Question 1

In an economy, for every $10 million increase in disposable income, saving increases by $2 million.It can be concluded that the

Accepted Answer

A) slope of the saving schedule is 2. 
B) slope of the consumption schedule is 0.8. 
C) marginal propensity to consume is 0.2. 
D) average propensity to save is 0.2. 
A) slope of the saving schedule is 2. 
B) slope of the consumption schedule is 0.8. 
C) marginal propensity to consume is 0.2. 
D) average propensity to save is 0.2.

Question 2

The nominal rate of interest is 8.5 percent, and the real rate is 5 percent.The expected rate of return on an investment is 8 percent.The firm should

Accepted Answer

A) not undertake the investment, because the expected rate of return of 8 percent is less than the nominal interest rate. 
B) not undertake the investment, because the expected rate of return of 8 percent is less than the nominal plus the real interest rate. 
C) undertake the investment because the expected rate of return of 8 percent is greater than the difference between the nominal and real interest rates. 
D) undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest. 
A) not undertake the investment, because the expected rate of return of 8 percent is less than the nominal interest rate. 
B) not undertake the investment, because the expected rate of return of 8 percent is less than the nominal plus the real interest rate. 
C) undertake the investment because the expected rate of return of 8 percent is greater than the difference between the nominal and real interest rates. 
D) undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest.

Question 3

If consumption increases while income remains the same, the average propensity to consume will

Accepted Answer

A) increase and then decrease. 
B) remain constant. 
C) increase. 
D) decrease. 
A) increase and then decrease. 
B) remain constant. 
C) increase. 
D) decrease.

Question 4

A high rate of inflation is likely to cause a

Accepted Answer

A) high nominal interest rate. 
B) low nominal interest rate. 
C) low rate of growth of nominal GDP. 
D) decrease in nominal wages. 
A) high nominal interest rate. 
B) low nominal interest rate. 
C) low rate of growth of nominal GDP. 
D) decrease in nominal wages.

Question 5

1 − MPC = MPS.

Accepted Answer

A) True 
 B)False

Question 6

The Great Recession of 2007-2009 caused a basic change in consumer behavior, shifting the saving schedule up.

Accepted Answer

A) True 
 B)False

Question 7

One can determine the amount of any level of total income that is consumed by

Accepted Answer

A) multiplying total income by the slope of the consumption schedule. 
B) multiplying total income by the APC. 
C) subtracting the MPS from total income. 
D) multiplying total income by the MPC. 
A) multiplying total income by the slope of the consumption schedule. 
B) multiplying total income by the APC. 
C) subtracting the MPS from total income. 
D) multiplying total income by the MPC.

Question 8

Which of the following statements about consuming in excess of one's disposable income is not true?

Accepted Answer

A) It is possible, and it's called dissaving. 
B) In this case, the values of both saving and the APS are negative. 
C) (APC + APS) will be less than 1 in this situation. 
D) The value of APC will be greater than 1 in this case. 
A) It is possible, and it's called dissaving. 
B) In this case, the values of both saving and the APS are negative. 
C) (APC + APS) will be less than 1 in this situation. 
D) The value of APC will be greater than 1 in this case.

Question 9

The relationship between the MPS and the MPC is such that

Accepted Answer

A) MPC − MPS = 1. 
B) MPS/MPC = 1. 
C) 1 − MPC = MPS. 
D) MPC − 1 = MPS. 
A) MPC − MPS = 1. 
B) MPS/MPC = 1. 
C) 1 − MPC = MPS. 
D) MPC − 1 = MPS.

Question 10

If a family's MPC is 0.7, it means that the family is

Accepted Answer

A) operating at the break-even point. 
B) spending seven-tenths of any increment to its income. 
C) necessarily dissaving. 
D) spending 70 percent of its disposable income. 
A) operating at the break-even point. 
B) spending seven-tenths of any increment to its income. 
C) necessarily dissaving. 
D) spending 70 percent of its disposable income.

Question 11

If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round, income will eventually increase by

Accepted Answer

A) $2,500 billion. 
B) $3,000 billion. 
C) $4,000 billion. 
D) $5,000 billion. 
A) $2,500 billion. 
B) $3,000 billion. 
C) $4,000 billion. 
D) $5,000 billion.

Question 12

The investment demand curve will shift to the right as the result of

Accepted Answer

A) the availability of excess production capacity. 
B) an increase in business taxes. 
C) businesses becoming more optimistic about future business conditions. 
D) an increase in the real interest rate. 
A) the availability of excess production capacity. 
B) an increase in business taxes. 
C) businesses becoming more optimistic about future business conditions. 
D) an increase in the real interest rate.

Question 13

One factor that shifts the consumption schedule is household wealth.Households build wealth by

Accepted Answer

A) spending their current incomes. 
B) spending out of their future incomes. 
C) spending their incomes as they earn them. 
D) not spending all their current incomes. 
A) spending their current incomes. 
B) spending out of their future incomes. 
C) spending their incomes as they earn them. 
D) not spending all their current incomes.

Question 14

The variability of business profits

Accepted Answer

A) helps explain the instability of investments over time. 
B) does not affect investment spending, which depends on expected profits, not current profits. 
C) explains why the durability of capital goods is variable. 
D) causes the variations in consumption spending over time. 
A) helps explain the instability of investments over time. 
B) does not affect investment spending, which depends on expected profits, not current profits. 
C) explains why the durability of capital goods is variable. 
D) causes the variations in consumption spending over time.

Question 15

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 5 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 16

The multiplier is defined as

Accepted Answer

A) 1 − MPS. 
B) change in GDP × initial change in spending. 
C) change in GDP/initial change in spending. 
D) change in GDP − initial change in spending. 
A) 1 − MPS. 
B) change in GDP × initial change in spending. 
C) change in GDP/initial change in spending. 
D) change in GDP − initial change in spending.

Question 17

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) investment will take place until i and r are equal. 
B) investment will take place until r exceeds i by the greatest amount. 
C) r will rise as more investment is undertaken. 
D) i will fall as more investment is undertaken. 
A) investment will take place until i and r are equal. 
B) investment will take place until r exceeds i by the greatest amount. 
C) r will rise as more investment is undertaken. 
D) i will fall as more investment is undertaken.

Question 18

If the MPC is 0.9 and investment spending increases by $20 billion, real GDP will increase by $200 billion.

Accepted Answer

A) True 
 B)False

Question 19

A firm invests in a new machine that costs $2,000 a year but which is expected to produce an increase in total revenue of $2,200 a year.The current real rate of interest is 8 percent.The firm should

Accepted Answer

A) undertake the investment because the expected rate of return of 12 percent is greater than the real rate of interest. 
B) undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest. 
C) undertake the investment because the expected rate of return of 9 percent is greater than the real rate of interest. 
D) not undertake the investment, because the expected rate of return of 7 percent is less than the real rate of interest. 
A) undertake the investment because the expected rate of return of 12 percent is greater than the real rate of interest. 
B) undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest. 
C) undertake the investment because the expected rate of return of 9 percent is greater than the real rate of interest. 
D) not undertake the investment, because the expected rate of return of 7 percent is less than the real rate of interest.

Question 20

Other things equal, a 10 percent decrease in corporate income taxes will

Accepted Answer

A) decrease the market price of real capital goods. 
B) have no effect on the location of the investment demand curve. 
C) shift the investment demand curve to the right. 
D) shift the investment demand curve to the left. 
A) decrease the market price of real capital goods. 
B) have no effect on the location of the investment demand curve. 
C) shift the investment demand curve to the right. 
D) shift the investment demand curve to the left.

Exam 30: Basic Macroeconomic Relationships

In an economy, for every $10 million increase in disposable income, saving increases by $2 million.It can be concluded that the

The nominal rate of interest is 8.5 percent, and the real rate is 5 percent.The expected rate of return on an investment is 8 percent.The firm should

If consumption increases while income remains the same, the average propensity to consume will

A high rate of inflation is likely to cause a

1 − MPC = MPS.

The Great Recession of 2007-2009 caused a basic change in consumer behavior, shifting the saving schedule up.

One can determine the amount of any level of total income that is consumed by

Which of the following statements about consuming in excess of one's disposable income is not true?

The relationship between the MPS and the MPC is such that

If a family's MPC is 0.7, it means that the family is

If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round, income will eventually increase by

The investment demand curve will shift to the right as the result of

One factor that shifts the consumption schedule is household wealth.Households build wealth by

The variability of business profits

The multiplier is defined as

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,

If the MPC is 0.9 and investment spending increases by $20 billion, real GDP will increase by $200 billion.

A firm invests in a new machine that costs $2,000 a year but which is expected to produce an increase in total revenue of $2,200 a year.The current real rate of interest is 8 percent.The firm should

Other things equal, a 10 percent decrease in corporate income taxes will

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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