Question 1

If the MPC is 0.8, what change in investment spending is required to effect a total change in income by $60 billion?

Accepted Answer

A) $12 billion 
B) $15 billion 
C) $20 billion 
D) $25 billion 
A) $12 billion 
B) $15 billion 
C) $20 billion 
D) $25 billion A

Question 2

If households consume less at each level of disposable income, they are

Accepted Answer

A) saving more. 
B) saving less. 
C) spending more. 
D) working less. 
A) saving more. 
B) saving less. 
C) spending more. 
D) working less. A

Question 3

The practical significance of the multiplier is that it

Accepted Answer

A) equates the real interest rate and the expected rate of return on investment. 
B) magnifies initial changes in spending into larger changes in GDP. 
C) keeps inflation within tolerable limits. 
D) helps to stabilize the economy. 
A) equates the real interest rate and the expected rate of return on investment. 
B) magnifies initial changes in spending into larger changes in GDP. 
C) keeps inflation within tolerable limits. 
D) helps to stabilize the economy. B

Question 4

An increase in taxes will shift both the consumption schedule and the saving schedule down.

Accepted Answer

A) True 
 B)False

Question 5

The numerical value of the multiplier will be smaller the

Accepted Answer

A) larger the average propensity to consume. 
B) larger the slope of the saving schedule. 
C) larger the slope of the consumption schedule. 
D) smaller the slope of the saving schedule. 
A) larger the average propensity to consume. 
B) larger the slope of the saving schedule. 
C) larger the slope of the consumption schedule. 
D) smaller the slope of the saving schedule.

Question 6

The APC can be defined as the fraction of a

Accepted Answer

A) change in income that is not spent. 
B) change in income that is spent. 
C) specific level of total income that is not consumed. 
D) specific level of total income that is consumed. 
A) change in income that is not spent. 
B) change in income that is spent. 
C) specific level of total income that is not consumed. 
D) specific level of total income that is consumed.

Question 7

In general, the steeper the consumption schedule, the

Accepted Answer

A) smaller is the marginal propensity to consume. 
B) greater is the marginal propensity to save. 
C) smaller is the multiplier. 
D) larger is the multiplier. 
A) smaller is the marginal propensity to consume. 
B) greater is the marginal propensity to save. 
C) smaller is the multiplier. 
D) larger is the multiplier.

Question 8

If households in the economy save more of any extra income that they earn, then the multiplier effect will

Accepted Answer

A) increase. 
B) decrease. 
C) be unaffected. 
D) become less than 1.0. 
A) increase. 
B) decrease. 
C) be unaffected. 
D) become less than 1.0.

Question 9

If the consumption schedule is a straight line, it can be concluded that the

Accepted Answer

A) APC is necessarily constant. 
B) MPC is zero. 
C) MPC is constant at various levels of income. 
D) APC is equal to the MPC. 
A) APC is necessarily constant. 
B) MPC is zero. 
C) MPC is constant at various levels of income. 
D) APC is equal to the MPC.

Question 10

If consumers expect prices to rise and shortages to occur in the future, then there will be a shift

Accepted Answer

A) upward of both the consumption and saving schedules. 
B) downward of both the consumption and saving schedules. 
C) of the consumption schedule upward and of the saving schedule downward. 
D) of the consumption schedule downward and the saving schedule upward. 
A) upward of both the consumption and saving schedules. 
B) downward of both the consumption and saving schedules. 
C) of the consumption schedule upward and of the saving schedule downward. 
D) of the consumption schedule downward and the saving schedule upward.

Question 11

A specific investment will be undertaken if the expected rate of return, r, exceeds the interest rate, i.

Accepted Answer

A) True 
 B)False

Question 12

There are only two things that people can do with their disposable income-spend it or save it.

Accepted Answer

A) True 
 B)False

Question 13

The investment demand slopes downward and to the right because lower real interest rates

Accepted Answer

A) expand consumer borrowing, making investments more profitable. 
B) boost expected rates of returns on investment. 
C) enable more investment projects to be undertaken profitably. 
D) create tax incentives to invest. 
A) expand consumer borrowing, making investments more profitable. 
B) boost expected rates of returns on investment. 
C) enable more investment projects to be undertaken profitably. 
D) create tax incentives to invest.

Question 14

At the point where the consumption schedule intersects the 45-degree line,

Accepted Answer

A) the MPC is 1.00. 
B) the APC is 1.00. 
C) saving is equal to consumption. 
D) the economy is in equilibrium. 
A) the MPC is 1.00. 
B) the APC is 1.00. 
C) saving is equal to consumption. 
D) the economy is in equilibrium.

Question 15

Assume there are no investment projects that will produce an expected rate of return of 8 percent or more.There are, however, $2 billion worth of investment projects with an expected rate of return at 7 percent, and an additional $2 billion for every drop of the interest rate by 1 percent.If the real interest rate is 3 percent in this economy, the cumulative amount of investment at the 3 percent or higher rate of return is

Accepted Answer

A) $10 billion. 
B) $8 billion. 
C) $6 billion. 
D) $4 billion. 
A) $10 billion. 
B) $8 billion. 
C) $6 billion. 
D) $4 billion.

Question 16

Dissaving means

Accepted Answer

A) the same thing as disinvesting. 
B) that households are spending more than their current incomes. 
C) that saving and investment are equal. 
D) that disposable income is less than zero. 
A) the same thing as disinvesting. 
B) that households are spending more than their current incomes. 
C) that saving and investment are equal. 
D) that disposable income is less than zero.

Question 17

(Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income.At an $800 level of disposable income, the level of saving is

Accepted Answer

A) $180. 
B) $740. 
C) $60. 
D) $18. 
A) $180. 
B) $740. 
C) $60. 
D) $18.

Question 18

Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on.The investment demand curve for this economy is shown in which table?

Accepted Answer

A)   
B)   
C)   
D)   
A)   
B)   
C)   
D)

Question 19

Suppose a family's consumption exceeds its disposable income.This means that its

Accepted Answer

A) MPC is greater than 1. 
B) MPS is negative. 
C) APC is greater than 1. 
D) APS is positive. 
A) MPC is greater than 1. 
B) MPS is negative. 
C) APC is greater than 1. 
D) APS is positive.

Question 20

Which of the following will not cause the consumption schedule to shift?

Accepted Answer

A) a sharp increase in the amount of wealth held by households 
B) a change in consumer incomes 
C) the expectation of a recession 
D) a growing expectation that consumer durables will be in short supply 
A) a sharp increase in the amount of wealth held by households 
B) a change in consumer incomes 
C) the expectation of a recession 
D) a growing expectation that consumer durables will be in short supply

Exam 30: Basic Macroeconomic Relationships

If the MPC is 0.8, what change in investment spending is required to effect a total change in income by $60 billion?

If households consume less at each level of disposable income, they are

The practical significance of the multiplier is that it

An increase in taxes will shift both the consumption schedule and the saving schedule down.

The numerical value of the multiplier will be smaller the

The APC can be defined as the fraction of a

In general, the steeper the consumption schedule, the

If households in the economy save more of any extra income that they earn, then the multiplier effect will

If the consumption schedule is a straight line, it can be concluded that the

If consumers expect prices to rise and shortages to occur in the future, then there will be a shift

A specific investment will be undertaken if the expected rate of return, r, exceeds the interest rate, i.

There are only two things that people can do with their disposable income-spend it or save it.

The investment demand slopes downward and to the right because lower real interest rates

At the point where the consumption schedule intersects the 45-degree line,

Dissaving means

(Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income.At an $800 level of disposable income, the level of saving is

Suppose a family's consumption exceeds its disposable income.This means that its

Which of the following will not cause the consumption schedule to shift?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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