Question 1The relationship between consumption and disposable income is such that asconsumption rises, disposable income fallsdisposable income rises, consumption fallsdisposable income rises, consumption risesdisposable income rises, saving fallsQuestion 2The federal government’s principal tool in altering consumer spending ischanging corporate taxeschanging federal sales taxeschanging unemployment insurance benefitschanging personal income taxesQuestion 3The difference between disposable income and consumption spending istransfer paymentspersonal taxessavingpersonal investmentQuestion 4The relationship between consumer spending and disposable income is called theconsumption functionincome functionmarginal income functiontaxation functionQuestion 5The marginal propensity to consume isdisposable income divided by consumptionthe change in consumption divided by the change in disposable incomeconsumption divided by disposable incomethe change in disposable income divided by the change in consumptionQuestion 6When adding the foreign sector to the calculation of aggregate demand, you mustadd imports and subtract exportsadd exports and subtract importsadd both exports and importssubtract both exports and importsQuestion 7If inventory levels are decreasing, then we should expectbusiness firms to decrease pricesbusiness firms to decrease outputbusiness firms to lay off workersbusiness firms to increase outputQuestion 8Because business firms must finance most investment expenditures, a key determinant of investment istax ratesinterest ratesprofit percentagesales revenuesQuestion 9U.S. imports depend primarily uponA) foreign price levelsB) foreign income levelsC) U.S. interest ratesD) U.S. incomeQuestion 10Investment will be encouraged whenthere are low levels of sales and no expectations of rapid growththere are low levels of sales and expectations of rapid growththere are high levels of sales and no expectations of rapid growththere are high levels of sales and expectations of rapid growthQuestion 11If the U.S. economy is at full employment and other countries are experiencing severe recessions, we can predict a(n)increase in U.S. net exportsdecrease in U.S. net exportsdecrease in other countries’ net exportsincreases in U.S. exports in other countriesQuestion 12When aggregate demand decreases rapidly, the economy is likely to experienceinflationan economic boomeconomic growtha recession