MOCK EXAM "AGGREGATE EXPENDITURES"




1.
(Advanced analysis) Answer the next question(s) on the basis of the following data. The letters Y, C, S, and I are used to represent GDP, consumption, saving, and investment respectively.

R-1 REF09188

The equation representing the consumption schedule for the above economy is:
A.C = Y - .6S.
B.Y = C + S.
C.C = 60 + .4Y .
D.C = 60 + .6Y .



2. The consumption schedule shows:
A.a direct relationship between aggregate consumption and accumulated wealth.
B.a direct relationship between aggregate consumption and aggregate income.
C.an inverse relationship between aggregate consumption and accumulated financial wealth.
D.an inverse relationship between aggregate consumption and aggregate income.


3. 1 - MPC = MPS.
A.True
B.False


4. Which of the following will cause the investment schedule to shift downward?
A.an increase in the real interest rate
B.a decline in wage rates
C.a significant decline in the real interest rate
D.a new technological advance that cuts the price of steel by one-half


5.
Answer the next question(s) on the basis of the following information for a private closed economy.

Assume that for the entire business sector of the economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments that will yield an expected rate of return of 20-25 percent; another $15 with an expected rate of return of 15-20 percent; and similarly an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range.
R-2 REF09139

Refer to the above information. If the real interest rate is 5 percent, what amount of investment will be undertaken?
A.$15
B.$30
C.$45
D.$60



6. The immediate determinants of investment spending are the:
A.expected rate of return on capital goods and the real interest rate.
B.level of saving and the real interest rate.
C.marginal propensity to consume and the real interest rate.
D.interest rate and the expected price level.


7.
R-3 F09076

Refer to the above diagram. The average propensity to consume is 1 at point:
A.F.
B.A.
C.D.
D.B.



8.                               


The consumption schedule in the above diagram indicates that:
A.consumers will maximize their satisfaction where the consumption schedule and 45° line intersect.
B.up to a point consumption exceeds income, but then falls below income.
C.the MPC falls as income increases.
D.households consume as much as they earn.


9. If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:
A.18 percent.
B.24 percent.
C.12 percent.
D.6 percent.


10. The investment-demand curve will shift to the right as a result of:
A.an increase in the excess production capacity available in industry.
B.an increase in business taxes.
C.technological progress.
D.an increase in the acquisition and maintenance cost of capital goods.


11.

R-4 F09158

Refer to the above diagram for a private closed economy. At the equilibrium level of GDP, investment and saving are both:
A.$50.
B.$100.
C.$20.
D.$40.



12. An upward shift of the saving schedule suggests:
A.nothing with respect to changes in the APC and APS.
B.that the APC and APS have both decreased at each GDP level.
C.that the APC and APS have both increased at each GDP level.
D.that the APC has decreased and the APS has increased at each GDP level.


13. The relationship between investment and GDP is shown by the:
A.consumption of fixed capital schedule.
B.saving schedule.
C.investment schedule.
D.consumption schedule.


14.
(Advanced analysis) Answer the next question(s) on the basis of the following consumption schedule: C = 20 + .9Y , where C is consumption and Y is disposable income.
R-5 REF09030

Refer to the above data. The MPC is:
A..45.
B..20.
C..50.
D..90.



15. Which of the following will not tend to shift the consumption schedule upward?
A.a currently small stock of durable goods in the possession of consumers
B.the expectation of a future decline in the consumer price index
C.a currently low level of household debt.
D.the expectation of future shortages of essential consumer goods.


16.

R-6 F09059

Refer to the above graph. A shift of the consumption schedule from C2 to C1 might be caused by a:
A.increase in real GDP.
B.reverse wealth effect, caused by a decrease in stock market prices.
C.decrease in income tax rates.
D.decrease in saving.



17. Other things equal, the real interest rate and the level of investment are:
A.related only when saving equals planned investment.
B.unrelated.
C.inversely related.
D.directly related.


18. Which one of the following will cause a movement down along an economy's consumption schedule?
A.an increase in stock prices
B.a decrease in stock prices
C.an increase in consumer indebtedness
D.a decrease in disposable income


19. The equilibrium level of GDP is associated with:
A.an excess of planned investment over saving.
B.no unintended changes in inventories.
C.an unintended decrease in business inventories.
D.an unintended increase in business inventories.


20. If unintended increases in business inventories occur, we can expect:
A.a decline in GDP and rising unemployment.
B.inflation.
C.an increase in consumption.
D.an offsetting increase in planned investment.



This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.