Question 1

The multiplier applies to

Accepted Answer

A) investment but not to net exports or government spending. 
B) investment, net exports, and government spending. 
C) increases in spending but not to decreases in spending. 
D) spending by the private sector but not by the public sector. 
A) investment but not to net exports or government spending. 
B) investment, net exports, and government spending. 
C) increases in spending but not to decreases in spending. 
D) spending by the private sector but not by the public sector.

Question 2

Investment spending in the United States tends to be unstable because

Accepted Answer

A) expected profits are highly variable. 
B) capital goods are durable. 
C) innovation occurs at an irregular pace. 
D) all of the factors mentioned in other answers contribute to the instability. 
A) expected profits are highly variable. 
B) capital goods are durable. 
C) innovation occurs at an irregular pace. 
D) all of the factors mentioned in other answers contribute to the instability.

Question 3

If the MPC is constant at various levels of income, then the APC must also be constant at all of those income levels.

Accepted Answer

A) True 
 B)False

Question 4

An increase in household wealth that creates a wealth effect would shift the

Accepted Answer

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

Question 5

If disposable income decreases from $1,800 to $1,500 and MPC = 0.75, then saving will

Accepted Answer

A) increase by $225. 
B) decrease by $225. 
C) increase by $75. 
D) decrease by $75. 
A) increase by $225. 
B) decrease by $225. 
C) increase by $75. 
D) decrease by $75.

Question 6

Assume the marginal propensity to consume is 0.8.If consumer spending increases by $20 billion, then real GDP will

Accepted Answer

A) increase by $100 billion. 
B) decrease by $100 billion. 
C) increase by $16 billion. 
D) not change. 
A) increase by $100 billion. 
B) decrease by $100 billion. 
C) increase by $16 billion. 
D) not change.

Question 7

The immediate determinants of investment spending are the

Accepted Answer

A) expected rate of return on capital goods and the real interest rate. 
B) level of saving and the real interest rate. 
C) marginal propensity to consume and the real interest rate. 
D) interest rate and the expected price level. 
A) expected rate of return on capital goods and the real interest rate. 
B) level of saving and the real interest rate. 
C) marginal propensity to consume and the real interest rate. 
D) interest rate and the expected price level.

Question 8

A firm invests in a new machine that costs $5,000 a year but which is expected to produce an increase in total revenue of $5,200 a year.The current real rate of interest is 7 percent.The firm should

Accepted Answer

A) undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest. 
B) undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest. 
C) not undertake the investment, because the expected rate of return of 6 percent is less than the real rate of interest. 
D) not undertake the investment, because the expected rate of return of 4 percent is less than the real rate of interest. 
A) undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest. 
B) undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest. 
C) not undertake the investment, because the expected rate of return of 6 percent is less than the real rate of interest. 
D) not undertake the investment, because the expected rate of return of 4 percent is less than the real rate of interest.

Question 9

A business firm will purchase additional capital goods if the real rate of interest in the economy is less than the expected rate of return from the investment.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following may shift the consumption schedule upward?

Accepted Answer

A) an increase in disposable income 
B) a decrease in interest rates 
C) a significant decrease in stock prices 
D) a decrease in people's ability to borrow 
A) an increase in disposable income 
B) a decrease in interest rates 
C) a significant decrease in stock prices 
D) a decrease in people's ability to borrow

Question 11

(Last Word) Art Buchwald's article "Squaring the Economic Circle" humorously describes how

Accepted Answer

A) a person's decision not to buy an automobile eventually reduces many people's incomes, including that of the person making the original decision. 
B) a price increase on a single product eventually leads to rapid inflation. 
C) an increase in imports eventually leads to a greater increase in exports. 
D) a government tax rate increase eventually results in the government collecting less tax revenue than before the tax rate hike. 
A) a person's decision not to buy an automobile eventually reduces many people's incomes, including that of the person making the original decision. 
B) a price increase on a single product eventually leads to rapid inflation. 
C) an increase in imports eventually leads to a greater increase in exports. 
D) a government tax rate increase eventually results in the government collecting less tax revenue than before the tax rate hike.

Question 12

Two basic determinants of investment spending are

Accepted Answer

A) consumer spending and government spending. 
B) expected returns and real interest rates. 
C) general price level and the level of output. 
D) domestic trade and international trade. 
A) consumer spending and government spending. 
B) expected returns and real interest rates. 
C) general price level and the level of output. 
D) domestic trade and international trade.

Question 13

The marginal propensity to consume shows the fraction of any level of total income that is consumed.

Accepted Answer

A) True 
 B)False

Question 14

The relationship between the real interest rate and investment is shown by the

Accepted Answer

A) investment demand schedule. 
B) consumption of fixed capital schedule. 
C) saving schedule. 
D) aggregate supply curve. 
A) investment demand schedule. 
B) consumption of fixed capital schedule. 
C) saving schedule. 
D) aggregate supply curve.

Question 15

At the point where the consumption schedule intersects the 45-degree line,

Accepted Answer

A) the MPC equals 1. 
B) the APC is zero. 
C) saving equals income. 
D) saving is zero. 
A) the MPC equals 1. 
B) the APC is zero. 
C) saving equals income. 
D) saving is zero.

Question 16

The consumption schedule shows

Accepted Answer

A) a direct relationship between aggregate consumption and accumulated wealth. 
B) a direct relationship between aggregate consumption and aggregate income. 
C) an inverse relationship between aggregate consumption and accumulated financial wealth. 
D) an inverse relationship between aggregate consumption and the price level. 
A) a direct relationship between aggregate consumption and accumulated wealth. 
B) a direct relationship between aggregate consumption and aggregate income. 
C) an inverse relationship between aggregate consumption and accumulated financial wealth. 
D) an inverse relationship between aggregate consumption and the price level.

Question 17

The consumption schedule is drawn on the assumption that as income increases, consumption will

Accepted Answer

A) be unaffected. 
B) increase absolutely but remain constant as a percentage of income. 
C) increase absolutely but decline as a percentage of income. 
D) increase both absolutely and as a percentage of income. 
A) be unaffected. 
B) increase absolutely but remain constant as a percentage of income. 
C) increase absolutely but decline as a percentage of income. 
D) increase both absolutely and as a percentage of income.

Question 18

Given the expected rate of return on all possible investment opportunities in the economy,

Accepted Answer

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

Question 19

(Advanced analysis) If the equation C = 20 + 0.6Y, where C is consumption and Y is disposable income, were graphed,

Accepted Answer

A) the vertical intercept would be +0.6 and the slope would be +20. 
B) it would reveal an inverse relationship between consumption and disposable income. 
C) the vertical intercept would be negative, but consumption would increase as disposable income rises. 
D) the vertical intercept would be +20 and the slope would be +0.6. 
A) the vertical intercept would be +0.6 and the slope would be +20. 
B) it would reveal an inverse relationship between consumption and disposable income. 
C) the vertical intercept would be negative, but consumption would increase as disposable income rises. 
D) the vertical intercept would be +20 and the slope would be +0.6.

Question 20

Which of the following will not tend to shift the consumption schedule upward?

Accepted Answer

A) a currently small stock of durable goods in the possession of consumers 
B) the expectation of a future decline in the consumer price index 
C) a currently low level of household debt 
D) the expectation of future shortages of essential consumer goods 
A) a currently small stock of durable goods in the possession of consumers 
B) the expectation of a future decline in the consumer price index 
C) a currently low level of household debt 
D) the expectation of future shortages of essential consumer goods

Exam 30: Basic Macroeconomic Relationships

The multiplier applies to

Investment spending in the United States tends to be unstable because

If the MPC is constant at various levels of income, then the APC must also be constant at all of those income levels.

An increase in household wealth that creates a wealth effect would shift the

If disposable income decreases from $1,800 to $1,500 and MPC = 0.75, then saving will

Assume the marginal propensity to consume is 0.8.If consumer spending increases by $20 billion, then real GDP will

The immediate determinants of investment spending are the

A firm invests in a new machine that costs $5,000 a year but which is expected to produce an increase in total revenue of $5,200 a year.The current real rate of interest is 7 percent.The firm should

A business firm will purchase additional capital goods if the real rate of interest in the economy is less than the expected rate of return from the investment.

Which of the following may shift the consumption schedule upward?

(Last Word) Art Buchwald's article "Squaring the Economic Circle" humorously describes how

Two basic determinants of investment spending are

The marginal propensity to consume shows the fraction of any level of total income that is consumed.

The relationship between the real interest rate and investment is shown by the

At the point where the consumption schedule intersects the 45-degree line,

The consumption schedule shows

The consumption schedule is drawn on the assumption that as income increases, consumption will

Given the expected rate of return on all possible investment opportunities in the economy,

(Advanced analysis) If the equation C = 20 + 0.6Y, where C is consumption and Y is disposable income, were graphed,

Which of the following will not tend to shift the consumption schedule upward?

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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