Question

Question 1

The relationship between consumption and disposable income is such that as

1. consumption rises, disposable income falls
2. disposable income rises, consumption falls
3. disposable income rises, consumption rises
4. disposable income rises, saving falls

Question 2

The federal government’s principal tool in altering consumer spending is

1. changing corporate taxes
2. changing federal sales taxes
3. changing unemployment insurance benefits
4. changing personal income taxes

Question 3

The difference between disposable income and consumption spending is

1. transfer payments
2. personal taxes
3. saving
4. personal investment

Question 4

The relationship between consumer spending and disposable income is called the

1. consumption function
2. income function
3. marginal income function
4. taxation function

Question 5

The marginal propensity to consume is

1. disposable income divided by consumption
2. the change in consumption divided by the change in disposable income
3. consumption divided by disposable income
4. the change in disposable income divided by the change in consumption

Question 6

When adding the foreign sector to the calculation of aggregate demand, you must

1. add imports and subtract exports
2. add exports and subtract imports
3. add both exports and imports
4. subtract both exports and imports

Question 7

If inventory levels are decreasing, then we should expect

1. business firms to decrease prices
2. business firms to decrease output
3. business firms to lay off workers
4. business firms to increase output

Question 8

Because business firms must finance most investment expenditures, a key determinant of investment is

1. tax rates
2. interest rates
3. profit percentage
4. sales revenues

Question 9

U.S. imports depend primarily upon

A) foreign price levels

B) foreign income levels

C) U.S. interest rates

D) U.S. income

Question 10

Investment will be encouraged when

1. there are low levels of sales and no expectations of rapid growth
2. there are low levels of sales and expectations of rapid growth
3. there are high levels of sales and no expectations of rapid growth
4. there are high levels of sales and expectations of rapid growth

Question 11

If the U.S. economy is at full employment and other countries are experiencing severe recessions, we can predict a(n)

1. increase in U.S. net exports
2. decrease in U.S. net exports
3. decrease in other countries’ net exports
4. increases in U.S. exports in other countries

Question 12

When aggregate demand decreases rapidly, the economy is likely to experience

1. inflation
2. an economic boom
3. economic growth
4. a recession

Answer 1

1. Disposable income rises, consumption rises. As there is rise in disposable income, the consumer increases his consumption.

2. Changing personal income tax. If personal tax is high, disposable income falls and therefore consumption falls.

3. Savings. What is left in income after consumption is saved.

4. Consumption function

5. Consumption divided by disposable income. Mpc is the proportion of income that is spend for consumption.

6. Add export and subtract import. Import is subtracted because it already comes under consumption.