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GDP MCQs Part 1

  1. The aggregate expenditure line, along with the 45-degree line, determines equilibrium. This model is based
    on the assumption that

A) production is constant
B) production is constant and at the full employment level of GDP
C) producers are ready to supply whatever amount of output is demanded at the existing price level
D) producers will supply more at higher prices than they will at lower prices
E) producers will supply more at lower prices than they will at higher prices

2.The components of planned aggregate spending are:

A) Consumption spending, savings, investment, and net taxes
B) Consumption spending, savings, investment, and net exports
C) Consumption spending, savings, government purchases, and net exports
D) Consumption spending, investment, government purchases, and net taxes
E) Consumption spending, investment, government purchases, and net exports

3. Historically, consumption spending in the United States has

A) increased as a percentage of income
B) remained approximately constant as a percentage of income
C) decreased as a percentage of income
D) remained constant over time
E) increased more than income

4. If the marginal propensity to consume equals 0.9, the multiplier is

A) 1
B) 2
C) 5
D) 10
E) 12

5. The larger the marginal propensity to save, other things constant,

A) the smaller the marginal propensity to consume
B) the larger the marginal propensity to consume
C) the larger the multiplier
D) the steeper the consumption function
E) the flatter the saving function

6. An increase in wealth will

A) shift the consumption function upward
B) make the consumption function steeper
C) cause a movement upward along the consumption function
D) cause a movement downward along the consumption function
E) make the consumption function flatter

7. The economy will contract (shrink) if

A) leakages exceed injections
B) injections exceed leakages
C) injections equal leakages
D) expenditures exceed output
E) investment exceeds saving

8. The MPC plus the MPS equals

A) 0.5
B) the multiplier
C) the slope of the consumption function
D) 1.0
E) the slope of the saving function

9. Economists assume that the fundamental motive of investors is

A) to maximize profit
B) to maximize income
C) to maximize the firm’s growth
D) to promote economic growth for the economy as a whole
E) the desire to save

10. Out of disposable income, households

A) consume and save
B) consume and invest
C) save and invest
D) consume, save, and pay taxes
E) consume, save, pay taxes, and make transfer payments

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