Question 1

If consumption in Canada was 68 percent of GDP,investment was 19 percent,government purchases were 13 percent,exports were 14 percent,and imports were 14 percent,what is the net exports percentage of GDP?

Accepted Answer

Net exports are calculated as exports minus imports. In this case, exports are 14 percent and imports are 14 percent, so net exports are 0 percent of GDP.

Question 2

With which of the following marginal propensities to consume would a given change in disposable income have the smallest effect on aggregate demand?

Accepted Answer

A lower marginal propensity to consume (MPC) means that a smaller portion of additional income is spent on consumption, leading to a smaller effect on aggregate demand. An MPC of 0.2 is the lowest among the options, resulting in the smallest change in aggregate demand.

Question 3

If private consumption in Canada was 69 percent of GDP,investment was 18 percent,government purchases were 18 percent,exports were 9 percent,and imports were 14 percent,what percentage of GDP would net exports be equal to?

Accepted Answer

Net exports are calculated as exports minus imports. In this case, net exports would be 9% (exports) - 14% (imports) = -5% of GDP.

Question 4

Which of the following changes in disposable income would lead to the greatest increase in consumption?

Accepted Answer

The answer of Which of the following changes in disposable...

Question 5

In adding the nation's total output,which of the following best describes net exports?

Accepted Answer

Net exports refer to the difference between the value of a country's exports and the value of its imports. If the value of a country's exports exceeds the value of its imports, then its net exports are positive. Therefore, option C is the correct choice. Options A, B, and D are incorrect because they are either too general or do not fully capture the nature of net exports.

Question 6

With which of the following marginal propensities to consume would a given change in disposable income have the greatest effect on consumption?

Accepted Answer

The marginal propensity to consume (MPC) represents the fraction of an increase in income that households spend on consumption, and the higher the MPC, the greater the effect on consumption for a given change in disposable income. Therefore, the answer is D as the MPC of 0.8 indicates that for every additional $1 of disposable income, households will spend $0.80 on consumption, resulting in a greater effect on consumption compared to the other choices.

Question 7

Which of the following changes in taxes would lead to the greatest increase in consumption?

Accepted Answer

The answer of Which of the following changes in taxes...

Question 8

If private consumption in Canada was 67 percent of GDP,investment was 16 percent,government purchases were 13 percent,exports were 12 percent,and imports were 8 percent,what is the net exports percentage of GDP?

Accepted Answer

Net exports can be calculated by subtracting imports from exports, so net exports = exports - imports = 12% - 8% = 4%.

Question 9

What is an increase in interest rates likely to result in?

Accepted Answer

An increase in interest rates will make borrowing more expensive, which will decrease investment spending. This is because businesses will be less likely to take out loans and invest in new projects when borrowing is more expensive.

Question 10

Which of the following changes in tax income would lead to the smallest increase in consumption?

Accepted Answer

The size of the increase in consumption depends on the product of the tax cut and the MPC (marginal propensity to consume). The smallest increase in consumption would be achieved by the smallest product of tax cut and MPC, which is $30,000 x 0.25 = $7,500. Therefore, choice C (a $30,000 decrease in taxes, if MPC equals 0.25) would lead to the smallest increase in consumption.

Question 11

With which of the following marginal propensities to consume would a given change in disposable income have the smallest effect on consumption?

Accepted Answer

A marginal propensity to consume (MPC) of 0.2 means that only 20% of any change in disposable income will be spent on consumption, resulting in the smallest effect on consumption compared to higher MPC values.

Question 12

Which of the following will decrease aggregate demand?

Accepted Answer

When exports fall faster than imports, it means there are less goods and services being sold to other countries, resulting in a decrease in overall demand for those goods and services. This decrease in demand will lead to a decrease in aggregate demand.

Question 13

Which of the following changes in disposable income would lead to the smallest increase in consumption?

Accepted Answer

The increase in consumption is calculated as the increase in disposable income multiplied by the marginal propensity to consume (MPC). For option A, the increase is $30,000 * 0.25 = $7,500, which is the smallest among the options.

Question 14

If Don spends $10 000 on consumption when he has no disposable income and then spends 75 cents out of every dollar of disposable income he earns on consumption,which of the following statements about Don's consumption is the most accurate?

Accepted Answer

MPC (marginal propensity to consume) is the change in consumption divided by the change in disposable income. Since Don spends 75 cents out of every dollar of disposable income he earns on consumption, his MPC is 0.75. Option B is incorrect because it implies that Don's APC (average propensity to consume) will rise as his income rises, but we don't have enough information to make that conclusion. Option C is also incorrect because it assumes that Don's consumption will double as his disposable income doubles, which is not necessarily true. Option D is incorrect because Don's APC is the ratio of consumption to total income, not the ratio of change in consumption to change in income.

Question 15

What is a decrease in interest rates likely to result in?

Accepted Answer

A decrease in interest rates makes it cheaper to borrow money, which incentivizes people to spend more on big-ticket items like homes or cars. Thus, an increase in consumption spending is likely to result from a decrease in interest rates.

Question 16

If our exports of final goods and services increase more than our imports,other things being equal,how will aggregate demand be affected?

Accepted Answer

An increase in exports of final goods and services means an increase in net exports which increases aggregate demand. This is because when exports increase, there is an increase in demand for domestically produced goods and services which in turn leads to an increase in output, income, and employment.

Question 17

With which of the following marginal propensities to consume would a given change in disposable income have the greatest effect on aggregate demand?

Accepted Answer

The higher the marginal propensity to consume, the greater the effect a change in disposable income will have on aggregate demand. A marginal propensity to consume of 0.8 means that for every additional dollar of disposable income, 80 cents will be spent on consumption, leading to a greater increase in aggregate demand.

Question 18

If a U.S.citizen buys a science fiction book printed in Canada,how does that transaction affect the measurement of aggregate demand in Canada?

Accepted Answer

Since the book was printed in Canada and sold to a U.S. citizen, it is considered an export from Canada and is included in Canada's aggregate demand.

Question 19

What is included in investment (I)?

Accepted Answer

Investment (I) includes the amount spent on capital goods such as new factories and machinery, which contribute to the production of goods and services. Choices A and C are incorrect as they do not directly contribute to the production process. Choice B refers to durable goods, but these are considered as consumer spending, not investment.

Question 20

If a person's consumption goes from $8 000 to $12 000 when her disposable income goes from $10 000 to $20 000,what is her MPC equal to?

Accepted Answer

The answer of If a person's consumption goes from $8...

Quiz 8: Aggregate Demand