question
To predict the effects of a tax cut on consumption spending, economists must have some estimate of the
A. income effect.
B. substitution effect.
C. relative price effect.
D. marginal propensity to consume.
A. income effect.
B. substitution effect.
C. relative price effect.
D. marginal propensity to consume.
answer
D. MPC
question
The difference between disposable income and consumption spending is
A. transfer payments.
B. personal taxes.
C. net exports.
D. personal investment.
E. personal saving.
A. transfer payments.
B. personal taxes.
C. net exports.
D. personal investment.
E. personal saving.
answer
E. Personal saving
question
If consumers' expectations about future income are very optimistic, then we should expect
A. the consumption function to shift downward.
B. consumers to move up along the consumption function.
C. the consumption function to shift upward.
D. consumers to move down along the consumption function.
A. the consumption function to shift downward.
B. consumers to move up along the consumption function.
C. the consumption function to shift upward.
D. consumers to move down along the consumption function.
answer
C. The CF to shift upward
question
ax reductions should also reduce the amount of consumer expenditures.
A. True
B. False
A. True
B. False
answer
B. False
question
To economists, investment means buying stocks and bonds.
A. True
B. False
A. True
B. False
answer
B. False
question
National income is
A. the sum of all wages and salaries, interest, rent, and profits in the economy.
B. equal to the money value of national output.
C. the before-tax income of all individuals in the economy.
D. All of the above are correct.
A. the sum of all wages and salaries, interest, rent, and profits in the economy.
B. equal to the money value of national output.
C. the before-tax income of all individuals in the economy.
D. All of the above are correct.
answer
D. All of the above are correct
question
A decrease in disposable income causes a shift in the consumption function.
A. True
B. False
A. True
B. False
answer
B. False
question
The total amount spent on final goods and services in the U.S. in 2009 was approximately ten trillion dollars. This total spending is referred to as
A. investment demand.
B. aggregate demand.
C. market demand.
D. consumption demand.
A. investment demand.
B. aggregate demand.
C. market demand.
D. consumption demand.
answer
B. Aggregate demand
question
Consumption functions would shift downward if
A. disposable incomes fall.
B. disposable incomes rise.
C. price levels fall.
D. price levels rise.
A. disposable incomes fall.
B. disposable incomes rise.
C. price levels fall.
D. price levels rise.
answer
D. Price level rises
question
The relationship between consumer spending and disposable income is called the
A. conjunction function.
B. consumption function.
C. aggregate demand function.
D. marginal spending function.
A. conjunction function.
B. consumption function.
C. aggregate demand function.
D. marginal spending function.
answer
B. Consumption function
question
The marginal propensity to consume is calculated by dividing the change in consumer spending by the change in disposable income.
A. True
B. False
A. True
B. False
answer
A. True
question
Consumer spending represents about what fraction of total spending in the economy?
A. one-fifth
B. two-thirds
C. one-third
D. two-fifths
E. three-fourths
A. one-fifth
B. two-thirds
C. one-third
D. two-fifths
E. three-fourths
answer
B. Two thirds
question
A movement from one point to an another point on the same consumption function could be caused due to
A. changes in wealth.
B. an increase in the general price level.
C. decrease in the real interest rates.
D. changes in disposable income.
A. changes in wealth.
B. an increase in the general price level.
C. decrease in the real interest rates.
D. changes in disposable income.
answer
D. Changes in DI
question
The nation's disposable income increases by $400 billion and, as a result, consumer spending increases by $320 billion. Therefore, the MPC equals
A. 0.16.
B. 0.20.
C. 0.60.
D. 0.80.
E. 0.96.
A. 0.16.
B. 0.20.
C. 0.60.
D. 0.80.
E. 0.96.
answer
D. 0.80
question
Most people base their current consumption spending at least partially on
A. short-run debt.
B. long-run debt.
C. long-run real interest rates.
D. long-run income.
A. short-run debt.
B. long-run debt.
C. long-run real interest rates.
D. long-run income.
answer
D. Long run income
question
Aggregate demand is the total demand for the final goods and services produced in an economy
A. True
B. False
A. True
B. False
answer
A. True
question
The relationship between consumption and disposable income is very unreliable and unpredictable.
A. True
B. False
A. True
B. False
answer
B. False
question
The relationship between consumption and disposable income is such that as
A. consumption rises, disposable income falls.
B. disposable income rises, consumption rises.
C. disposable income rises, consumption falls.
D. disposable income rises, saving falls.
A. consumption rises, disposable income falls.
B. disposable income rises, consumption rises.
C. disposable income rises, consumption falls.
D. disposable income rises, saving falls.
answer
B. DI rises, C rises
question
If the Japanese economy is currently suffering from a recession we should expect U.S. exports to Japan to
A. decrease.
B. increase.
C. remain the same.
D. increase only if the Japanese Yen depreciates.
A. decrease.
B. increase.
C. remain the same.
D. increase only if the Japanese Yen depreciates.
answer
A. Decrease
question
Disposable income can be defined as national income
A. minus federal and state taxes.
B. minus taxes plus transfers.
C. minus indirect taxes.
D. plus taxes plus transfers.
A. minus federal and state taxes.
B. minus taxes plus transfers.
C. minus indirect taxes.
D. plus taxes plus transfers.
answer
B. Minus taxes plus transfers
question
In 1963, government economists assumed that the MPC for the United States was approximately 0.90. If taxes were cut by $9 billion, then consumer expenditures would initially be expected to
A. decrease by $9.0 billion.
B. increase by $9.0 billion.
C. decrease by $8.1 billion.
D. increase by $8.1 billion.
A. decrease by $9.0 billion.
B. increase by $9.0 billion.
C. decrease by $8.1 billion.
D. increase by $8.1 billion.
answer
D. Increase by 8.1
question
If consumers receive an increase in income of $1,000, their spending will increase by a smaller amount.
A. True
B. False
A. True
B. False
answer
A. True
question
The most volatile component of aggregate demand is
A. consumption spending.
B. government spending.
C. investment spending.
D. net exports.
A. consumption spending.
B. government spending.
C. investment spending.
D. net exports.
answer
C. Investment spending
question
When aggregate demand decreases rapidly, the economy is likely to experience
A. inflation.
B. an economic boom.
C. economic growth.
D. recession.
A. inflation.
B. an economic boom.
C. economic growth.
D. recession.
answer
D. Recession
question
If U.S. consumers become more optimistic about their future income and wealth, the consumption function will shift upward.
A. True
B. False
A. True
B. False
answer
A. True
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