# Chapter 9 by YV0KUOeJ

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```									9-1. The components of aggregate demand are:
→ Consumption, government spending, net                 9-2. Given that C = \$1,000 + 0.60YD, if the level of
exports, and investment.                                disposable income is \$1,000, the level of saving is:
Consumption, exports, imports, and disposable           \$600.
income.                                                     \$400.
Consumption, inventory, government spending,        → -\$600.
and disposable income.                                      -\$300.
Exports, imports, investment, and disposable
income.

9-4. Suppose the MPC in an economy is 0.9. The APC
9-3. When the APC is greater than 1, then the APS       is initially 0.95 and disposable income is \$4 billion.
must be:                                                If disposable income increases to \$14 billion, what
Equal to 1.                                         is the new level of consumption?
Greater than 1 also.                                     \$13.3 billion
Between 0 and 1.                                    → \$12.8 billion
→ Negative.                                                  \$9 billion
\$12.6 billion

9-5. If disposable income increases from \$9,000
9-6. If the MPC is 0.60 and disposable income
billion to \$11,000 billion, and consumption
increases from \$20,000 billion to \$22,000 billion,
increases from \$9,500 billion to \$11,000 billion, the
then consumption will increase by:
MPC must be:
\$2,000 billion.
→ 0.75.
\$800 billion.
1.00.
→ \$1,200 billion.
0.90.
\$600 billion.
0.25.

9-8. Which of the following is not a determinant of
9-7. If the MPC is 0.8 and the APC is 0.9, then the
autonomous consumption?
MPS equals:
→ The income level
0.1.
→ 0.2.                                                      Taxes
The availability of credit
0.8.
The price level
1.7.

9-9. Given a consumption function of C = \$25 +          9-10. If wealth rises:
0.75YD, the average propensity to consume equals           There will be a movement to the left along the
1 when income equals:                                   AD curve.
\$25.                                                   There will be a movement to the right along the
→ \$100.                                                    The AD curve will shift to the left.
-\$300.                                              → The AD curve will shift to the right.
9-2. Aggregate demand is composed of all spending       9-1. Saving will be negative when consumption
categories that make up GDP.                            exceeds disposable income.

9-4. Consumption will rise by the change in
disposable income multiplied by the MPC. In this
case consumption is initially \$3.8 billion (.95 × 4).
9-3. In this case, consumption exceeds disposable
When income increases by \$10 billion, the increase
income and the consumer is dissaving.
in consumption will be \$9 billion (0.9 × 10).
Therefore the total consumption will be \$12.8
billion (\$3.8 + \$9).

9-6. Consumption spending will rise by the change       9-5. The MPC is equal to the change in consumption
in disposable income multiplied by the MPC. (2000       spending divided by the change in disposable
× 0.60 = \$1200)                                         income. (1500/2000 = .75)

9-8. MPS plus MPC equals one, so MPS must be            9-7. MPS plus MPC equals one, so MPS must be
equal to 0.2.                                           equal to 0.2.

9-9. When disposable income is \$100, the
9-10. More wealth leads consumers to feel more
consumer is spending all of their income (C = 25 +
confident and therefore to spend more freely.
.75 × 100 = \$100) and saving none.
9-11. If the availability of credit increases, then:   9-12. Investment spending includes expenditures
There will be a movement to the left along the      on all of the following except:
AD curve.                                              → Stocks and bonds.
There will be a movement to the right along the         Equipment.
The AD curve will shift to the left.                    Plant or office building.
→ The AD curve will shift to the right.

9-13. Which of the following will cause a decrease     9-14. Which of the following will cause an increase
in U.S. gross exports?                                 in U.S. imports?
An increase in foreign consumer income             → An increase in U.S. consumer confidence
→ A decrease in foreign business investment                An increase in foreign consumer income
An increase in foreign wealth.                         An increase in foreign business investment
A decrease in U.S. consumer income                     A decrease in U.S. wealth

9-15. A recessionary gap:                              9-16. Which of the following occurs when the
Would cause a depletion of inventories.             spending on final goods and services exceeds full-
Would occur if total output were less than          employment GDP?
aggregate demand.                                         Inventory accumulation
→ Is the amount by which the rate of actual               Unemployment
spending falls short of full-employment GDP.           → Inflationary gap
Is the amount by which total spending exceeds          Recessionary gap
GDP.

9-17. Demand-pull inflation is caused by:
An increase in aggregate supply.
An increase in resource costs as an economy's
production capacity is approached.
An increase in inventories.
→ Excessive aggregate demand in relation to an
economy's production capacity.
9-12. Stocks and bonds represent how one chooses        9-11. More wealth leads consumers to feel more
to hold one's wealth rather than physical capacity.     confident and therefore to spend more freely.

9-14. When consumers feel good about the                9-13. If investment abroad falls, the demand for U.S.
economy, they will consume more of all goods,           capital goods will decline as our trading partners
including imports.                                      have less need of them.

9-16. When aggregate demand exceeds full
9-15. The recessionary gap indicates many
employment GDP, resources are being over-used
resources are not being used, so unemployment
and bidding wars will drive up their prices, creating
will be high.
inflation.

9-17. When aggregate demand increases,
production is unable to keep up with spending and
so prices rise as a result
9-18. Using Figure 9.1, dissaving occurs at all
income levels:
Above \$2,000 billion.
Above \$3,000 billion.
→ Below \$2,000 billion.
Below \$3,000 billion.

9-19. Using Figure 9.6, if full employment occurs at
QC then aggregate demand is:
Too great causing cyclical unemployment.
Too small causing demand-pull inflation.
→ Too small causing cyclical unemployment.
Just right.
Since macro equilibrium falls to the left of the full-
employment level of output, there will be a
recession and cyclical unemployment.

9-20. Using Figure 9.6, if full employment occurs at
QA then aggregate demand is:
Just right.
→ Too great causing an inflationary gap.
Too small causing an inflationary gap.
Too great causing a recessionary gap.
9-18. At any level to the left of the intersection of
the consumption function and the 45-degree line
dissaving occurs.

9-19. Since macro equilibrium falls to
the left of the full-employment level of
output, there will be a recession and
cyclical unemployment.

9-20. Since macro equilibrium falls to
the right of the full-employment level of
output, there will be an inflationary gap.

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