Question

3) Independent consumption

a)Represents a component of consumption that is independent of the disposable income.

b)Decreases when consumer wealth goes down.

c)Decreases when consumer wealth goes up.

d)Represents the minimum level of consumption when disposable income is zero.

e) a, b and c.

4) An increase in the general price level

a)Decreases consumption by increasing consumer wealth.

b)Decreases the real value of the money fixed assets.

c)Shifts the consumption function upward.

d)a and b.

5)Theoretically, a higher level of interest rate

a)Discourages consumption.

b)Shifts the consumption line upward.

c)Lowers the reward for saving.

d)Discourages investment.

e)Both a and d.

6)Which of the following shifts the investment curve upward?

a)An increase in disposable income.

b)A decrease in the rate of inflation..

c)A decrease in the real interest rate.

d)None of the above.

7)Everything else constant, inflation

a)leads to an increase in a country’s net exports.

b)Leads to a reduction in a country’s net exports.

c)Increases the inventories below the desired level.

e)b and c.

f)a and c.

8)Everything else constant, when a country’s money depreciates in value

a)Its net exports tend to increase.

b)Its net exports tend to decrease.

c)Its net exports tend to remain unchanged.

9)Which of the following are true?

a)Our exports are relatively insensitive to our national income.

b)Our exports fall when our national income rises.

c)When our economy grows faster than the economies of our trading partners our net exports tends to decrease.

d)a and c.

e)b and c.

10)Which of the following statements best represent the definition of the demand side equilibrium GDP?

a)The demand side equilibrium GDP is the level of GDP at which there is no recession or inflation.

b)The demand side equilibrium GDP is the level of GDP at which aggregate supply exceeds aggregate demand.

c)The demand side equilibrium GDP is the level of GDP at which firms have no incentive to increase or decrease their total product.

d)c and a.

11)If the GDP of the economy is larger than the equilibrium GDP,

Inventories would fall below the desired level and thus firms increase their production.

Inventories would be above the desired level and thus firms increase their production.

Inventories would fall below the desired level and thus firms decrease their production.

Inventories would be above the desired level and thus firms decrease their production.

12)A recessionary gap is a result of

a) Government deficit.

b) Inadequate aggregate demand.

c) Too much expenditures.

d) Both a and b.

13)Which of the following cause(s) a decrease in the demand side equilibrium GDP?

a)A stronger home currency.

b)A weaker home currency.

c)An increase in the real interest rate.

d)a and c

e)b and c.

14)A decrease in the real interest rate.

a)Increases the demand side equilibrium GDP.

b)Decreases the demand side equilibrium GDP.

c)Does not affect the demand side equilibrium GDP.

d)Happens as a result of an inflationary gap.

e)Both a and d.

15)The 45 degree line drawn to find the demand side equilibrium

a)Shows all points at which the aggregate demand is equal to aggregate supply.

b)Shows all points at which the general price level is equal to the total expenditures.

c)Is below the expenditure line if the economy produces more than the equilibrium GDP.

d)Is above the expenditure line if the economy produces less than the equilibrium GDP.

e)None of the above.

16)A decrease in net taxes

a)Increases the equilibrium output.

b)Shifts the expenditure line downward.

c)Shifts the aggregate demand to the right.

d)Causes a movement along the aggregate demand.

e)a, and c.

17)Which of the following shifts the investment curve downward?

a)A decrease in disposable income.

b)An increase in the value of our domestic currency.

c)A decrease in the real interest rate.

d)None of the above.

18)Which of the following cause(s) an increase in the demand side equilibrium GDP?

a)A stronger home currency.

b)A weaker home currency.

c)An increase in the real interest rate.

d)a and c

e)b and c.

19)An inflationary gap is a result of

a) Government deficit.

b) Inadequate aggregate demand.

c) Too much expenditures.

d) Both a and b.

20)Everything else constant, inflation

a)Leads to an increase in a country’s exports.

b)Leads to a reduction in a country’s imports.

c)Increases the inventories above the desired level.

d)b and c.

e)none.

Answer 1

3)D Represents the minimum level of consumption when disposable income is zero i.e. which has to be there irrespective of Income

4) c)Shifts the consumption function upward since the consumer will carry more money to buy the same product

5) a)Discourages consumption since people save more and invest more

6) a)An increase in disposable income. Higher Income, higher investment

7) b)Leads to a reduction in a country’s net exports. Since exports become expensive

8) a)Its net exports tend to increase. More goods can be purchased with the same foreign currency

9) a)Our exports are relatively insensitive to our national income.

10) c)The demand side equilibrium GDP is the level of GDP at which firms have no incentive to increase or decrease their total product.

11) Inventories would be above the desired level and thus firms decrease their production.

12) d) Both a and b.

17) a)A decrease in disposable income.

19)c too much expenditures

20) c)Increases the inventories above the desired level.Since products become expensive