Chapter 8—Aggregate Demand and the Powerful Consumer Discussion Questions 40 Qs 1 When aggregate demand decreases rapidly the economy is likely to experience a inflation

Document Sample
Chapter 8—Aggregate Demand and the Powerful Consumer Discussion Questions 40 Qs 1 When aggregate demand decreases rapidly the economy is likely to experience a inflation Powered By Docstoc
					Chapter 8—Aggregate Demand and the Powerful Consumer, Discussion Questions (40 Qs)

1.       When aggregate demand decreases rapidly, the economy is likely to experience

         a. inflation.

         b    an economic boom.

         c.   economic growth.

         d    recession.

2.       Total amount spent on final goods and services in US in the year 2007 was eight trillion dollars. This total
         spending is referred to as

         a. investment demand.

         b    aggregate demand.

         c.   market demand.

         d    consumption demand.

     3. If a U.S. citizen buys a car produced in Germany, this transaction will add to

         a. U.S. aggregate demand.

         b    U.S. aggregate supply.

         c.   German aggregate demand.

         d    German imports.

     4. The “investment” component of aggregate demand will include all of the following except

         a. expenditures of business firms on new plants.

         b    expenditures of business firms on new equipment.

         c.   resales of existing physical assets.

         d    household spending on new homes.

5.       Which of the following should be subtracted while calculating aggregate demand of the US?

         a. Pakistan’s purchase of F-16s from the US.

         b    Computers imported by China from the US.

         c.   Memorabilia purchases in the US by a foreign tourist.




                                                          7-1
     d    A US firm’s purchase of German machinery.

6.   National income is

     a. the sum of all wages and salaries, interest, rent, and profits in the economy.

     b    equal to the money value of national output.

     c.   the before-tax income of all individuals in the economy.

     d    All of the above are correct.

7.   The circular flow diagram is best described as a(n)

     a. abstraction of little value in macroeconomics.

     b    exact representation of the cause and effect relationship between spending and
          employment.

     c.   model that clarifies the relationship between spending and income.

     d    model to explain the relationship between the federal deficit and tax revenues.

8.   Which of the following is the injection into the circular flow model?

     a. Money deposited in a savings account.

     b    Income earned through exports.

     c.   Goods imported from abroad.

     d    Taxes paid by the individuals.

9.   Imports are a leakage in the sense that

     a. the international financial system is unstable.

     b    consumers buy foreign output of goods and services.

     c.   foreigners earn less than U.S. workers.

     d    a trade deficit increases aggregate demand.

10. If you produce a graph with consumption spending on the vertical axis and disposable income on the
    horizontal axis, the relation between consumption and income will

     a. be inverse.

     b    be transcendental.

     c.   shift unpredictably.




                                                        7-2
     d    be direct.

11. If personal taxes are increased by $10 billion, we can expect that consumers will reduce

     a. spending by $10 billion.

     b    spending by more than $10 billion.

     c.   spending by less than $10 billion.

     d    saving by $10 billion.

     e    saving by more than $10 billion.

12. The nation’s disposable income increases by $400 billion and, as a result, consumer spending increases
    by $320 billion. Therefore, the MPC equals

     a. 0.16.

     b    0.20.

     c.   0.60.

     d    0.80.

     e    0.96.

13. Assume that consumption in the United States is $9,000 billion in 1998. If the MPC is 0.8 and disposable
    income increases by $1,000 billion in 2001, then the level of consumption in 2001 will be

     a. $10,000 billion.

     b    $9,800 billion.

     c.   $9,000 billion.

     d    cannot be determined.

14. For each $1 of a tax cut, economists expect consumption to

     a. decrease by $1.

     b    decrease by less than $1.

     c.   increase by less than $1.

     d    increase by $1.

15. To predict the effects of a tax cut on consumption spending, economists must have some estimate of the

     a. income effect.




                                                     7-3
     b    substitution effect.

     c.   relative price effect.

     d    marginal propensity to consume.

16. A movement upward along the consumption function can be caused only by a(n)

     a. increase in disposable income.

     b    decrease in disposable income.

     c.   decrease in the price level.

     d    increase in the price level.


     Figure 8-2




17. In Figure 8-2, which of the following moves can be explained by a decrease in disposable income?

     a. E to B

     b    A to C

     c.   A to D

     d    B to E

18. In Figure 8-2, which of the following moves can be explained by a decrease in the price level?

     a. A to B

     b    A to C

     c.   A to D



                                                     7-4
    d    A to E

19. In Figure 8-2, which of the following moves can be explained by an increase in government transfer
    payments?

    a. A to B

    b    A to C

    c.   A to D

    d    A to E

20. Which of the following would be most likely to shift the consumption function downward?

    a. a stock market crash

    b    a price level decrease

    c.   increased corporate profits

    d    a stock market boom

21. Consumption functions would shift downward if

    a. disposable incomes fall.

    b    disposable incomes rise.

    c.   price levels fall.

    d    price levels rise.

22. Which of the following would lead you to predict an upward shift in the consumption function?

    a. a decrease in the value of real wealth

    b    a decrease in disposable income

    c.   an increase in the value of real wealth

    d    an increase in the price level

23. Which of the following is NOT a factor that influences investment spending?

    a. transfer payment policy

    b    business confidence

    c.   business expectations

    d    technical change




                                                    7-5
24. U.S. imports are most likely to increase when

     a. U.S. GDP decreases.

     b    U.S. unemployment rates fall.

     c.   U.S. prices fall.

     d    foreign prices rise.

25. If the Japanese economy is currently suffering from a recession we should expect U.S. exports to Japan
    to

     a. decrease.

     b    increase.

     c.   remain the same.

     d    increase only if the Japanese Yen depreciates.

26. The system of measurement for expressing macroeconomic data is called

     a. national income accounting.

     b    balance of payment accounting.

     c.   generally accepted accounting principles.

     d    double entry bookkeeping.

27. The one category of goods that are not sold but are, nevertheless, included in GDP is

     a. inventories.

     b    imports.

     c.   consumer services.

     d    exports.

28. Inventories are goods that can be considered as “purchased” by

     a. the firms that produce them.

     b    the consumers that ultimately buy them.

     c.   the government since they are tax deductible.

     d    no one since they are not counted as part of GDP.

29. Which of the following is not part of the investment component of GDP?




                                                      7-6
     a. residential construction

     b    plant and equipment

     c.   net imports

     d    business structures

30. The purchase of stocks and bonds is included in which component of GDP?

     a. saving

     b    investment

     c.   consumer spending

     d    They are not included in GDP.

31. In calculating the nation’s total output, net exports

     a. represent exports of goods and services minus imports of goods and services.

     b    have been a negative number in the last several years.

     c.   would include purchases of U.S.-made automobiles by foreigners minus purchase of
          foreign-made automobiles by U.S. residents.

     d    All of the above are correct.

32. The difference between GDP and NDP is the

     a. rate of inflation.

     b    statistical discrepancy encountered in calculating GDP.

     c.   difference between real versus nominal GDP.

     d    depreciation of the economy’s capital stock.

33. The sum of all factor payments in the economy yields

     a. gross domestic product.

     b    national income.

     c.   disposable income.

     d    net domestic product.

34. The term “depreciation” in the national income accounts refers to

     a. the adjustment of GDP for inflation.




                                                      7-7
    b    plant and equipment “used up” in producing current output.

    c.   citizenship differences among income recipients.

    d    government transfer payments minus tax revenues.

35. GDP can be calculated by the value-added approach, which

    a. is useful in avoiding double counting.

    b    includes only the value-added portion from the sale of goods and services.

    c.   includes the revenue a firm receives from selling a product minus the amount paid for
         goods purchased from other firms.

    d    All of the above correct.

36. National income can be calculated by subtracting

    a. depreciation from GDP.

    b    indirect business taxes from GDP.

    c.   depreciation and indirect business taxes from GDP.

    d    transfer payments and taxes from GDP.

37. Which of the following methods could be used to calculated GDP?

    a. the sum of all spending on final goods and services

    b    the sum of all factor payments plus depreciation and indirect business taxes

    c.   the sum of all values added at each stage of production

    d    All of the above could be used.




                                                     7-8
     Table 8-1

     Item                                                                 Amount (billions)

     Personal Consumption Expenditures                                           600

     Depreciation                                                                  50

     Wages                                                                       800

     Indirect Business Taxes                                                       10

     Rental Income                                                                 25

     Gross Private Domestic Investment                                           150

     Corporate Profits                                                             75

     Net Exports                                                                    5

     Government Purchases of Goods and Services                                  200

     Government Transfer Payments                                                  50



38. According to the data in Table 8-1, the value of GDP is

     a. 800.

     b    805.

     c.   955.

     d    1055.

39. According to the data in Table 8-1, the value of NDP is

     a. 905.

     b    805.

     c.   750.

     d    705.

40. According to the data in Table 8-1, the value of national income is

     a. 190.

     b    605.




                                                     7-9
c.   795.

d    895.




            7-10

				
DOCUMENT INFO
Description: National Income of Pakistan Last 10 Year document sample