Test Bank for Macroeconomics, 13th Edition

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1Macroeconomics, 13e(Parkin)Chapter 11Expenditure Multipliers1 Fixed Prices and Expenditure Plans1) In the Keynesian model of aggregate expenditure, real GDP is determined by theA) price level.B) level of aggregate demand.C) level of aggregate supply.D) level of taxes.Answer: BTopic: Keynesian ModelSkill: RecognitionStatus: OldAACSB: Reflective thinking2) The Keynesian model of aggregate expenditure describes the economy inA) the short run.B) the long run.C) both the short run and the long run.D) only a strong expansion.Answer: ATopic: Keynesian ModelSkill: RecognitionStatus: OldAACSB: Reflective thinking3) The Keynesian model of aggregate expenditure assumes thatA) individual firms' prices are flexible but the price level is fixed.B) both individual firms' prices and the price level are flexible.C) both individual firms' prices and the price level are fixed.D) individual firms' prices are fixed but the price level is flexible.Answer: CTopic: Keynesian ModelSkill: RecognitionStatus: OldAACSB: Reflective thinking4) In the Keynesian model of aggregate expenditure, we assume that firms willA) not change prices.B) change prices only when inventory levels rise.C) raise prices when inventory levels fall.D) change prices immediately after a fluctuation in aggregate demand, to maintain profits.Answer: ATopic: Keynesian ModelSkill: RecognitionStatus: OldAACSB: Reflective thinking

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25) According to the Keynesian theory, the typical firmA) changes its prices frequently in response to fluctuations in aggregate demand.B) lowers its prices when inventories are decreasing.C) does not change its prices immediately when aggregate demand fluctuates.D) lowers its prices if sales exceed production.Answer: CTopic: Aggregate Implications of Fixed PricesSkill: RecognitionStatus: OldAACSB: Reflective thinking6) If firms set prices and then keep them fixed for a period of time, their fixed prices imply thatA) the aggregate price level is fixed and that aggregate demand determines the quantity of goods andservices sold.B) prices are set by aggregate demand and supply.C) the aggregate price level adjusts continuously.D) the aggregate price level is fixed and that aggregate supply determines the quantity of goods andservices sold.Answer: ATopic: Aggregate Implications of Fixed PricesSkill: ConceptualStatus: OldAACSB: Reflective thinking7) In the very short term, in the Keynesian model, which of the following is fixed and does not changewhen GDP changes?A) planned investmentB) planned consumptionC) planned importsD) All of the above answers are correct.Answer: ATopic: Expenditure PlansSkill: RecognitionStatus: OldAACSB: Reflective thinking8) In the very short term, planned investment ________ when GDP changes and planned consumptionexpenditure ________ when GDP changes.A) changes; changes.B) changes; does not changeC) does not change; changesD) does not change; does not changeAnswer: CTopic: Expenditure PlansSkill: RecognitionStatus: OldAACSB: Reflective thinking

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39) The components of aggregate expenditure includeI.imports.II.consumption.III. government transfer payments.A) I and IIB) II onlyC) II and IIID) I, II and IIIAnswer: ATopic: Expenditure PlansSkill: RecognitionStatus: OldAACSB: Reflective thinking10) In the very short run, the components of aggregate planned expenditure that depend on the level ofreal GDP areA) planned consumption expenditure and planned imports.B) planned investment and planned imports.C) planned investment and planned exports.D) planned government expenditure on goods and services and planned imports.Answer: ATopic: Expenditure PlansSkill: RecognitionStatus: OldAACSB: Reflective thinking11) An increase in real GDP leads toA) a decrease in aggregate planned expenditure.B) no change in aggregate planned expenditure.C) an increase in aggregate planned expenditure.D) a change in aggregate planned expenditure but whether the change is an increase or a decreasedepends on whether nominal GDP increases or decreases.Answer: CTopic: Expenditure PlansSkill: RecognitionStatus: RevisedAACSB: Reflective thinking12) Disposable income isA) income minus saving.B) income minus taxes plus transfer payments.C) income plus transfer payments minus consumption expenditure.D) total income divided by the price level.Answer: BTopic: Consumption Function BasicsSkill: RecognitionStatus: OldAACSB: Reflective thinking

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413) Which of the following statements is FALSE?A) Disposable income - saving = consumption expenditure.B) Consumption expenditure + saving = disposable income.C) Saving = disposable income - consumption expenditure.D) Consumption expenditure = saving - disposable income.Answer: DTopic: Consumption Function BasicsSkill: RecognitionStatus: OldAACSB: Reflective thinking14) Disposable income is equal toA) consumption expenditure minus taxes plus transfer payments.B) aggregate income minus taxes plus government expenditures on goods and services.C) aggregate income minus taxes plus transfer payments.D) aggregate income plus transfer payments.Answer: CTopic: Consumption Function BasicsSkill: RecognitionStatus: OldAACSB: Reflective thinking15) Real GDPA) is always greater than aggregate income.B) is always less than aggregate income.C) might be less than or more than aggregate income depending on consumption.D) is equal to aggregate income.Answer: DTopic: Consumption Function BasicsSkill: RecognitionStatus: RevisedAACSB: Reflective thinking16) Consumers divide disposable income intoA) consumption and taxes.B) saving and taxes.C) consumption, saving, and taxes.D) consumption and saving.Answer: DTopic: Consumption Function BasicsSkill: RecognitionStatus: RevisedAACSB: Reflective thinking

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517) Saving equalsA) disposable income minus taxes.B) disposable income minus consumption expenditure.C) disposable income plus consumption expenditure.D) consumption expenditure minus disposable income.Answer: BTopic: Consumption Function BasicsSkill: RecognitionStatus: OldAACSB: Reflective thinking18) A consumption function shows aA) negative (inverse) relationship between consumption expenditure and saving.B) positive (direct) relationship between consumption expenditure and the price level.C) negative (inverse) relationship between consumption expenditure and disposable income.D) positive (direct) relationship between consumption expenditure and disposable income.Answer: DTopic: Consumption FunctionSkill: RecognitionStatus: OldAACSB: Reflective thinking19) The consumption function relates consumption expenditure toA) the interest rate.B) disposable income.C) saving.D) the price level.Answer: BTopic: Consumption FunctionSkill: RecognitionStatus: OldAACSB: Reflective thinking20) The consumption function relates the consumption expenditure decisions of households toA) the level of disposable income.B) investment decisions of firms.C) saving decisions of households.D) the nominal interest rate.Answer: ATopic: Consumption FunctionSkill: RecognitionStatus: OldAACSB: Reflective thinking

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621) The graph of the consumption function has consumption expenditure on the vertical axis andA) the interest rate on the horizontal axis.B) time on the horizontal axis.C) disposable income on the horizontal axis.D) the Consumer Price Index on the horizontal axis.Answer: CTopic: Consumption FunctionSkill: RecognitionStatus: OldAACSB: Reflective thinking22) The consumption function shows how muchA) all households plan to consume at each level of real disposable income.B) all households plan to consume at each possible real interest rate.C) real disposable income people will earn at each income tax bracket.D) all households plan to consume at each level of savings.Answer: ATopic: Consumption FunctionSkill: RecognitionStatus: OldAACSB: Reflective thinking23) The slope of the consumption function isA) less than 1.B) 1.C) greater than 1.D) negative.Answer: ATopic: Consumption FunctionSkill: RecognitionStatus: OldAACSB: Reflective thinking24) The slope of the consumption function isA) less than the slope of the 45-degree line but not equal to zero.B) greater than the slope of the 45-degree line.C) equal to the slope of the 45-degree line.D) equal to zero.Answer: ATopic: Consumption Function and the 45-Degree LineSkill: RecognitionStatus: OldAACSB: Reflective thinking

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725) A movement along the consumption function is the result of changes inA) the real interest rate.B) disposable income.C) expected future income.D) the price levelAnswer: BTopic: Consumption FunctionSkill: ConceptualStatus: OldAACSB: Reflective thinking26) There is a movement along the consumption function if there isA) an increase in autonomous consumption.B) a decrease in the real interest rate.C) an increase in the expected future income.D) an increase in disposable income.Answer: DTopic: Consumption FunctionSkill: ConceptualStatus: OldAACSB: Reflective thinking27) A movement along the consumption function to higher levels of consumption expenditure arisesbecauseA) the level of disposable income decreases.B) household wealth rises.C) the level of disposable income increases.D) the level of desired saving rises.Answer: CTopic: Consumption FunctionSkill: ConceptualStatus: OldAACSB: Reflective thinking28) If disposable income increasesA) the consumption function shifts upward.B) there is a movement upward along the consumption function.C) the consumption function shifts downward.D) there is movement downward along the consumption function.Answer: BTopic: Consumption FunctionSkill: ConceptualStatus: OldAACSB: Reflective thinking

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829) The positive slope of the consumption function indicates thatA) consumers spend less out of each extra dollar of income.B) the amount of household wealth is subject to change.C) when prices fall consumers spend more.D) consumers increase their total consumption expenditure when disposable income increases.Answer: DTopic: Consumption FunctionSkill: ConceptualStatus: OldAACSB: Reflective thinking30) As disposable income increases, consumption expendituresA) increase by the same amount.B) increase by a smaller amount.C) increase by a larger amount.D) remain constant.Answer: BTopic: Consumption FunctionSkill: ConceptualStatus: OldAACSB: Reflective thinking31) If real disposable income increases by $1,500, consumption expenditures willA) stay constant.B) decrease by less than $1,500.C) increase by less than $1,500.D) increase by more than $1,500.Answer: CTopic: Consumption FunctionSkill: ConceptualStatus: OldAACSB: Reflective thinking32) Between 2013 and 2014 the government estimates that disposable income in the United Statesdecreased. Consequently, as a result of this change, consumption expenditureA) remained constant.B) decreased.C) increased.D) More information is needed about how taxes changed between 2013 and 2014.Answer: BTopic: Consumption FunctionSkill: ConceptualStatus: OldAACSB: Reflective thinking

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933) Which of the following will NOT shift the consumption function upward?A) an increase in disposable incomeB) a fall in the real interest rateC) an increase in wealthD) an increase in priceAnswer: ATopic: Consumption FunctionSkill: ConceptualStatus: OldAACSB: Reflective thinking34) An increase in expected future incomeA) decreases consumption expenditure.B) increases saving.C) shifts the consumption function upward.D) shifts the saving function upward.Answer: CTopic: Consumption FunctionSkill: ConceptualStatus: OldAACSB: Reflective thinking35) Autonomous consumption is that portion of consumption expenditure that is not influenced byA) income.B) preferences.C) prices.D) the legal authorities.Answer: ATopic: Autonomous ConsumptionSkill: RecognitionStatus: OldAACSB: Reflective thinking36) Autonomous consumptionA) increases with income.B) is independent of income.C) is independent of income and must be equal to zero.D) decreases with income.Answer: BTopic: Autonomous ConsumptionSkill: RecognitionStatus: OldAACSB: Reflective thinking

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1037) ________ consumption is consumption that will occur ________ the level of GDP and disposableincome.A) Autonomous; independent ofB) Autonomous; depending onC) Induced; independent ofD) None of the above answers is correct.Answer: ATopic: Autonomous ConsumptionSkill: RecognitionStatus: OldAACSB: Reflective thinking38) Autonomous consumption is equal toA) saving when consumption equals disposable income.B) consumption when disposable income is zero.C) consumption caused by an increase in disposable income.D) dissaving when disposable income is greater than zero.Answer: BTopic: Autonomous ConsumptionSkill: RecognitionStatus: OldAACSB: Reflective thinking

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1139) In the above figure, consumption and disposable income are equal atA) any point along the consumption function.B) a saving level of $1 trillion and disposable income level of $4 trillion.C) a disposable income level of $0.D) a disposable income level of $2 trillion.Answer: DTopic: Consumption FunctionSkill: AnalyticalStatus: OldAACSB: Analytical thinking40) In the above figure, at a disposable income level of $2 trillion, saving equalsA) disposable income.B) zero.C) $4 trillion.D) consumption expenditure.Answer: BTopic: Saving FunctionSkill: AnalyticalStatus: RevisedAACSB: Analytical thinking41) In the above figure, the lineABis calledA) the saving function.B) the consumption function.C) the 45-degree line.D) the expenditure function.Answer: CTopic: Consumption Function and the 45-Degree LineSkill: AnalyticalStatus: OldAACSB: Analytical thinking

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1242) Induced consumption is equal toA) saving when consumption equals disposable income.B) consumption when disposable income is zero.C) consumption caused by an increase in disposable income.D) dissaving when disposable income is greater than zero.Answer: CTopic: Induced ConsumptionSkill: RecognitionStatus: OldAACSB: Reflective thinking43) In a diagram with the consumption function, the 45-degree line indicates all points whereA) consumption expenditures and saving are equal.B) saving and investment are equal.C) consumption expenditures and disposable income are equal.D) saving and disposable income are equal.Answer: CTopic: Consumption Function and the 45-Degree LineSkill: RecognitionStatus: OldAACSB: Reflective thinking44) In a diagram with the consumption function, the ________ shows all points where disposable incomeequals consumption expenditure.A) consumption functionB) aggregate demand curveC) 45-degree lineD) saving functionAnswer: CTopic: Consumption Function and the 45-Degree LineSkill: RecognitionStatus: RevisedAACSB: Reflective thinking45) Consumption expenditures equal disposable incomeA) at every point on the consumption function.B) at every point on the saving function.C) at every point on the 45-degree line.D) when saving equals disposable income.Answer: CTopic: Consumption Function and the 45-Degree LineSkill: RecognitionStatus: OldAACSB: Reflective thinking

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1346) With consumption expenditure on the vertical axis and disposable income on the horizontal axis, theconsumption function intersects the 45-degree line at $8 trillion. This result indicates thatA) autonomous consumption spending is $8 trillion.B) consumption spending is $8 trillion when disposable income is $8 trillion.C) consumption spending is less than $8 trillion because taxes must be paid.D) consumption spending is more than $8 trillion because taxes have been paid.Answer: BTopic: Consumption Function and the 45-Degree LineSkill: ConceptualStatus: OldAACSB: Analytical thinking47) In the above figure, lineABCis calledA) the 45-degree line.B) the consumption function.C) the saving function.D) aggregate supply.Answer: BTopic: Consumption FunctionSkill: AnalyticalStatus: OldAACSB: Analytical thinking

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1448) In the above figure, autonomous consumption equalsA) 0.B) $4 trillion.C) $12 trillion.D) -$4 trillion.Answer: BTopic: Autonomous ConsumptionSkill: AnalyticalStatus: OldAACSB: Analytical thinking49) In the above figure, when disposable income is $12 trillion , induced consumption equalsA) $4 trillion.B) $8 trillion.C) $12 trillion.D) $16 trillion.Answer: BTopic: Autonomous ConsumptionSkill: AnalyticalStatus: OldAACSB: Analytical thinking50) When disposable income equals $800 billion, planned consumption expenditure equals $600 billion,and when disposable income equals $1,000 billion, planned consumption expenditure equals $640 billion.What is planned saving when disposable income is $800 billion?A) $200 billionB) $360 billionC) $560 billionD) $1,400 billionAnswer: ATopic: Consumption and SavingSkill: AnalyticalStatus: OldAACSB: Analytical thinking51) As real disposable income increases, consumption expenditure ________ and saving ________.A) increases; increasesB) increases; decreasesC) decreases; increasesD) decreases; decreasesAnswer: ATopic: Consumption Function and Saving FunctionSkill: ConceptualStatus: OldAACSB: Reflective thinking

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1552) Planned saving equalsA) disposable income minus planned consumption expenditure.B) planned consumption expenditure minus disposable income.C) zero when disposable income is less than planned consumption expenditure.D) planned consumption expenditure plus disposable income.Answer: ATopic: Saving FunctionSkill: RecognitionStatus: OldAACSB: Reflective thinking53) "Dissaving" occurs whenA) income exceeds consumption expenditure.B) saving is negative.C) the consumption function is below the 45-degree line drawn from the origin.D) saving is positive.Answer: BTopic: Saving FunctionSkill: RecognitionStatus: OldAACSB: Reflective thinking54) DissavingA) is equal to consumption expenditure when disposable income is greater than zero.B) is equal to the amount of saving when consumption is less than disposable income.C) is equal to taxation when disposable income is zero.D) occurs when consumption is greater than disposable income.Answer: DTopic: Saving FunctionSkill: RecognitionStatus: OldAACSB: Reflective thinking55) ________ consumption expenditure is greater than disposable income.A) It is always the case thatB) Saving is positive wheneverC) Dissaving occurs wheneverD) None of the above answers is correct because it is impossible for consumption expenditure to begreater than disposable income.Answer: CTopic: Saving FunctionSkill: RecognitionStatus: OldAACSB: Reflective thinking

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