Question 1

The simple multiplier 1/MPS

Accepted Answer

A) understates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes. 
B) understates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes. 
C) overstates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes. 
D) overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes. 
A) understates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes. 
B) understates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes. 
C) overstates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes. 
D) overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.

Question 2

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when

Accepted Answer

A) r falls. 
B) i is greater than r. 
C) r is greater than i. 
D) i rises. 
A) r falls. 
B) i is greater than r. 
C) r is greater than i. 
D) i rises.

Question 3

If there is a decrease in disposable income in an economy, then

Accepted Answer

A) both the APC and the APS rise. 
B) the APC rises and the APS falls. 
C) the APC falls and the APS rises. 
D) both the APC and the APS fall. 
A) both the APC and the APS rise. 
B) the APC rises and the APS falls. 
C) the APC falls and the APS rises. 
D) both the APC and the APS fall.

Question 4

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is

Accepted Answer

A) 2 percent. 
B) zero percent. 
C) 10 percent. 
D) 22 percent. 
A) 2 percent. 
B) zero percent. 
C) 10 percent. 
D) 22 percent.

Question 5

Which of the following factors would decrease investment demand?

Accepted Answer

A) a decrease in business taxes 
B) an increase in the cost of acquiring capital goods 
C) an increase in the rate of technological change 
D) a decrease in the stock of capital goods on hand 
A) a decrease in business taxes 
B) an increase in the cost of acquiring capital goods 
C) an increase in the rate of technological change 
D) a decrease in the stock of capital goods on hand

Question 6

The saving schedule shows the relationship of saving of households to the level of

Accepted Answer

A) consumption. 
B) investment. 
C) disposable income. 
D) the average propensity to save. 
A) consumption. 
B) investment. 
C) disposable income. 
D) the average propensity to save.

Question 7

The fraction, or percentage, of total income which is consumed is called the

Accepted Answer

A) break-even income. 
B) consumption schedule. 
C) marginal propensity to consume. 
D) average propensity to consume. 
A) break-even income. 
B) consumption schedule. 
C) marginal propensity to consume. 
D) average propensity to consume.

Question 8

When consumers decide to increase household debt, this action will

Accepted Answer

A) shift the consumption schedule upward. 
B) shift the consumption schedule downward. 
C) increase the amount consumed along a stable consumption schedule. 
D) decrease the amount consumed along a stable consumption schedule. 
A) shift the consumption schedule upward. 
B) shift the consumption schedule downward. 
C) increase the amount consumed along a stable consumption schedule. 
D) decrease the amount consumed along a stable consumption schedule.

Question 9

The actual multiplier effect in the U.S.economy is less than the multiplier effect in the text examples because

Accepted Answer

A) the real-world MPS is larger than the MPS in the examples. 
B) in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes. 
C) the gap between the nominal interest rate and the real interest rate widens as the economy expands or contracts. 
D) the MPC in the United States is greater than 1. 
A) the real-world MPS is larger than the MPS in the examples. 
B) in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes. 
C) the gap between the nominal interest rate and the real interest rate widens as the economy expands or contracts. 
D) the MPC in the United States is greater than 1.

Question 10

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.If the real interest rate is 15 percent, what amount of investment will be undertaken?

Accepted Answer

A) $15 
B) $30 
C) $45 
D) $60 
A) $15 
B) $30 
C) $45 
D) $60

Question 11

Which statement about the multiplier is correct?

Accepted Answer

A) If a $20 billion increase in spending creates $20 billion of new income in the first round of the multiplier process and $15 billion in the second round, the multiplier in the economy is 5. 
B) If a $40 billion increase in spending creates $40 billion of new income in the first round of the multiplier process and $20 billion in the second round, the multiplier in the economy is 4. 
C) If a $60 billion increase in spending creates $60 billion of new income in the first round of the multiplier process and $50 billion in the second round, the multiplier in the economy is 5. 
D) If an $80 billion increase in spending creates $80 billion of new income in the first round of the multiplier process and $60 billion in the second round, the multiplier in the economy is 4. 
A) If a $20 billion increase in spending creates $20 billion of new income in the first round of the multiplier process and $15 billion in the second round, the multiplier in the economy is 5. 
B) If a $40 billion increase in spending creates $40 billion of new income in the first round of the multiplier process and $20 billion in the second round, the multiplier in the economy is 4. 
C) If a $60 billion increase in spending creates $60 billion of new income in the first round of the multiplier process and $50 billion in the second round, the multiplier in the economy is 5. 
D) If an $80 billion increase in spending creates $80 billion of new income in the first round of the multiplier process and $60 billion in the second round, the multiplier in the economy is 4.

Question 12

The marginal propensity to consume is the ratio of consumption to saving.

Accepted Answer

A) True 
 B)False

Question 13

The Paradox of Thrift highlights the idea that

Accepted Answer

A) saving more is good for the economy in the short run. 
B) saving more can be bad for the economy during a recession. 
C) in spending more, households will end up saving less. 
D) in spending more, workers may end up losing their jobs. 
A) saving more is good for the economy in the short run. 
B) saving more can be bad for the economy during a recession. 
C) in spending more, households will end up saving less. 
D) in spending more, workers may end up losing their jobs.

Question 14

During the Great Recession of 2007-2009, real interest rates

Accepted Answer

A) declined to about zero, and investments increased sharply. 
B) declined to about zero, and investments also declined sharply. 
C) increased sharply, and investments declined significantly. 
D) increased sharply, and investments also rose significantly. 
A) declined to about zero, and investments increased sharply. 
B) declined to about zero, and investments also declined sharply. 
C) increased sharply, and investments declined significantly. 
D) increased sharply, and investments also rose significantly.

Question 15

The investment demand curve will shift to the left as a result of

Accepted Answer

A) an increase in the excess production capacity available in industry. 
B) a decrease in business taxes. 
C) increased business optimism with respect to future economic conditions. 
D) a decrease in labor costs. 
A) an increase in the excess production capacity available in industry. 
B) a decrease in business taxes. 
C) increased business optimism with respect to future economic conditions. 
D) a decrease in labor costs.

Question 16

Assume the economy's consumption and saving schedules simultaneously shift downward.This must be the result of

Accepted Answer

A) an increase in disposable income. 
B) an increase in household wealth. 
C) an increase in personal taxes. 
D) the expectation of a recession. 
A) an increase in disposable income. 
B) an increase in household wealth. 
C) an increase in personal taxes. 
D) the expectation of a recession.

Question 17

If the consumption schedule becomes steeper, then the saving schedule will become steeper also.

Accepted Answer

A) True 
 B)False

Question 18

Other things equal, if the real interest rate falls and business taxes rise,

Accepted Answer

A) investment will rise until it is equal to saving. 
B) we will be uncertain as to the resulting change in investment. 
C) we can be certain that investment will rise. 
D) we can be certain that investment will fall. 
A) investment will rise until it is equal to saving. 
B) we will be uncertain as to the resulting change in investment. 
C) we can be certain that investment will rise. 
D) we can be certain that investment will fall.

Question 19

In annual percentage terms, investment spending in the United States is

Accepted Answer

A) less variable than real GDP. 
B) less variable than consumption spending. 
C) less variable than the price level. 
D) more variable than real GDP.Topic: The Interest-Rate-Investment Relationship 
A) less variable than real GDP. 
B) less variable than consumption spending. 
C) less variable than the price level. 
D) more variable than real GDP.Topic: The Interest-Rate-Investment Relationship

Question 20

An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round.The multiplier in the economy is

Accepted Answer

A) 2. 
B) 3. 
C) 4. 
D) 5. 
A) 2. 
B) 3. 
C) 4. 
D) 5.

Exam 30: Basic Macroeconomic Relationships

The simple multiplier 1/MPS

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when

If there is a decrease in disposable income in an economy, then

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is

Which of the following factors would decrease investment demand?

The saving schedule shows the relationship of saving of households to the level of

The fraction, or percentage, of total income which is consumed is called the

When consumers decide to increase household debt, this action will

The actual multiplier effect in the U.S.economy is less than the multiplier effect in the text examples because

Which statement about the multiplier is correct?

The marginal propensity to consume is the ratio of consumption to saving.

The Paradox of Thrift highlights the idea that

During the Great Recession of 2007-2009, real interest rates

The investment demand curve will shift to the left as a result of

Assume the economy's consumption and saving schedules simultaneously shift downward.This must be the result of

If the consumption schedule becomes steeper, then the saving schedule will become steeper also.

Other things equal, if the real interest rate falls and business taxes rise,

In annual percentage terms, investment spending in the United States is

An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round.The multiplier in the economy is

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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