Economics: Principles and Policies, 9e: Chapter: Aggregate Demand and the Powerful Consumer

Chapter: Aggregate Demand and the Powerful Consumer

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1. The largest component of aggregate demand is: a. investment spending.
b. consumer spending.
c. government spending.
d. total imports.

2. Based on the scatter diagram in the figure below, if real disposable income is $400 billion, the consumption spending would be

a. $400 billion.
b. $300 billion.
c. $200 billion.
d. $100 billion.

3. In the figure belowwhich of the following moves can be explained by an increase in disposable income?

a. A to B.
b. A to C.
c. A to D.
d. A to E.

4. If consumers? expectations about future income is very optimistic, then we should expect: a. the consumption function to shift downward.
b. consumers to move up along the consumption function.
c. the consumption function to shift upward.
d. consumers to move down along the consumption function.

5. A rapid decrease in consumers' wealth resulting, for example, from a stock market crash would initially cause: a. a downward movement along the consumption function.
b. a downward shift of the consumption function.
c. an upward movement along the consumption function.
d. an upward shift of the consumption function.

6. Why do permanent tax cuts have a greater impact on consumption than temporary tax cuts?: a. Permanent tax cuts have a greater effect on expected long-run inflation.
b. Permanent tax cuts are perceived as minor, while temporary tax cuts are larger and more effective.
c. Permanent tax cuts cause movement along the consumption function, while temporary tax cuts shift the consumption function.
d. Permanent tax cuts affect expectations of long-run income more than temporary tax cuts.

7. Consumers are most likely to increase their spending when: a. the government announces a temporary tax increase.
b. the government announces a permanent tax increase.
c. the government announces a temporary tax decrease.
d. the government announces a permanent tax decrease.

8. When computing gross domestic product, government services are valued at: a. the price consumers pay for them.
b. the value of the resources used to produce them.
c. the value of comparable outputs from the private sector.
d. the value of taxes collected from consumers.

9. The national income accounts include a value for the amount of capital stock ? used up? during the production of current output. This dollar amount is called: a. appreciation.
b. dollarization.
c. amortization.
d. depreciation.

10. In the national income accounts, new investment goods are considered: a. intermediate goods, and therefore, not counted.
b. depreciated assets.
c. subtractions from final output.
d. final goods, and therefore, counted.