Question 1

 The economy of country A can be characterized by C = 2,000 + 0.75Yd; T = 200; G = 400 and I
= 500. If government spending in country A increases by $50, equilibrium output increases by
Response: $800.
Score: 0 out of 1 No

Question 2
 The main disadvantage of using money as a store of value is that
Response: currency is intrinsically worthless.
Score: 0 out of 1 No

Question 3
 Higher interest rates are likely to
Response: decrease consumer spending and increase consumer saving.
Score: 1 out of 1 Yes

Question 4
 When Mexico experiences a period of high inflation and Mexicans lose confidence in their peso
as a store of value, which of the following would be most likely to occur?
Response: Mexicans would use a different currency as a medium of exchange.
Score: 1 out of 1 Yes

Question 5
 Given an economy characterized by C = 300 + 0.8Yd;G = 400; T = 200; and I = 200. The
equilibrium level of output for the economy is
Response: $2,850.
Score: 0 out of 1 No

Question 6
 If the saving function is of the form S = -20 + 0.3Y, consumption at an income level of 200 is
Response: 160.
Score: 1 out of 1 Yes

Question 7
 If the MPS is 0.22, the MPC is
Response: 0.78.
Score: 1 out of 1 Yes
Question 8
 Suppose saving is 1,400whenincomeis10,000 and the MPC equals 0.8. When income
increases to $12,000, saving is
Response: $1,800.
Score: 1 out of 1 Yes

Question 9
 Assuming there is no government or foreign sector, the formula for the multiplier is
Response: 1/MPC.
Score: 0 out of 1 No

Question 10
 Assuming no government or foreign sector, the formula for the multiplier is
Response: 1/MPS.
Score: 1 out of 1 Yes

Question 11
 If C = 500 + 0.9Y and I = 400, then the equilibrium level of income is
Response: 9,000.
Score: 1 out of 1 Yes

Question 12
 Assume an economy is in equilibrium at an output level
of 1,500billion.Ifgovernmentspendingincreasesby200 billion, then at the output level
of $1,500 billion, there is
Response: an unplanned fall in inventories.
Score: 1 out of 1 Yes

Question 13
 When the Central bank raises the required reserve ratio, the banks' excess reserves will initially
________ and the money supply ________.
Response: decrease; decreases
Score: 1 out of 1 Yes

Question 14
 If Lily's consumption function is of the form C = 100 + 0.8Y, her saving equals zero at an
income level of
Response: 500.
Score: 1 out of 1 Yes

Question 15
 If the MPS is 0.05, the MPC is
Response: 0.95.
Score: 1 out of 1 Yes

Question 16
 The aggregate consumption function is C = 800 + 0.8Yd. If income
is 2,000andnettaxesare500, consumption equals
Response: 2,000.
Score: 1 out of 1 Yes

Question 17
 Aggregate output will increase if there is a(n)
Response: unplanned fall in inventories.
Score: 1 out of 1 Yes

Question 18
 If the Central bank sets the money supply independent of the interest rate, then the money
supply curve is
Response: horizontal.
Score: 0 out of 1 No

Question 19
 If you save 80whenyouexperiencea400 rise in your income,
Response: your MPC is 0.80.
Score: 1 out of 1 Yes

Question 20
 If consumption is 10,000whenincomeis10,000, and consumption increases
to 11,000whenincomeincreasesto12,000, the MPS is
Response: 0.50.
Score: 1 out of 1 Yes

Question 21
 An open-market purchase of securities by the Central bank results in ________ in reserves and
________ in the supply of money.
Response: a decrease; an increase
Score: 0 out of 1 No

Question 22
 Assume there is no government or foreign sector. If the MPS is 0.2, a $40 billion decrease in
planned investment will cause aggregate output to decrease by
Response: $200 billion.
Score: 1 out of 1 Yes

Question 23
 If Wanda's income is reduced to zero after she loses her job, her consumption will be ________
and her saving will be ________.
Response: greater than zero; less than zero
Score: 1 out of 1 Yes

Question 24
 The aggregate consumption function is C = 1,000 + 0.9Yd. If income
is 3,600andnettaxesare600, consumption equals
Response: 3,700.
Score: 1 out of 1 Yes

Question 25
 Uncertainty about the future is likely to
Response: decrease current spending.
Score: 1 out of 1 

Question 1
 The aggregate consumption function is C = 100 + 0.6Yd. If income
is 1,000andnettaxesare300, consumption equals
Response: 520.
Score: 1 out of 1 Yes
Question 2
 After government is added to the income-expenditure model, the formula for the aggregate
consumption function is
Response: C = a + b(Y - T).
Score: 1 out of 1 Yes

Question 3
 Assume an economy is in equilibrium at an output level
of 1,500billion.Ifgovernmentspendingincreasesby200 billion, then at the output level
of $1,500 billion, there is
Response: an unplanned fall in inventories.
Score: 1 out of 1 Yes

Question 4
 Assume there is no government or foreign sector. If the MPS is 0.2, a $40 billion decrease in
planned investment will cause aggregate output to decrease by
Response: $200 billion.
Score: 1 out of 1 Yes

Question 5
 The aggregate consumption function is C = 800 + 0.8Yd. If income
is 2,000andnettaxesare500, consumption equals
Response: 2,000.
Score: 1 out of 1 Yes

Question 6
 Assuming there is no foreign trade in the economy, equilibrium is achieved when government
purchases equal
Response: saving plus net taxes minus investment.
Score: 1 out of 1 Yes

Question 7
 Higher interest rates are likely to
Response: decrease consumer spending and increase consumer saving.
Score: 1 out of 1 Yes

Question 8
 If C = 500 + 0.9Y and I = 400, then the equilibrium level of income is
Response: 9,000.
Score: 1 out of 1 Yes

Question 9
 Aggregate output will increase if there is a(n)
Response: unplanned fall in inventories.
Score: 1 out of 1 Yes

Question 10
 If Zander's saving function is of the form S = -150 + 0.5Y, his consumption equals his income at
an income level of
Response: 300.
Score: 1 out of 1 Yes

Question 11
 Which of the following is NOT a category of fiscal policy?
Response: government policies regarding money supply in the economy
Score: 1 out of 1 Yes

Question 12
 Uncertainty about the future is likely to
Response: decrease current spending.
Score: 1 out of 1 Yes

Question 13
 Given an economy characterized by C = 300 + 0.8Yd;G = 400; T = 200; and I = 200. The
equilibrium level of output for the economy is
Response: $3,700.
Score: 1 out of 1 Yes

Question 14
 During recessions, government spending usually
Response: increases because unemployment payments increase.
Score: 1 out of 1 Yes

Question 15
 If consumption is 30,000whenincomeis35,000, and consumption increases
to 36,000whenincomeincreasesto43,000, the MPC is
Response: 0.75.
Score: 1 out of 1 Yes

Question 16
 Which of the following would NOT be counted as part of M1?
Response: money market accounts
Score: 1 out of 1 Yes

Question 17
 Suppose consumption is 60,000whenincomeis90,000 and the MPS equals 0.25. When
income increases to $100,000, consumption is
Response: $67,500.
Score: 1 out of 1 Yes

Question 18
 If the consumption function is below the 45-degree line,
Response: consumption is less than income and saving is positive.
Score: 1 out of 1 Yes

Question 19
 If the MPS is 0.05, the MPC is
Response: 0.95.
Score: 1 out of 1 Yes

Question 20
 If the government wants to reduce unemployment, government purchases should be ________
and/or taxes should be ________.
Response: increased; decreased
Score: 1 out of 1 Yes

Question 21
 Assuming there is no government or foreign sector, the formula for the multiplier is
Response: 1/(1 - MPC).
Score: 1 out of 1 Yes

Question 22
 The aggregate consumption function is C = 100 + 0.8Yd. If income is $600 and net taxes are
zero, consumption equals
Response: 580.
Score: 1 out of 1 Yes

Question 23
 Assuming there is no foreign trade in the economy, the economy is in equilibrium when
Response: S + T = C + I.
Score: 0 out of 1 No

Question 24
 If you save 80whenyouexperiencea400 rise in your income,
Response: your MPC is 0.80.
Score: 1 out of 1 Yes

Question 25
 If C = 100 + 0.8Y and I = 50, then the equilibrium level of income is
Response: 750.
Score: 1 out of 1