Macroeconomics Quiz

The marginal propensity to consume is:

• The percentage of total disposable income spent on consumption

• The fraction of each dollar of disposable income spent on consumption

• Total consumption in a given period divided by total disposable income

• That part of the consumer dollar that goes to the purchase of investment goods

Answer explanation

Marginal = fractional; they are synonymous in economics

The components of aggregate demand are:

• Exports, imports, investment, and disposable income

• Consumption, inventory, government spending, and disposable income

• Consumption, exports, imports, and disposable income

• Consumption, government spending, net exports, and investment

Aggregate demand:

• Is the total quantity of a specific good demanded at alternative prices

• Is the total quantity of output demanded at alternative price levels

• Refers to the demand in a particular market or industry

• Refers to the level of demand where equilibrium occurs

Answer explanation

Many of you selected A initially, that is regular demand, the key word is SPECIFIC

Using the image below, if full employment occurs at Qc, then aggregate demand is:

• Just right

• Too small causing an inflationary gap

• Too great causing a recessionary gap

• Too small

Answer explanation

If you draw your LRAS up you can see equilibrium is to the left of LRAS meaning you are underperforming so you are in a recessionary gap.

If the MPC is 0.8 and the APC is 0.9, then the MPS equals:

• 0.1

• 0.8

• 1.7

• 0.2

Macro equilibrium always occurs when:

• Aggregate supply is greater than aggregate demand

• The labor force is fully employed

• Aggregate demand equals aggregate supply at the average price level of the economy

• The level of output is expanding

Answer explanation

This was literally a bullet point directly from the slides. Equilibrium is when AD = AS = LRAS

If the marginal propensity to save if 0.9, the the marginal propensity to consume is:

• 0.1

• 0.3

• 0.9

• 1

Why must MPS and MPS together always equal 1?

• you cannot consume more than you save

• you cannot save more than you consume

• you can only spend or save money

• because it has to equal APC and APS

Answer explanation

You can only spend or save money. MPC/MPS looks at how you change your spending if you increase it by $1, you will only save it or spend it. Nothing else.

Terry's MPC is 0.8 Last year his disposable income was $50,000 and he spent $45,000. If his disposable income increased to $60,000 this year, what was the change in his consumption spending?

• $5,000

• $7,000

• $8,000

• $10,000

All the following will cause the aggregate supply curve to shift except:

• change in resource prices

• change in government spending

• change in government taxing and subsidies

• change in productivity

Answer explanation

This impacts aggregate demand.