Question 1

The lower the marginal propensity to consume, the larger is the multiplier.

Accepted Answer

A) True 
 B)False

Question 2

As disposable income decreases, consumption

Accepted Answer

A) and saving both increase. 
B) and saving both decrease. 
C) increases and saving decreases. 
D) decreases and saving increases. 
A) and saving both increase. 
B) and saving both decrease. 
C) increases and saving decreases. 
D) decreases and saving increases.

Question 3

If businesses feel more optimistic about the state of the economy, then this change is likely to

Accepted Answer

A) cause a movement up the investment demand curve. 
B) cause a movement down the investment demand curve. 
C) shift the investment demand curve to the left. 
D) shift the investment demand curve to the right. 
A) cause a movement up the investment demand curve. 
B) cause a movement down the investment demand curve. 
C) shift the investment demand curve to the left. 
D) shift the investment demand curve to the right.

Question 4

The so-called Paradox of Thrift that became quite obvious in the Great Recession of 2007-2009 does not refer to which of the following?

Accepted Answer

A) Saving may be virtuous for the individual, but it could be bad for the economy as a whole. 
B) Consumers becoming thriftier may help long-term growth but, ironically, reduces current output. 
C) In trying to spend less now, consumers will end up spending more later on. 
D) As individuals try to save more, the whole group may end up saving less as total income declines. 
A) Saving may be virtuous for the individual, but it could be bad for the economy as a whole. 
B) Consumers becoming thriftier may help long-term growth but, ironically, reduces current output. 
C) In trying to spend less now, consumers will end up spending more later on. 
D) As individuals try to save more, the whole group may end up saving less as total income declines.

Question 5

As the consumption and saving schedules relate to real GDP, an increase in taxes will shift

Accepted Answer

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

Question 6

Assume that for the entire business sector of a private closed economy, there are $0 worth of investment projects that will yield an expected rate of return of 25 percent or more.But there are $15 worth of investments that will yield an expected rate of return of 20-25 percent, another $15 with an expected rate of return of 15-20 percent, and an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range.The expected rate of return curve

Accepted Answer

A) shows a direct relationship between the interest rate and investment. 
B) is also the investment demand curve. 
C) is indeterminate. 
D) implies a direct (positive) relationship between the interest rate and the level of GDP. 
A) shows a direct relationship between the interest rate and investment. 
B) is also the investment demand curve. 
C) is indeterminate. 
D) implies a direct (positive) relationship between the interest rate and the level of GDP.

Question 7

If DI is $275 billion and the APC is 0.8, we can conclude that saving is $55 billion.

Accepted Answer

A) True 
 B)False

Question 8

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round, income will eventually decline by

Accepted Answer

A) $200 billion. 
B) $300 billion. 
C) $400 billion. 
D) $500 billion. 
A) $200 billion. 
B) $300 billion. 
C) $400 billion. 
D) $500 billion.

Question 9

Other things equal, a decrease in the real interest rate will

Accepted Answer

A) shift the investment demand curve to the right. 
B) shift the investment demand curve to the left. 
C) move the economy upward along its existing investment demand curve. 
D) move the economy downward along its existing investment demand curve. 
A) shift the investment demand curve to the right. 
B) shift the investment demand curve to the left. 
C) move the economy upward along its existing investment demand curve. 
D) move the economy downward along its existing investment demand curve.

Question 10

The multiplier effect indicates that

Accepted Answer

A) a decline in the interest rate will cause a proportionately larger increase in investment. 
B) a change in spending will change aggregate income by a larger amount. 
C) a change in spending will increase aggregate income by the same amount. 
D) an increase in total income will generate a larger change in aggregate expenditures. 
A) a decline in the interest rate will cause a proportionately larger increase in investment. 
B) a change in spending will change aggregate income by a larger amount. 
C) a change in spending will increase aggregate income by the same amount. 
D) an increase in total income will generate a larger change in aggregate expenditures.

Question 11

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to

Accepted Answer

A) save is three-fifths. 
B) consume is one-half. 
C) consume is three-fifths. 
D) consume is two-fifths. 
A) save is three-fifths. 
B) consume is one-half. 
C) consume is three-fifths. 
D) consume is two-fifths.

Question 12

The multiplier is equal to the reciprocal of the MPC.

Accepted Answer

A) True 
 B)False

Question 13

The real interest rate is

Accepted Answer

A) the percentage increase in money that the lender receives on a loan. 
B) the percentage increase in purchasing power that the lender receives on a loan. 
C) also called the after-tax interest rate. 
D) usually higher than the nominal interest rate. 
A) the percentage increase in money that the lender receives on a loan. 
B) the percentage increase in purchasing power that the lender receives on a loan. 
C) also called the after-tax interest rate. 
D) usually higher than the nominal interest rate.

Question 14

Given the expected rate of return on all possible investment opportunities in the economy, a(n)

Accepted Answer

A) increase in the real rate of interest will tend to increase the level of investment. 
B) decrease in the real rate of interest will tend to increase the level of investment. 
C) decrease in the real rate of interest will tend to decrease the level of investment. 
D) change in the real interest rate will have no impact on the level of investment. 
A) increase in the real rate of interest will tend to increase the level of investment. 
B) decrease in the real rate of interest will tend to increase the level of investment. 
C) decrease in the real rate of interest will tend to decrease the level of investment. 
D) change in the real interest rate will have no impact on the level of investment.

Question 15

Which of the following would shift the consumption schedule downward?

Accepted Answer

A) a decrease in real interest rates 
B) an increase in the value of financial assets 
C) an increase in the probability of a recession 
D) a decrease in disposable income 
A) a decrease in real interest rates 
B) an increase in the value of financial assets 
C) an increase in the probability of a recession 
D) a decrease in disposable income

Question 16

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is

Accepted Answer

A) 4. 
B) 5. 
C) 3.33. 
D) 2.5. 
A) 4. 
B) 5. 
C) 3.33. 
D) 2.5.

Question 17

In an economy, for every $1,600 decrease in income, spending falls by $1,200.It can be concluded that the

Accepted Answer

A) slope of the saving schedule is 1.33. 
B) slope of the saving schedule is 0.75. 
C) marginal propensity to consume is 1.33. 
D) marginal propensity to save is 0.25.Accessibility: Keyboard Navigation 
A) slope of the saving schedule is 1.33. 
B) slope of the saving schedule is 0.75. 
C) marginal propensity to consume is 1.33. 
D) marginal propensity to save is 0.25.Accessibility: Keyboard Navigation

Question 18

If business taxes are reduced and the real interest rate increases,

Accepted Answer

A) consumption and saving will necessarily increase. 
B) the level of investment spending might either increase or decrease. 
C) the level of investment spending will necessarily increase. 
D) the level of investment spending will necessarily decrease. 
A) consumption and saving will necessarily increase. 
B) the level of investment spending might either increase or decrease. 
C) the level of investment spending will necessarily increase. 
D) the level of investment spending will necessarily decrease.

Question 19

Assume a machine that has a useful life of only one year costs $2,000.Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300.The expected rate of return on this machine is

Accepted Answer

A) 7.5 percent. 
B) 10 percent. 
C) 15 percent. 
D) 20 percent. 
A) 7.5 percent. 
B) 10 percent. 
C) 15 percent. 
D) 20 percent.

Question 20

What is the slope of the consumption schedule or consumption line for a given economy?

Accepted Answer

A) APC 
B) APS 
C) 1 − MPC 
D) 1 − MPS 
A) APC 
B) APS 
C) 1 − MPC 
D) 1 − MPS

Exam 30: Basic Macroeconomic Relationships

The lower the marginal propensity to consume, the larger is the multiplier.

As disposable income decreases, consumption

If businesses feel more optimistic about the state of the economy, then this change is likely to

The so-called Paradox of Thrift that became quite obvious in the Great Recession of 2007-2009 does not refer to which of the following?

As the consumption and saving schedules relate to real GDP, an increase in taxes will shift

If DI is $275 billion and the APC is 0.8, we can conclude that saving is $55 billion.

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round, income will eventually decline by

Other things equal, a decrease in the real interest rate will

The multiplier effect indicates that

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to

The multiplier is equal to the reciprocal of the MPC.

The real interest rate is

Given the expected rate of return on all possible investment opportunities in the economy, a(n)

Which of the following would shift the consumption schedule downward?

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is

In an economy, for every $1,600 decrease in income, spending falls by $1,200.It can be concluded that the

If business taxes are reduced and the real interest rate increases,

Assume a machine that has a useful life of only one year costs $2,000.Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300.The expected rate of return on this machine is

What is the slope of the consumption schedule or consumption line for a given economy?

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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