Question 1

Which of the following best describes the main assumption of the Simple Short-Run Macroeconomic Model with Demand-Determined Output as presented in Chapters 6 & 7?

Accepted Answer

Aggregate demand determines output, and the price level is fixed.

Question 2

Given the consumption function $$C = 668 + 0.62Y_D$$, what is the value of autonomous consumption ($$C_0$$)?

Accepted Answer

$$668$$

Question 3

If the marginal propensity to consume (MPC) is $$0.64$$, what is the marginal propensity to save (MPS)?

Accepted Answer

$$0.36$$

Question 4

Suppose disposable income increases from $$154,897 to$$ $$161,580$$, and consumption increases from $$128,600 to$$ $$132,745. $$What is the marginal propensity to consume (MPC)?

Accepted Answer

$$0.62$$

Question 5

Which of the following will shift the consumption curve upward?

Accepted Answer

An increase in consumer confidence

Question 6

If the consumption function is $$C = 540 + 0.74Y_D$$, what is the corresponding saving function ($$S$$)?

Accepted Answer

$$S = -540 + 0.26Y_D$$

Question 7

At the break-even level of disposable income ($$Y_{BE}$$), what is true about consumption ($$C) $$and saving ($$S$$)?

Accepted Answer

$$C = Y_{BE}$$ and $$S = 0$$

Question 8

Which of the following factors will NOT shift the consumption curve?

Accepted Answer

A change in disposable income ($$Y_D)$$

Question 9

Which of the following is the correct formula for the equilibrium level of output ($$Y^*) in $$the simple model with $$AE = a_0$ + zY$$?

Accepted Answer

$$Y^* = \dfrac{a_0$}{1-z}$$

Question 10

If the marginal propensity to spend ($$z) is$$ $$0.62$$, what is the value of the expenditures multiplier?

Accepted Answer

$$2.63$$

Question 11

Suppose the aggregate expenditures equation is $$AE = 1146 + 0.62Y. If $$actual output ($$Y) is$$ $$3,500$$, what is the value of unplanned inventory change (UIC)?

Accepted Answer

$$184$$

Question 12

Which of the following is a correct interpretation of the multiplier effect in the context of an increase in autonomous investment?

Accepted Answer

A $$100m increase in investment leads to a total increase in output greater than 100m $$due to repeated rounds of spending.

Question 13

Which of the following will cause a movement along the consumption curve, rather than a shift of the curve?

Accepted Answer

An increase in disposable income ($$Y_D)$$

Question 14

Which of the following is NOT a determinant of gross business investment expenditures ($$I$$)?

Accepted Answer

Household disposable income

Question 15

If the marginal propensity to consume (MPC) increases, what happens to the slope of the consumption function?

Accepted Answer

The slope increases

Question 16

Which of the following equations correctly represents the relationship between disposable income ($$Y_D$$), consumption ($$C$$), and saving ($$S$$)?

Accepted Answer

$$Y_D = C + S$$

Question 17

If autonomous consumption ($$C_0) $$increases, what is the effect on the equilibrium output ($$Y^*) in $$the simple model?

Accepted Answer

Equilibrium output increases

Question 18

Which of the following best describes the effect of an increase in the marginal propensity to spend ($$z) on $$the aggregate expenditures curve?

Accepted Answer

The AE curve becomes steeper

Question 19

Suppose the consumption function is $$C = 668 + 0.62Y_D$$ and investment is $$I = 478. $$What is the equilibrium level of output ($$Y^*$$)?

Accepted Answer

$$Y^* = \dfrac{668 + 478}{1 - 0.62} = 3,026$$

Question 20

Which of the following statements about macroeconomic equilibrium is correct in the simple model?

Accepted Answer

Equilibrium occurs when $$Y = AE$$

The Simple Short-Run Macroeconomic Model with Demand-Determined Output

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