Multiple Choice
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This is just for practive, not for a grade.
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1.
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Which
is true of disposable income? A) | it excludes transfer payments | B) | the portion of
income is used solely for consumption | C) | it is that part of aggregate income that is taken in taxes by
government | D) | all of disposable income contributes directly to aggregate
expenditure | E) | disposable income equals consumption expenditures plus
saving | | |
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2.
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Contrary to what Keynes claimed, the evidence suggests that as Disposable Income
increases, the proportion of disposable income that is saved A) | increases | B) | decreases | C) | remains
relatively constant | D) | decreases and also decreases in absolute dollar
amount | E) | increases; however, it decreases in absolute dollar
value | | |
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3.
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The
marginal propensity to consume 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 income | | |
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4.
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When
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.) A) | 0.25 | B) | 0.33 | C) | 0.67 | D) | 0.75 | E) | 1.33 | | |
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5.
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A
change in which of the following is least likely to cause a shift in the consumption
function? A) | the saving
rate | B) | consumer
expectations about future prices | C) | household wealth | D) | investment
spending | E) | the interest rate | | |
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6.
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Expectations that the price level will increase in the future will A) | shift the
current consumption function upward | B) | make the current consumption function
steeper | C) | make the current consumption function
flatter | D) | result in a movement downward along the current consumption
function | E) | have no effect on the current consumption
function | | |
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7.
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Expectations that disposable income will increase in the future will A) | shift the
current consumption function up | B) | shift the current consumption function
down | C) | result in a
movement upward along the current consumption function | D) | make the current
consumption function flatter | E) | make the current consumption function
steeper | | |
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8.
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Which
of the following would shift the consumption function downward? 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 prices | | |
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9.
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The
life-cycle model was designed, in part, to explain A) | why poor nations
save more than do rich nations | B) | why poor nations save a larger fraction of disposable income
than do rich nations | C) | why the fraction of total disposable income that is saved seems
to remain constant as an economy grows | D) | how the saving rate varies over an economy's
life-cycle | E) | Keynes' contention that too much saving can cause
recessions | | |
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10.
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A
grocery store manager has $600 in cash with which to buy a rug cleaner. Rental income from the
cleaner would be about $75 per year. The interest rate is 11 percent. Should the manager buy the
machine? A) | Yes, since the
rate of return is greater than the rate of interest. | B) | Yes, since the
manager does not have to borrow the money the interest rate is irrelevant. | C) | No, since the
yield of $75 is less than the interest cost of 11 percent. | D) | No, since the
rate of return is less than the interest rate. | E) | Yes, since the
return of $75 is greater than 11 percent. | | |
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11.
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An
increase in the rate of interest, other things equal, would 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 higher | | |
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12.
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Mr.
Green is considering four possible investment opportunities, each of which would cost him $5,000. He
expects annual returns on these investments of $600, $500, $400, and $300. If the interest rate is 7
percent, how many of these opportunities should Mr. Green undertake? A) | one | B) | two | C) | three | D) | four | E) | none | | |
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13.
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On a
graph showing investment along the vertical axis and income along the horizontal
axis, A) | the investment
line slopes downward | B) | the investment line would shift upward if income
increased | C) | the investment line would shift downward if the interest rate
increased | D) | investment is the independent variable and income is the
dependent variable | E) | the investment line would shift downward if income
increased | | |
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14.
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If
investment is autonomous, which of the following is least likely to have an effect on the
level of investment? A) | a change in the rate of interest | B) | a change in the
level of income | C) | a change in the level of optimism or pessimism about the
economy as a whole | D) | a change in the expected profitability of investment
projects | E) | a change in the rate of inflation | | |
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15.
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Investment A) | is about as volatile as consumption, except during recession
years | B) | has averaged about one-sixth of GDP over the past
decade | C) | is about as volatile as GDP, except during recession
years | D) | is the largest component of aggregate
spending | E) | has averaged about two-thirds of GDP over the past
decade | | |
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