Question 1

Which of the following best describes the relationship depicted in the first diagram (Production, Income, Demand)?

Accepted Answer

Production creates income, which generates demand, and demand stimulates further production.

Question 2

In the context of the goods market, which equation correctly represents the equilibrium condition shown in the third diagram?

Accepted Answer

$$Y = Z$$

Question 3

Refer to the third diagram. What does the slope $$c_1 of $$the ZZ line represent in the context of the consumption function?

Accepted Answer

The marginal propensity to consume

Question 4

Based on the second diagram, what can be inferred about the relationship between real per capita disposable income and real per capita consumption in Canada from 1981 to 2014?

Accepted Answer

Real per capita consumption closely follows real per capita disposable income, with a relatively stable gap representing savings.

Question 5

If the marginal propensity to consume ($$c_1) $$increases, what happens to the slope of the ZZ line in the third diagram?

Accepted Answer

The slope increases, making the ZZ line steeper.

Question 6

Given the consumption function $$C = c_0$ + c_1$(Y - T)$$, if taxes ($$T) $$increase while all other variables remain constant, what is the immediate effect on equilibrium output ($$Y$$)?

Accepted Answer

Equilibrium output decreases.

Question 7

Suppose autonomous spending increases. According to the third diagram, what happens to the equilibrium point?

Accepted Answer

The equilibrium point shifts upward along the 45-degree line.

Question 8

Which of the following best explains why real GDP is preferred over nominal GDP for measuring aggregate output over time?

Accepted Answer

Real GDP isolates changes in quantities by holding prices constant, allowing for meaningful comparisons across time.

Question 9

If the marginal propensity to consume ($$c_1) is 0.8$$, what is the value of the multiplier in the equilibrium output formula $$Y^* = \frac{1}{1-c_1$}(c_0$ + I + G - c_1T)$$?

Accepted Answer

$$5$$

Question 10

Which of the following scenarios would cause the ZZ line in the third diagram to shift upward?

Accepted Answer

An increase in autonomous consumption ($$c_0)$$

Question 11

If the equilibrium output is determined at the intersection of the 45-degree line and the ZZ line, what does this intersection represent?

Accepted Answer

The point where aggregate demand equals aggregate output

Question 12

Suppose the government increases its purchases ($$G) $$while all other variables remain constant. According to the equilibrium output formula, what is the effect on $$Y^*$$?

Accepted Answer

$$Y^*$$ increases by the multiplier times the change in $$G$$

Question 13

In the context of the diagrams and the goods market model, what does 'autonomous spending' refer to?

Accepted Answer

Spending that does not depend on current income

Question 14

If the marginal propensity to consume ($$c_1) is $$less than 1, what does this imply about the stability of the equilibrium in the goods market?

Accepted Answer

The equilibrium is stable because the multiplier is finite.

Macroeconomics Study Guide: Key Variables, Goods Market, and Financial Markets

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