Question 1

Jodie’s autonomous consumption is $$100. She currently has an income of 500 $$and spends a total of $$300. What is Jodie’s Marginal Propensity to Consume (MPC)? Use the formula $$MPC = \frac{\Delta C}{\Delta Y}$$, where $$\Delta C$$ is the change in consumption and $$\Delta Y$ is the change in income.

Accepted Answer

$$0.40$$

Question 2

If autonomous consumption is zero, which of the following must be true in the consumption function $$C = a + bY$$?

Accepted Answer

$$a = 0$$

Question 3

Aaron is working a summer job to save money for college. Which point on the consumption function graph is most likely to represent Aaron’s current disposable income and consumption?

Accepted Answer

Point C

Question 4

Benjamin’s income increases from $$40,000 to 44$$,000. His consumption increases from $$36,000 to 39$$,000. What is Benjamin’s Marginal Propensity to Save (MPS)? Use $$MPS = \frac{\Delta S}{\Delta Y}.$$

Accepted Answer

$$0.25$$

Question 5

If the marginal propensity to consume (MPC) is $$0.8$$, what is the value of the spending multiplier? Use the formula $$Multiplier = \frac{1}{1 - MPC}.$$

Accepted Answer

$$5$$

Question 6

A pizza store owner is deciding how many new pizza ovens to purchase. If the owner can buy one pizza oven, she will earn a profit of $$4. If she buys 2 pizza ovens, her profit will be 14. If $$she buys 3 pizza ovens, her profit will be $$24. If she buys 4 pizza ovens, her profit will be 25. $$Pizza ovens cost $$10 each and the interest rate is 4$$\%$. How many pizza ovens should she buy to maximize profit?

Accepted Answer

3

Question 7

Suppose a business owner decides to spend $10,000 on a factory for his business. What will be the initial impact on GDP?

Accepted Answer

GDP will increase by $10,000

Question 8

Alan’s MPC is $$0.75. If $$the government increases spending by $$100$$, what is the total change in GDP? Use the multiplier formula $$Multiplier = \frac{1}{1 - MPC}.$$

Accepted Answer

$$400$$

Question 9

Which of the following would cause a shift in the aggregate expenditures curve from $$C to$$ $$C_2 as $$shown in the provided graph?

Accepted Answer

An increase in government spending

Question 10

If the government increases spending by $$50$$ and the marginal propensity to consume is $$0.8$$, what is the total increase in GDP?

Accepted Answer

$$250$$

Question 11

If aggregate expenditures are $$100$$ billion and equilibrium GDP is $$110$$ billion, which of the following is true?

Accepted Answer

Inventories are rising

Question 12

Suppose the government increases spending by $$1,000. On $$the aggregate expenditures graph, which shift best represents this change?

Accepted Answer

A shift from $$C to$$ $$C_2$$

Question 13

If the marginal propensity to consume (MPC) is $$0.6$$, what is the marginal propensity to save (MPS)?

Accepted Answer

$$0.4$$

Question 14

Which of the following statements about the multiplier effect is correct?

Accepted Answer

The multiplier is larger when the MPC is higher

Question 15

If the government wants to increase GDP by $$500$$ and the MPC is $$0.8$$, how much should it increase spending? Use $$\Delta G = \frac{\Delta GDP}{Multiplier}.$$

Accepted Answer

$$100$$

Question 16

If the consumption function is $$C = 200 + 0.7Y$$, what is the level of consumption when income ($$Y) is$$ $$1,000$$?

Accepted Answer

$$900$$

Question 17

Which of the following would most likely cause a downward shift in the aggregate expenditures curve?

Accepted Answer

A decrease in consumer confidence

Question 18

If the marginal propensity to consume is $$0.9$$, what is the value of the multiplier, and what does this imply about the effect of a $$100$$ increase in government spending?

Accepted Answer

Multiplier is $$10$$; GDP increases by $$1,000$$

Question 19

If the economy is in equilibrium and aggregate expenditures increase, what will happen to inventories and GDP?

Accepted Answer

Inventories will fall and GDP will rise

Question 20

Which of the following best describes the relationship between the 45-degree line and the aggregate expenditures curve in the Keynesian cross diagram?

Accepted Answer

The equilibrium occurs where the aggregate expenditures curve crosses the 45-degree line

Aggregate Expenditures and Consumption: Key Concepts and Applications

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