9-1. The components of aggregate demand are:
→ Consumption, government spending, net
exports, and investment.
Consumption, exports, imports, and disposable
income.
Consumption, inventory, government spending,
and disposable income.
Exports, imports, investment, and disposable
income.
9-2. Given that C = $1,000 + 0.60YD, if the level of
disposable income is $1,000, the level of saving is:
$600.
$400.
→ -$600.
-$300.
9-3. When the APC is greater than 1, then the APS
must be:
Equal to 1.
Greater than 1 also.
Between 0 and 1.
→ Negative.
9-4. Suppose the MPC in an economy is 0.9. The APC
is initially 0.95 and disposable income is $4 billion.
If disposable income increases to $14 billion, what
is the new level of consumption?
$13.3 billion
→ $12.8 billion
$9 billion
$12.6 billion
9-5. If disposable income increases from $9,000
billion to $11,000 billion, and consumption
increases from $9,500 billion to $11,000 billion, the
MPC must be:
→ 0.75.
1.00.
0.90.
0.25.
9-6. If the MPC is 0.60 and disposable income
increases from $20,000 billion to $22,000 billion,
then consumption will increase by:
$2,000 billion.
$800 billion.
→ $1,200 billion.
$600 billion.
9-7. If the MPC is 0.8 and the APC is 0.9, then the
MPS equals:
0.1.
→ 0.2.
0.8.
1.7.
9-9. Given a consumption function of C = $25 +
0.75YD, the average propensity to consume equals
1 when income equals:
$25.
$75.
→ $100.
-$300.
9-8. Which of the following is not a determinant of
autonomous consumption?
→ The income level
Taxes
The availability of credit
The price level
9-10. If wealth rises:
There will be a movement to the left along the
AD curve.
There will be a movement to the right along the
AD curve.
The AD curve will shift to the left.
→ The AD curve will shift to the right.
9-2. Aggregate demand is composed of all spending
categories that make up GDP.
9-1. Saving will be negative when consumption
exceeds disposable income.
9-4. Consumption will rise by the change in
disposable income multiplied by the MPC. In this
case consumption is initially $3.8 billion (.95 × 4).
When income increases by $10 billion, the increase
in consumption will be $9 billion (0.9 × 10).
Therefore the total consumption will be $12.8
billion ($3.8 + $9).
9-3. In this case, consumption exceeds disposable
income and the consumer is dissaving.
9-6. Consumption spending will rise by the change
in disposable income multiplied by the MPC. (2000
× 0.60 = $1200)
9-5. The MPC is equal to the change in consumption
spending divided by the change in disposable
income. (1500/2000 = .75)
9-8. MPS plus MPC equals one, so MPS must be
equal to 0.2.
9-7. MPS plus MPC equals one, so MPS must be
equal to 0.2.
9-10. More wealth leads consumers to feel more
confident and therefore to spend more freely.
9-9. When disposable income is $100, the
consumer is spending all of their income (C = 25 +
.75 × 100 = $100) and saving none.
9-11. If the availability of credit increases, then:
There will be a movement to the left along the
AD curve.
There will be a movement to the right along the
AD curve.
The AD curve will shift to the left.
→ The AD curve will shift to the right.
9-12. Investment spending includes expenditures
on all of the following except:
→ Stocks and bonds.
Equipment.
Inventory.
Plant or office building.
9-13. Which of the following will cause a decrease
in U.S. gross exports?
An increase in foreign consumer income
→ A decrease in foreign business investment
An increase in foreign wealth.
A decrease in U.S. consumer income
9-14. Which of the following will cause an increase
in U.S. imports?
→ An increase in U.S. consumer confidence
An increase in foreign consumer income
An increase in foreign business investment
A decrease in U.S. wealth
9-15. A recessionary gap:
Would cause a depletion of inventories.
Would occur if total output were less than
aggregate demand.
→ Is the amount by which the rate of actual
spending falls short of full-employment GDP.
Is the amount by which total spending exceeds
GDP.
9-16. Which of the following occurs when the
spending on final goods and services exceeds fullemployment GDP?
Inventory accumulation
Unemployment
→ Inflationary gap
Recessionary gap
9-17. Demand-pull inflation is caused by:
An increase in aggregate supply.
An increase in resource costs as an economy's
production capacity is approached.
An increase in inventories.
→ Excessive aggregate demand in relation to an
economy's production capacity.
9-12. Stocks and bonds represent how one chooses
to hold one's wealth rather than physical capacity.
9-11. More wealth leads consumers to feel more
confident and therefore to spend more freely.
9-14. When consumers feel good about the
economy, they will consume more of all goods,
including imports.
9-13. If investment abroad falls, the demand for U.S.
capital goods will decline as our trading partners
have less need of them.
9-16. When aggregate demand exceeds full
employment GDP, resources are being over-used
and bidding wars will drive up their prices, creating
inflation.
9-15. The recessionary gap indicates many
resources are not being used, so unemployment
will be high.
9-17. When aggregate demand increases,
production is unable to keep up with spending and
so prices rise as a result
9-18. Using Figure 9.1, dissaving occurs at all
income levels:
Above $2,000 billion.
Above $3,000 billion.
→ Below $2,000 billion.
Below $3,000 billion.
9-19. Using Figure 9.6, if full employment occurs at
QC then aggregate demand is:
Too great causing cyclical unemployment.
Too small causing demand-pull inflation.
→ Too small causing cyclical unemployment.
Just right.
Since macro equilibrium falls to the left of the fullemployment level of output, there will be a
recession and cyclical unemployment.
9-20. Using Figure 9.6, if full employment occurs at
QA then aggregate demand is:
Just right.
→ Too great causing an inflationary gap.
Too small causing an inflationary gap.
Too great causing a recessionary gap.
9-18. At any level to the left of the intersection of
the consumption function and the 45-degree line
dissaving occurs.
9-19. Since macro equilibrium falls to
the left of the full-employment level of
output, there will be a recession and
cyclical unemployment.
9-20. Since macro equilibrium falls to
the right of the full-employment level of
output, there will be an inflationary gap.