correct statement with respect to consumption and saving function.

The figure given below represents the saving function of an economy. Figure 9.1 -Refer to Figure 9.1. When disposable income equals zero:

Suppose two successive levels of disposable personal income are $16 and $21 billion, respectively, and the change in consumption spending between these two levels of disposable personal income is $2 billion, then the MPC will equal _____.

Identify the correct statement.

The consumption function illustrates that: