Question 1

Investment is highly stable; it increases over time at a very steady rate.

Accepted Answer

A) True 
 B)False

Question 2

In contrast to investment, consumption is

Accepted Answer

A) relatively unstable. 
B) relatively stable. 
C) measurable. 
D) unmeasurable. 
A) relatively unstable. 
B) relatively stable. 
C) measurable. 
D) unmeasurable.

Question 3

The consumption schedule shows

Accepted Answer

A) that the MPC increases in proportion to GDP. 
B) that households consume more when interest rates are low. 
C) that consumption depends primarily on the level of business investment. 
D) the amounts households intend to consume at various possible levels of aggregate income. 
A) that the MPC increases in proportion to GDP. 
B) that households consume more when interest rates are low. 
C) that consumption depends primarily on the level of business investment. 
D) the amounts households intend to consume at various possible levels of aggregate income.

Question 4

Suppose that a new machine tool having a useful life of only one year costs $80,000.Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000.The expected rate of return on this tool is

Accepted Answer

A) 80 percent. 
B) 8 percent. 
C) 2 percent. 
D) 20 percent. 
A) 80 percent. 
B) 8 percent. 
C) 2 percent. 
D) 20 percent.

Question 5

The multiplier will be larger, the steeper is the saving schedule.

Accepted Answer

A) True 
 B)False

Question 6

The Great Recession of 2007-2009 altered the prior behavior of consumers in the economy by

Accepted Answer

A) shifting the consumption schedule up. 
B) shifting the consumption schedule down. 
C) shifting the saving schedule down. 
D) moving the economy down along a stable consumption schedule. 
A) shifting the consumption schedule up. 
B) shifting the consumption schedule down. 
C) shifting the saving schedule down. 
D) moving the economy down along a stable consumption schedule.

Question 7

The purchase of capital goods, like consumer goods, can be postponed; it tends to contribute to in investment spending.

Accepted Answer

A) nondurable; instability 
B) nondurable; stability 
C) durable; instability 
D) durable; stability 
A) nondurable; instability 
B) nondurable; stability 
C) durable; instability 
D) durable; stability

Question 8

Generally speaking, the greater the MPS, the

Accepted Answer

A) smaller would be the increase in income which results from an increase in consumption spending. 
B) larger would be the increase in income which results from an increase in consumption spending. 
C) larger would be the increase in income which results from a decrease in consumption spending. 
D) smaller would be the increase in income which results from a decrease in consumption spending. 
A) smaller would be the increase in income which results from an increase in consumption spending. 
B) larger would be the increase in income which results from an increase in consumption spending. 
C) larger would be the increase in income which results from a decrease in consumption spending. 
D) smaller would be the increase in income which results from a decrease in consumption spending.

Question 9

The fraction, or percentage, of total income that is saved is called the

Accepted Answer

A) average propensity to save. 
B) marginal propensity to save. 
C) disposable income schedule. 
D) saving schedule. 
A) average propensity to save. 
B) marginal propensity to save. 
C) disposable income schedule. 
D) saving schedule.

Question 10

Which of the following is not an assumption of the simple multiplier formula?

Accepted Answer

A) The economy has excess capacity and room to expand output. 
B) Firms will raise prices as buyers buy more of their output. 
C) People will spend more if they earn additional income. 
D) Business firms will increase production if demand for their output increases. 
A) The economy has excess capacity and room to expand output. 
B) Firms will raise prices as buyers buy more of their output. 
C) People will spend more if they earn additional income. 
D) Business firms will increase production if demand for their output increases.

Question 11

The saving schedule would be shifted upward by

Accepted Answer

A) an increase in the value of real and financial assets. 
B) a reduction in real interest rates. 
C) expectations of rising prices of products. 
D) a decrease in taxes. 
A) an increase in the value of real and financial assets. 
B) a reduction in real interest rates. 
C) expectations of rising prices of products. 
D) a decrease in taxes.

Question 12

If people saved more of any extra income that they received, then the consumption schedule would become flatter.

Accepted Answer

A) True 
 B)False

Question 13

With an MPS of 0.3, the MPC will be

Accepted Answer

A) 1 − 0.3. 
B) 0.3 − 1. 
C) 1/0.3. 
D) 0.3. 
A) 1 − 0.3. 
B) 0.3 − 1. 
C) 1/0.3. 
D) 0.3.

Question 14

A lower real interest rate typically induces consumers to

Accepted Answer

A) save more. 
B) buy fewer imported goods. 
C) purchase more goods that are bought using credit. 
D) purchase fewer goods that are bought without using credit. 
A) save more. 
B) buy fewer imported goods. 
C) purchase more goods that are bought using credit. 
D) purchase fewer goods that are bought without using credit.

Question 15

The MPC can be defined as that fraction of a

Accepted Answer

A) change in income that is not spent. 
B) change in income that is spent. 
C) given total income that is not consumed. 
D) given total income that is consumed. 
A) change in income that is not spent. 
B) change in income that is spent. 
C) given total income that is not consumed. 
D) given total income that is consumed.

Question 16

The greater the MPC, the greater the multiplier.

Accepted Answer

A) True 
 B)False

Question 17

When the consumption schedule is plotted on a graph,

Accepted Answer

A) consumption is on the horizontal axis and saving is on the vertical axis. 
B) consumption is on the vertical axis and saving is on the horizontal axis. 
C) consumption is on the horizontal axis and disposable income is on the vertical axis. 
D) consumption is on the vertical axis and disposable income is on the horizontal axis. 
A) consumption is on the horizontal axis and saving is on the vertical axis. 
B) consumption is on the vertical axis and saving is on the horizontal axis. 
C) consumption is on the horizontal axis and disposable income is on the vertical axis. 
D) consumption is on the vertical axis and disposable income is on the horizontal axis.

Question 18

The wealth effect will tend to decrease consumption and increase saving.

Accepted Answer

A) True 
 B)False

Question 19

Given the consumption schedule, it is possible to graph the relevant saving schedule by

Accepted Answer

A) subtracting the MPC from 1 at each level of income. 
B) subtracting investment from consumption at each level of GDP. 
C) plotting the horizontal differences between the consumption schedule and the 45-degree line. 
D) plotting the vertical differences between the consumption schedule and the 45-degree line. 
A) subtracting the MPC from 1 at each level of income. 
B) subtracting investment from consumption at each level of GDP. 
C) plotting the horizontal differences between the consumption schedule and the 45-degree line. 
D) plotting the vertical differences between the consumption schedule and the 45-degree line.

Question 20

(Consider This) During the Great Recession of 2007-2009,

Accepted Answer

A) real interest rates and investment spending both declined. 
B) real interest rates and investment spending both increased. 
C) real interest rates increased, choking off investment spending. 
D) real interest rates decreased, but expected returns from investment remained unchanged. 
A) real interest rates and investment spending both declined. 
B) real interest rates and investment spending both increased. 
C) real interest rates increased, choking off investment spending. 
D) real interest rates decreased, but expected returns from investment remained unchanged.

Exam 30: Basic Macroeconomic Relationships

Investment is highly stable; it increases over time at a very steady rate.

In contrast to investment, consumption is

The consumption schedule shows

Suppose that a new machine tool having a useful life of only one year costs $80,000.Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000.The expected rate of return on this tool is

The multiplier will be larger, the steeper is the saving schedule.

The Great Recession of 2007-2009 altered the prior behavior of consumers in the economy by

The purchase of capital goods, like consumer goods, can be postponed; it tends to contribute to in investment spending.

Generally speaking, the greater the MPS, the

The fraction, or percentage, of total income that is saved is called the

Which of the following is not an assumption of the simple multiplier formula?

The saving schedule would be shifted upward by

If people saved more of any extra income that they received, then the consumption schedule would become flatter.

With an MPS of 0.3, the MPC will be

A lower real interest rate typically induces consumers to

The MPC can be defined as that fraction of a

The greater the MPC, the greater the multiplier.

When the consumption schedule is plotted on a graph,

The wealth effect will tend to decrease consumption and increase saving.

Given the consumption schedule, it is possible to graph the relevant saving schedule by

(Consider This) During the Great Recession of 2007-2009,

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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