Chapter Nine: Module Quiz -- The Income-Expenditure Model

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  1. In the Income-Expenditure model, Aggregate Expenditures are composed of all of the following except

      consumption spending.
      investment spending.
      net exports.
      government expenditures.

  2. Which of the following is not an assumption that we make in the income-expenditure model?

      the price level can vary
      the interest rate is fixed
      consumption increases with the level of income
      suppliers produce whatever level of output is demanded at the fixed price
      all of the above are correct assumptions

  3. Given a value of 0.75 for the MPC and autonomous consumption of 300, if disposable income were $1,000, then consumption would be

      None of the Above

  4. Suppose the MPC is 0.8 and income increases by $100. We know that

      consumption increases by $80
      saving increases by $20
      consumption and saving both increase
      all of the above

  5. Given that MPC=0.8, Ca=400, and Ia=100, the level of Aggregate Expenditures

      is $500.
      is $2,000.
      is $2,500.
      depends upon the level of income.

  6. In equilibrium, we know that

      the AE line crosses the 45 degree line
      all of the above

  7. If MPC=0.8, Ca=600, Ia=200, then equilibrium income is $_______ .

      cannot tell from the information given

  8. Suppose that autonomous consumption falls. This leads to

      a shift upwards in the AE schedule.
      a rise in consumption expenditures.
      a drop in equilibrium income.
      a decline in investment.
      all of the above.

  9. Investment never changes. It is always the same value year after year.


  10. If the economy's level of income is at a point to the left of where the Aggregate Expenditure schedule crosses the 45 degree line, then income is less than Aggregate Expenditures and inventories unexpectedly decrease.


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