Multiple Choice Questions:
1. Demand for consumer goods will be affected by which of the following?
a. Disposable income
b. Credit conditions
c. The level of debt outstanding
d. Expectations about the future
e. All of the above
2. Autonomous consumption will increase when
a. Real wealth increases.
b. The interest rate increases.
c. Household debt increases.
d. Any of the above occur.
3. If autonomous consumption fell, it could have been caused by
a. Falling interest rates.
b. Falling household debt.
c. More optimistic expectations about future disposable income.
d. Increasing real wealth.
e. None of the above.
4. If an economy’s marginal propensity to consume was 0.75, which of the following is not true?
a. The consumption function would have a slope of 0.75.
b. The marginal propensity to save would be 0.25.
c. Increases in disposable income would increase consumption spending by three times as much as it would increase saving.
d. Consumption will always equal 75 percent of disposable income.
e. All of the above would be true.
5. If an economy’s MPC was 0.8, which of the following is true?
a. The MPS would be 1 divided by 0.8, or 0.125.
b. Consumption would always be four-fifths of income.
c. The slope of the consumption function would also be 0.8.
d. An increase in income would not result in four times as large an increase in consumption than the increase in savings.
6. If the MPS is 0.25, which of the following is true?
a. The slope of the consumption function would be 0.75.
b. The MPC is 0.75.
c. Consumption would not always be 75 percent of income.
d. All of the above are true.
7. Which of the following need not be equal at equilibrium in the aggregate expenditure model?
a. Income and output
b. Aggregate expenditures and output
c. Consumption and income
d. All of the above must be equal at equilibrium in the aggregate expenditure model.
8. If output was less than the equilibrium level in the aggregate expenditure model, people would be trying to buy ______ goods and services than are being produced, so producers would _____ the amount of production.
a. More; increase
b. More; decrease
c. Less; increase
d. Less; decrease