Question 1

When economists say investment is autonomous,they mean that investment is independent of the level of saving.

Accepted Answer

A) True 
 B)False

Question 2

If business managers become more optimistic about future sales and profits,then there will be

Accepted Answer

A)   a rightward movement along the autonomous investment function
B)   a leftward movement along the autonomous investment function
C)   an upward shift of the autonomous investment function
D)   a downward shift of the autonomous investment function
E)   no movement along or shift of the autonomous investment functionF) None of the above
G) A) and D)

Question 3

Economists assume that the fundamental motive of investors is

Accepted Answer

A)   to maximize profit
B)   to maximize income
C)   to maximize the firm's growth
D)   to promote economic growth for the economy as a whole
E)   the desire to saveF) A) and E)
G) A) and D)

Question 4

A decrease in the price level will

Accepted Answer

A)   shift the consumption function upward
B)   make the consumption function steeper
C)   result in a movement upward along the consumption function
D)   result in a movement downward along the consumption function
E)   have no effect on the consumption functionF) B) and C)
G) D) and E)

Question 5

If income rises from $6.0 trillion to $6.4 trillion,consumption rises from $5.5 trillion to $5.8 trillion.What is the slope of the aggregate expenditure line? (Assume there is neither international trade nor any government.)

Accepted Answer

A)   0.25
B)   0.33
C)   0.67
D)   0.75
E)   1.33F) D) and E)
G) C) and E)

Question 6

Which of the following would shift the consumption function downward?

Accepted Answer

A)   a decrease in stock prices
B)   a lower interest rate
C)   a lower price level
D)   lower disposable income
E)   expectations of higher future pricesF) A) and B)
G) A) and C)

Question 7

An increase in the interest rate,other things constant,decreases the amount of investment spending.

Accepted Answer

A) True 
 B)False

Question 8

If the interest rate increases,then there will be

Accepted Answer

A)   a rightward movement along the autonomous investment function
B)   a leftward movement along the autonomous investment function
C)   an upward shift of the autonomous investment function
D)   a downward shift of the autonomous investment function
E)   no movement along or shift of the autonomous investment functionF) None of the above
G) B) and C)

Question 9

The current level of investment depends on the current level of income.

Accepted Answer

A) True 
 B)False

Question 10

The consumption function assumes that

Accepted Answer

A)   only disposable income affects consumption
B)   only the price level affects consumption
C)   many factors other than disposable income affect consumption,and each is allowed to vary along the consumption function
D)   factors other than disposable income affect consumption,but those are held constant along the consumption function
E)   only consumer expectations affect consumptionF) A) and B)
G) A) and C) D

Question 11

The primary determinant of saving is income.

Accepted Answer

A) True 
 B)False

Question 12

The interest rate is important to the investment decision

Accepted Answer

A)   only when funds must be borrowed
B)   only when firms have the money on hand
C)   regardless of whether funds must be borrowed or firms have the funds on hand
D)   only when the firm has funds on hand and is ready to lend them
E)   only when the firm is purchasing new equipment rather than a new buildingF) A) and B)
G) C) and D)

Question 13

The marginal propensity to consume

Accepted Answer

A)   is the proportion of disposable income consumed
B)   is the reciprocal of the ratio of disposable income to saving
C)   is the change in consumption relative to a change in disposable income
D)   minus the marginal propensity to save must equal 1
E)   is greater than 1 at all levels of incomeF) A) and B)
G) All of the above

Question 14

Exhibit 9-1
 
-Given the data in Exhibit 9-1,the level of saving at a disposable income of $1,200 is

Accepted Answer

A)   $80
B)   $240
C)   $950
D)   $1,200
E)   $1,300F) None of the above
G) C) and D)

Question 15

The economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate,other things held constant.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 9-2
 
-In Exhibit 9-2,the marginal propensity to save equals

Accepted Answer

A)   60
B)   0
C)   0.43
D)   0.57
E)   0.30F) All of the above
G) A) and E) E

Question 17

The consumption function relates consumption spending to

Accepted Answer

A)   the price level
B)   interest rates
C)   disposable income
D)   expectations about the price level
E)   household wealthF) None of the above
G) B) and C)

Question 18

If consumption is greater than income,saving must be negative.

Accepted Answer

A) True 
 B)False  True

Question 19

A firm's level of investment is tied to the interest rate

Accepted Answer

A)   only when the firm has to borrow funds to buy capital
B)   only when the firm has to borrow funds to buy stocks
C)   only when the firm already has the funds and could lend them
D)   because the interest rate represents the opportunity cost of investing in capital
E)   because investments are always made with borrowed fundsF) A) and B)
G) A) and C)

Question 20

An increase in the interest rate,other things equal,would

Accepted Answer

A)   have no effect on investment
B)   increase the amount invested since the rate of return would be lower
C)   increase the amount invested because income would rise
D)   reduce the amount invested because the opportunity costs of investing would be higher
E)   increase the amount invested because the rate of return would be higherF) C) and D)
G) A) and B)

Exam 9: Aggregate Expenditure

When economists say investment is autonomous,they mean that investment is independent of the level of saving.

Correct AnswerverifiedShow Answer

If business managers become more optimistic about future sales and profits,then there will be

Correct AnswerverifiedShow Answer

Economists assume that the fundamental motive of investors is

Correct AnswerverifiedShow Answer

A decrease in the price level will

Correct AnswerverifiedShow Answer

If income rises from $6.0 trillion to $6.4 trillion,consumption rises from $5.5 trillion to $5.8 trillion.What is the slope of the aggregate expenditure line? (Assume there is neither international trade nor any government.)

Correct AnswerverifiedShow Answer

Which of the following would shift the consumption function downward?

Correct AnswerverifiedShow Answer

An increase in the interest rate,other things constant,decreases the amount of investment spending.

Correct AnswerverifiedShow Answer

If the interest rate increases,then there will be

Correct AnswerverifiedShow Answer

The current level of investment depends on the current level of income.

Correct AnswerverifiedShow Answer

The consumption function assumes that

Correct AnswerverifiedD

The primary determinant of saving is income.

Correct AnswerverifiedShow Answer

The interest rate is important to the investment decision

Correct AnswerverifiedShow Answer

The marginal propensity to consume

Correct AnswerverifiedShow Answer

Exhibit 9-1 -Given the data in Exhibit 9-1,the level of saving at a disposable income of $1,200 is

Correct AnswerverifiedShow Answer

The economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate,other things held constant.

Correct AnswerverifiedShow Answer

Exhibit 9-2 -In Exhibit 9-2,the marginal propensity to save equals

Correct AnswerverifiedE

The consumption function relates consumption spending to

Correct AnswerverifiedShow Answer

If consumption is greater than income,saving must be negative.

Correct AnswerverifiedTrue

A firm's level of investment is tied to the interest rate

Correct AnswerverifiedShow Answer

An increase in the interest rate,other things equal,would

Correct AnswerverifiedShow Answer

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D

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E

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True

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