Question 1

If the slope of a linear consumption schedule increases in a private closed economy, then it can be concluded that the

Accepted Answer

A) MPS has increased. 
B) MPC has increased. 
C) income has increased. 
D) income has decreased. 
A) MPS has increased. 
B) MPC has increased. 
C) income has increased. 
D) income has decreased.

Question 2

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is

Accepted Answer

A) 18 percent. 
B) 24 percent. 
C) 12 percent. 
D) 6 percent. 
A) 18 percent. 
B) 24 percent. 
C) 12 percent. 
D) 6 percent.

Question 3

Art Buchwald's article, "Squaring the Economic Circle," is a humorous description of what would happen to total income if

Accepted Answer

A) prices of products started falling significantly. 
B) people bought consumer goods instead of investment goods. 
C) consumers bought imported goods instead of domestic products. 
D) people and firms stopped buying from one another. 
A) prices of products started falling significantly. 
B) people bought consumer goods instead of investment goods. 
C) consumers bought imported goods instead of domestic products. 
D) people and firms stopped buying from one another.

Question 4

The multiplier effect magnifies the effect of a decrease in spending, resulting in a bigger decrease in real GDP.

Accepted Answer

A) True 
 B)False

Question 5

Personal saving is equal to

Accepted Answer

A) disposable income plus consumption. 
B) consumption minus disposable income. 
C) disposable income minus consumption. 
D) consumption divided by disposable income. 
A) disposable income plus consumption. 
B) consumption minus disposable income. 
C) disposable income minus consumption. 
D) consumption divided by disposable income.

Question 6

If disposable income is $350 billion and the average propensity to consume is 0.80, then personal saving is $70 billion.

Accepted Answer

A) True 
 B)False

Question 7

Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the

Accepted Answer

A) slope of the consumption schedule is 0.75. 
B) average propensity to consume is 0.75. 
C) marginal propensity to save is 0.20. 
D) marginal propensity to consume is 0.6. 
A) slope of the consumption schedule is 0.75. 
B) average propensity to consume is 0.75. 
C) marginal propensity to save is 0.20. 
D) marginal propensity to consume is 0.6.

Question 8

If for some reason households become increasingly thrifty, we could show this by

Accepted Answer

A) a downshift of the saving schedule. 
B) an upward shift of the consumption schedule. 
C) an upward shift of the saving schedule. 
D) a movement down along a stable consumption function. 
A) a downshift of the saving schedule. 
B) an upward shift of the consumption schedule. 
C) an upward shift of the saving schedule. 
D) a movement down along a stable consumption function.

Question 9

If 100 percent of any change in income is spent, the multiplier will be

Accepted Answer

A) equal to the MPC. 
B) 1. 
C) zero. 
D) infinitely large. 
A) equal to the MPC. 
B) 1. 
C) zero. 
D) infinitely large.

Question 10

The multiplier is

Accepted Answer

A) 1/MPC. 
B) 1/(1 + MPC. 
C) 1/MPS. 
D) 1/(1 − MPS). 
A) 1/MPC. 
B) 1/(1 + MPC. 
C) 1/MPS. 
D) 1/(1 − MPS).

Question 11

If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively,

Accepted Answer

A) 0.8 and 5.0. 
B) 0.4 and 2.5. 
C) 0.4 and 1.67. 
D) 0.2 and 1.25. 
A) 0.8 and 5.0. 
B) 0.4 and 2.5. 
C) 0.4 and 1.67. 
D) 0.2 and 1.25.

Question 12

When we draw an investment demand curve, we hold constant all of the following except

Accepted Answer

A) the expected rate of return on the investment. 
B) business taxes. 
C) the interest rate. 
D) the present stock of capital goods. 
A) the expected rate of return on the investment. 
B) business taxes. 
C) the interest rate. 
D) the present stock of capital goods.

Question 13

Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,000 before it needs to be upgraded to a new version.The revenue generated by this software is expected to be $250,000.The expected rate of return from this new computer software is

Accepted Answer

A) 11 percent. 
B) 20 percent. 
C) 25 percent. 
D) 80 percent. 
A) 11 percent. 
B) 20 percent. 
C) 25 percent. 
D) 80 percent.

Question 14

The multiplier shows the relationship between changes in a component of spending, say, investment, and the consequent changes in real income and output.

Accepted Answer

A) True 
 B)False

Question 15

When the marginal propensity to consume is less than 1, the

Accepted Answer

A) average propensity to consume is greater than 1. 
B) average propensity to save is greater than 1. 
C) marginal propensity to save is negative. 
D) marginal propensity to save is positive. 
A) average propensity to consume is greater than 1. 
B) average propensity to save is greater than 1. 
C) marginal propensity to save is negative. 
D) marginal propensity to save is positive.

Question 16

The change in real GDP resulting from an initial change in spending can be calculated by

Accepted Answer

A) dividing the multiplier by the initial change in spending. 
B) dividing the initial change in spending by the multiplier. 
C) multiplying the multiplier by the initial change in spending. 
D) adding the initial change in spending to the multiplier. 
A) dividing the multiplier by the initial change in spending. 
B) dividing the initial change in spending by the multiplier. 
C) multiplying the multiplier by the initial change in spending. 
D) adding the initial change in spending to the multiplier.

Question 17

The multiplier value is the reciprocal of the marginal propensity to consume.

Accepted Answer

A) True 
 B)False

Question 18

The multiplier can be calculated by dividing

Accepted Answer

A) the initial change in spending by the change in real GDP. 
B) the change in real GDP by the initial change in spending. 
C) one by one minus the marginal propensity to save. 
D) one by one minus the marginal propensity to invest. 
A) the initial change in spending by the change in real GDP. 
B) the change in real GDP by the initial change in spending. 
C) one by one minus the marginal propensity to save. 
D) one by one minus the marginal propensity to invest.

Question 19

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.If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be

Accepted Answer

A) $25 billion. 
B) $20 billion. 
C) $15 billion. 
D) $10 billion. 
A) $25 billion. 
B) $20 billion. 
C) $15 billion. 
D) $10 billion.

Question 20

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then, other things equal,

Accepted Answer

A) more investment will be forthcoming when i exceeds r. 
B) less investment will be forthcoming when r rises. 
C) r will fall as more investment is undertaken. 
D) r will exceed i at all possible levels of investment. 
A) more investment will be forthcoming when i exceeds r. 
B) less investment will be forthcoming when r rises. 
C) r will fall as more investment is undertaken. 
D) r will exceed i at all possible levels of investment.

Exam 30: Basic Macroeconomic Relationships

If the slope of a linear consumption schedule increases in a private closed economy, then it can be concluded that the

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is

Art Buchwald's article, "Squaring the Economic Circle," is a humorous description of what would happen to total income if

The multiplier effect magnifies the effect of a decrease in spending, resulting in a bigger decrease in real GDP.

Personal saving is equal to

If disposable income is $350 billion and the average propensity to consume is 0.80, then personal saving is $70 billion.

Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the

If for some reason households become increasingly thrifty, we could show this by

If 100 percent of any change in income is spent, the multiplier will be

The multiplier is

If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively,

When we draw an investment demand curve, we hold constant all of the following except

The multiplier shows the relationship between changes in a component of spending, say, investment, and the consequent changes in real income and output.

When the marginal propensity to consume is less than 1, the

The change in real GDP resulting from an initial change in spending can be calculated by

The multiplier value is the reciprocal of the marginal propensity to consume.

The multiplier can be calculated by dividing

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then, other things equal,

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

Filters