McGraw-Hill Ryerson

Chapter 9. Building the Agregate Expenditures Model


1. Which is a true statement?
A.The durable goods and services parts of personal consumption expenditures vary more over time than do the expenditures for nondurables.
B.Expenditures for nondurables vary more than do the expenditures for durable goods and services.
C.Expenditures for nondurables vary more than the expenditures for services and less than the expenditures for durables.
D.Expenditures for nondurables vary more than the expenditures for durables and less than the expenditures for services.


2. A group of three plants which is owned and operated by a single firm and which consists of a farm growing wheat, a flour-milling plant, and a plant which bakes and sells bakery products is an example of
A.a horizontal combination
B.a vertical combination
C.a conglomerate combination
D.a corporation


3. Limited liability is associated with
A.only proprietorships
B.only partnerships
C.both proprietorships and partnerships
D.only corporations


4. Which form of business organization can most effectively raise money capital?
A.corporation
B.partnership
C.proprietorship
D.vertical combination


5. The separation of ownership and control in a corporation may create
A.a free-rider problem
B.a principal-agent problem
C.a horizontal combination
D.limited liability


6. Classical economics suggests that in capitalist economies
A.unemployment may persist for extended periods
B.the market system will ensure full employment
C.a slump in output will increase prices, wages, and interest rates
D.demand creates its own supply


7. From the perspective of classical economics, if total output were greater than total spending, competition would tend to force
A.prices and wages up
B.prices and wages down
C.prices down and wages up
D.prices up and wages down


8. Which would be considered part of Keynes' criticism of classical economics?
A.Investment spending will increase when the interest rate increases.
B.Prices and wages are flexible downward in modern capitalist economies.
C.The act of producing goods generates an amount of income equal to the value of the goods produced.
D.Saving and investment decisions are not always completely synchronized.


9. If the economy is closed, government neither taxes nor spends, all saving done in the economy is personal saving, and depreciation are zero, then
A.gross domestic product equals personal consumption expenditures
B.gross domestic product equals personal saving
C.gross domestic product equals disposable income
D.disposable income equals personal consumption expenditures


10. The level of output and employment in the economy depends
A.directly on the level of total expenditures
B.inversely on the quantity of resources available
C.inversely on the level of disposable income
D.directly on the rate of interest


11. As disposable income decreases, ceteris paribus
A.both consumption and saving increase
B.consumption increases and saving decreases
C.consumption decreases and saving increases
D.both consumption and saving decrease


12. If consumption spending increases from $358 to $367 billion when disposable income increases from $412 to $427 billion, it can be concluded that the marginal propensity to consume is
A.0.4
B.0.6
C.0.8
D.0.9


13. If disposable income is $375 billion when the average propensity to consume is 0.8, it can be concluded that
A.the marginal propensity to consume is also 0.8
B.consumption is $325 billion
C.saving is $75 billion
D.the marginal propensity to save is 0.2


14. As the disposable income of the economy increases
A.both the APC and the APS rise
B.the APC rises and the APS falls
C.the APC falls and the APS rises
D.both the APC and the APS fall


15. The slope of the consumption schedule or line for a given economy is the
A.marginal propensity to consume
B.average propensity to consume
C.marginal propensity to save
D.average propensity to save


16.
R-1 9a

This diagram indicates that
A.consumption decreases after the $60 billion level of GDP
B.the marginal propensity to consume decreases after the $60 billion level of GDP
C.consumption decreases as a percentage of GDP as GDP increases
D.consumption increases as GDP decreases



17.
R-1 9a

If the relevant saving schedule were constructed, one would find that
A.the marginal propensity to save is negative up to the $60 billion level of GDP
B.the marginal propensity to save increases after the $60 billion level of GDP
C.saving is zero at the $60 billion level of GDP
D.saving is $20 billion at the $0 level of GDP



18.
Disposable income (DI) and consumption (C) schedules for a private, closed economy. All figures are in billions of dollars.
R-2 9b

If plotted on a graph, the slope of the consumption schedule would be
A.0.6
B.0.7
C.0.8
D.0.9



19.
Disposable income (DI) and consumption (C) schedules for a private, closed economy. All figures are in billions of dollars.
R-2 9b

At the $160 billion level of disposable income, the average propensity to save is
A.0.015
B.0.075
C.0.335
D.0.925



20.
Disposable income (DI) and consumption (C) schedules for a private, closed economy. All figures are in billions of dollars.
R-2 9b

If consumption increases by $5 billion at each level of disposable income, then the marginal propensity to consume will
A.change, but the average propensity to consume will not change
B.change, and the average propensity to consume will change
C.not change, but the average propensity to consume will change
D.not change, and the average propensity to consume will not change



21. If the slope of a linear saving schedule decreases in a private, closed economy, then it can be concluded that the
A.MPS has decreased
B.MPC has decreased
C.income has decreased
D.income has increased


22. Which of the following relationships is an inverse one?
A.the relationship between consumption spending and disposable income
B.the relationship between investment spending and the rate of interest
C.the relationship between saving and the rate of interest
D.the relationship between investment spending and gross domestic product


23. A decrease in the level of investment spending would be a consequence of
A.a decline in the rate of interest
B.a decline in the level of wages paid
C.a decline in business taxes
D.a decline in expected future sales


24. Which would increase investment demand?
A.an increase in business taxes
B.an increase in the cost of acquiring capital goods
C.a decrease in the rate of technological change
D.a decrease in the stock of capital goods on hand


25. Which one of the following best explains the variability of investment?
A.the predictable useful life of capital goods
B.constancy or regularities in business innovations
C.instabilities in the level of profits
D.business pessimism about the future


26. On a graph, the equilibrium real GDP is found at the intersection of the 45 degree line and
A.the consumption curve
B.the investment demand curve
C.the saving curve
D.the aggregate expenditures curve


27. Which of the following is an injection?
A.investment
B.saving
C.taxes
D.imports


28. When the economy's real GDP exceeds its equilibrium real GDP,
A.there is unplanned investment in the economy
B.planned investment exceeds saving
C.aggregate expenditures exceed the real domestic output
D.leakages equal injections


29. If real GDP is $275 billion, consumption is $250 billion, and investment is $30 billion, real GDP
A.will tend to remain constant
B.will tend to increase
C.will tend to decrease
D.equals aggregate expenditures


30. If saving is greater than planned investment
A.businesses will be motivated to increase their investments
B.aggregate expenditures will be greater than the real domestic output
C.real GDP will be greater than planned investment plus consumption
D.saving will tend to increase



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