Title: The Income-Expenditure Model
Course: TEST Course

Q: All of the following are components of the aggregate expenditure model except ________.
- consumption
- business investment
- import spending
A: import spending

Q: Which of the following is excluded from being a component of the aggregate expenditure model?
- consumption
- government spending
- import spending
A: import spending

Q: Aggregate Expenditure equals
- C + I + G + import spending.
- C + I + G + gross exports.
- C + I + G + (X-M).
A: C + I + G + (X-M).

Q: Which of the following formulations correctly equates aggregate expenditure?
- C + I + G + import spending
- C + I + G + gross exports
- C + I + G + (X-M)
A: C + I + G + (X-M)

Q: A key part of the Income-Expenditure model is understanding that as GDP (or national income) rises, so does ________.
- aggregate supply
- aggregate demand
- aggregate expenditure
A: aggregate expenditure

Q: One of the most important components to understand about the Income-Expenditure model is that as GDP (or national income) increases ________ increases as well.
- aggregate supply
- aggregate demand
- aggregate expenditure
A: aggregate expenditure

Q: The aggregate expenditure determines the total amount that firms and households plan to spend on goods and services at each level of income. Therefore this model focuses on the short run relationship between ________ and national income or GDP.
- real savings
- real interest rates
- real spending
A: real spending

Q: The total amount households and businesses plan to spend on goods and services at every level of income is determined by the aggregate expenditure. This model focuses on the short run relationship between real spending and ________.
- national exports
- aggregate demand
- national income or GDP
A: national income or GDP

Q: The consumption function is a graphical relationship between ________.
- unemployment and inflation
- borrowing and interest rates
- income and consumer spending
A: income and consumer spending

Q: The ________ is a graphical relationship between income and consumer spending.
- income-expenditure model
- spending model
- consumption function
A: consumption function

Q: Consumption still exists even if income is zero because ________.
- people always make a basic income no matter what
- people would get things on sale
- people still have basics needs they must meet
A: people still have basics needs they must meet

Q: If a person has zero income, consumption still exists because ________.
- a basic income is always made by people
- sales encourage people to buy
- there are basic needs people still have to meet
A: there are basic needs people still have to meet

Q: Looking at the figure above, the reason why the consumption function line does not start at zero is due to ________.
- marginal propensity to save
- marginal propensity to consume
- autonomous consumption
A: autonomous consumption

Q: Looking at the figure above, why does the line for the consumption function not start at zero?
- It does not start a zero because of the marginal propensity to save.
- It does not start a zero because of the marginal propensity to consume.
- It does not start a zero because of autonomous consumption.
A: It does not start a zero because of autonomous consumption.

Q: Algebraically, the consumption function is represented as ________.
- C = a + MPS*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPS is the marginal propensity to save, and Y is national income
- MPC + MPS = 1, where MPC is the marginal propensity to consume and MPS is the marginal propensity to save
- C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income
A: C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income

Q: To represent the consumption function through algebra, it would be expressed as ________.
- C = a + MPS*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPS is the marginal propensity to save, and Y is national income
- MPC + MPS = 1, where MPC is the marginal propensity to consume and MPS is the marginal propensity to save
- C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income
A: C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income

Q: An increase in the Marginal Propensity to Consume (MPC) ________ the consumption function.
- flattens
- does not affect
- steepens
A: steepens

Q: An decrease in the Marginal Propensity to Consume (MPC) ________ the consumption function.
- steepens
- does not affect
- flattens
A: flattens

Q: Which factor other than income can also cause the entire consumption function to shift?
- Export spending
- Government spending
- Changes in wealth
A: Changes in wealth

Q: Other than income, which factor can also shift the entire consumption function?
- Export spending
- Government spending
- Consumer expectations about the future
A: Consumer expectations about the future

Q: This year the economy is strong and there is every expectation that it will continue to be strong over the next few years. With this confidence in the economy, what would most likely happen to the consumption function?
- It will shift the consumption function downward.
- It will move consumption to a higher level along the existing consumption function.
- It will shift the consumption function upward.
A: It will shift the consumption function upward.

Q: This year the economy is takes a hit as another housing market bubble bursts and there is every expectation that the economy is in for a rough patch. What would most likely take place for the consumption function with this lack of confidence in the economy?
- It will move consumption to a higher level along the existing consumption function.
- It will shift the consumption function upward.
- It will shift the consumption function downward.
A: It will shift the consumption function downward.

Q: As an economist George is analyzing a consumption function graph and notices that the slope has flattened. What would cause this to occur?
- There was an increase in real wealth.
- There was a decrease in the Marginal Propensity to Consume (MPC).
- There was an increase in the Marginal Propensity to Consume (MPC).
A: There was an increase in the Marginal Propensity to Consume (MPC).

Q: Sandra, an economist is discussing a consumption function graph and sees that the slope has steepened from a prior graph. What would cause this change in the consumption function?
- There was an increase in the Marginal Propensity to Consume (MPC)
- There was an decrease in consumer confidence.
- There was a decrease in the Marginal Propensity to Consume (MPC).
A: There was a decrease in the Marginal Propensity to Consume (MPC).

Q: Which of the below is true about investment as function of national income?
- The slope of the investment function is one.
- There is a relationship between GDP and the investment function.
- The investment function can be drawn as a horizontal line.
A: The investment function can be drawn as a horizontal line.

Q: Of the following statements about investment, which is true when it comes to explaining its function with regards to national income?
- The investment function has a slope of one.
- There is a relationship between the investment function and the GDP.
- The investment function on a graph is drawn as a horizontal line.
A: The investment function on a graph is drawn as a horizontal line.

Q: Which of the following is NOT true about government spending as function of national income?
- Government spending appears as a horizontal line on the Keynesian cross diagram.
- Federal, state and local governments determine the level of government spending through the budget process.
- Government spending will fluctuate.
A: Government spending will fluctuate.

Q: Each of the following statements are about government spending as function of national income. Which one of the statements is a false statement?
- On a Keynesian cross diagram the government spending appears as a horizontal line.
- The budget process is what is used by the federal, state and local governments determine the level of government spending.
- There is fluctuation in government spending.
A: There is fluctuation in government spending.

Q: Which of the following is true about export and imports as function of national income?
- Both are horizontal lines with imports being positive as it relates to real GDP.
- Both are vertical lines with imports being negative as it relates to real GDP.
- Both are horizontal lines with imports being negative as it relates to real GDP.
A: Both are horizontal lines with imports being negative as it relates to real GDP.

Q: Consider national income, which statement is accurate about the function of export and imports in it?
- Exports and imports are horizontal lines, with imports being positive as it relates to real GDP.
- Exports and imports are vertical lines with imports being negative as it relates to real GDP.
- Exports and imports are horizontal lines with imports being negative as it relates to real GDP.
A: Exports and imports are horizontal lines with imports being negative as it relates to real GDP.

Q: Considering that Aggregate Expenditure = C + I + G + (X – M), which function is drawn as a horizontal line?
- Consumption
- Imports
- Investment
A: Investment

Q: What function is a horizontal line when Aggregate Expenditure = C + I + G + (X – M)?
- Imports
- Consumption
- Government spending
A: Government spending

Q: Autonomous expenditure does NOT depend on what factor?
- Consumer spending
- Future expectations
- GDP/output
A: GDP/output

Q: Which following factor is powerless to influence autonomous expenditure?
- Investments
- Net exports
- National income
A: National income

Q: When describing the economy’s aggregate expenditure components impacted by the real level of income, which of the following terms is excluded from that description?
- Autonomous expenditure
- Marginal Propensity to Consume
- Macroeconomic Equilibrium
A: Macroeconomic Equilibrium

Q: What economic term describes the economy’s aggregate expenditure components NOT impacted by the real level of income?
- Autonomous expenditure
- Marginal Propensity to Consume
- Macroeconomic Equilibrium
A: Macroeconomic Equilibrium

Q: Which line represents the C + I + G stacked functions in the graph?
- line 1
- line 2
- line 3
A: line 3

Q: Which of the lines represents the C + I stacked functions?
- line 1
- line 3
- line 2
A: line 2

Q: What are the components used to create a consolidation view or stacked graph (or stacking on top of each other) of the aggregate expenditure function?
- The graph would include the consumption function (after taxes), the investment function, and the government spending function.
- The graph would include the consumption function (after taxes) the government spending function, and the net export function.
- The graph would include the consumption function (after taxes), the investment function, the government spending function, and the net export function.
A: The graph would include the consumption function (after taxes), the investment function, the government spending function, and the net export function.

Q: Graphically, the aggregate expenditure function is formed by adding together (or stacking on top of each other) ________.
- the consumption function (after taxes), the investment function, and the government spending function
- the consumption function (after taxes) the government spending function, and the net export function
- the consumption function (after taxes), the investment function, the government spending function, and the net export function
A: the consumption function (after taxes), the investment function, the government spending function, and the net export function