Question 1

Saving equals disposable income plus consumption.

Accepted Answer

A) True 
 B)False

Question 2

If households do not spend any extra income they receive but instead save the entire extra amount, then the multiplier will be zero.

Accepted Answer

A) True 
 B)False

Question 3

Which one of the following will cause a movement down along an economy's consumption schedule?

Accepted Answer

A) an increase in stock prices 
B) a decrease in stock prices 
C) an increase in consumer indebtedness 
D) a decrease in disposable income 
A) an increase in stock prices 
B) a decrease in stock prices 
C) an increase in consumer indebtedness 
D) a decrease in disposable income

Question 4

Which of the following statements about investment spending is false?

Accepted Answer

A) It is much more volatile than consumption spending. 
B) The percentage swings in real investment spending are greater than the percentage swings in real GDP. 
C) The durability of capital goods is one basic reason for the variability of investment spending. 
D) During the Great Recession in 2007-2009, when interest rates essentially declined to zero, investment spending rose sharply. 
A) It is much more volatile than consumption spending. 
B) The percentage swings in real investment spending are greater than the percentage swings in real GDP. 
C) The durability of capital goods is one basic reason for the variability of investment spending. 
D) During the Great Recession in 2007-2009, when interest rates essentially declined to zero, investment spending rose sharply.

Question 5

An upward shift of the saving schedule suggests

Accepted Answer

A) nothing with respect to changes in the APC and APS; only that the MPS has changed. 
B) that the APC and APS have both decreased at each GDP level. 
C) that the APC and APS have both increased at each GDP level. 
D) that the APC has decreased and the APS has increased at each GDP level. 
A) nothing with respect to changes in the APC and APS; only that the MPS has changed. 
B) that the APC and APS have both decreased at each GDP level. 
C) that the APC and APS have both increased at each GDP level. 
D) that the APC has decreased and the APS has increased at each GDP level.

Question 6

If the consumption schedule shifts downward, and the shift was not caused by a tax change, then the saving schedule

Accepted Answer

A) may shift either upward or downward. 
B) will shift downward. 
C) will shift upward. 
D) will not shift. 
A) may shift either upward or downward. 
B) will shift downward. 
C) will shift upward. 
D) will not shift.

Question 7

During the Great Recession of 2007-2009, the investment demand curve shifted

Accepted Answer

A) left because of very low interest rates. 
B) right because of very low interest rates. 
C) left because of declines in expected returns. 
D) right because of reductions in tax rates. 
A) left because of very low interest rates. 
B) right because of very low interest rates. 
C) left because of declines in expected returns. 
D) right because of reductions in tax rates.

Question 8

Dissaving occurs when

Accepted Answer

A) income is greater than saving. 
B) income is less than consumption. 
C) saving is greater than consumption. 
D) saving is greater than the interest rate. 
A) income is greater than saving. 
B) income is less than consumption. 
C) saving is greater than consumption. 
D) saving is greater than the interest rate.

Question 9

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule

Accepted Answer

A) will not shift. 
B) may shift either upward or downward. 
C) will shift downward. 
D) will also shift upward. 
A) will not shift. 
B) may shift either upward or downward. 
C) will shift downward. 
D) will also shift upward.

Question 10

The so-called wealth effect will result in households

Accepted Answer

A) spending more and saving less. 
B) spending less and saving more. 
C) spending less and saving less. 
D) spending more and saving more. 
A) spending more and saving less. 
B) spending less and saving more. 
C) spending less and saving less. 
D) spending more and saving more.

Question 11

The investment demand curve portrays an inverse (negative) relationship between

Accepted Answer

A) investment and real GDP. 
B) the real interest rate and investment. 
C) the nominal interest rate and investment. 
D) the price level and investment. 
A) investment and real GDP. 
B) the real interest rate and investment. 
C) the nominal interest rate and investment. 
D) the price level and investment.

Question 12

The consumption schedule is such that

Accepted Answer

A) both the APC and the MPC increase as income rises. 
B) the APC is constant and the MPC declines as income rises. 
C) the MPC is constant and the APC declines as income rises. 
D) the MPC and the APC must be equal at all levels of income. 
A) both the APC and the MPC increase as income rises. 
B) the APC is constant and the MPC declines as income rises. 
C) the MPC is constant and the APC declines as income rises. 
D) the MPC and the APC must be equal at all levels of income.

Question 13

The size of the MPC is assumed to be

Accepted Answer

A) less than zero. 
B) greater than one. 
C) greater than zero but less than one. 
D) two or more. 
A) less than zero. 
B) greater than one. 
C) greater than zero but less than one. 
D) two or more.

Question 14

When a consumption schedule is plotted as a straight line, the slope of the consumption line is

Accepted Answer

A) vertical. 
B) horizontal. 
C) greater than the slope of the 45Â° line. 
D) less than the slope of the 45Â° line. 
A) vertical. 
B) horizontal. 
C) greater than the slope of the 45Â° line. 
D) less than the slope of the 45Â° line.

Question 15

A rightward shift of the investment demand curve might be caused by

Accepted Answer

A) an increase in the price level. 
B) a decline in the real interest rate. 
C) businesses planning to increase their stock of inventories. 
D) an increase in business taxes. 
A) an increase in the price level. 
B) a decline in the real interest rate. 
C) businesses planning to increase their stock of inventories. 
D) an increase in business taxes.

Question 16

Which one of the following will cause a movement up along an economy's saving schedule?

Accepted Answer

A) an increase in household borrowing 
B) an increase in disposable income 
C) an increase in stock prices 
D) an increase in interest rates 
A) an increase in household borrowing 
B) an increase in disposable income 
C) an increase in stock prices 
D) an increase in interest rates

Question 17

Which of the following relations is not correct?

Accepted Answer

A) 1 − MPC = MPS. 
B) APS + APC = 1. 
C) MPS = MPC + 1. 
D) MPC + MPS = 1. 
A) 1 − MPC = MPS. 
B) APS + APC = 1. 
C) MPS = MPC + 1. 
D) MPC + MPS = 1.

Question 18

Dissaving occurs where

Accepted Answer

A) income exceeds consumption. 
B) saving exceeds consumption. 
C) consumption exceeds income. 
D) saving exceeds income. 
A) income exceeds consumption. 
B) saving exceeds consumption. 
C) consumption exceeds income. 
D) saving exceeds income.

Question 19

A $1 billion increase in investment will cause a

Accepted Answer

A) (1/MPS) billion increase in GDP. 
B) (MPS) billion increase in GDP. 
C) (1 − MP
C)  billion increase in GDP. 
D) (MPC − MPS) billion increase in GDP. 
A) (1/MPS) billion increase in GDP. 
B) (MPS) billion increase in GDP. 
C) (1 − MP
C)  billion increase in GDP. 
D) (MPC − MPS) billion increase in GDP.

Question 20

(Advanced analysis) The equation C = 35 + 0.75Y, where C is consumption and Y is disposable income, shows that

Accepted Answer

A) households will consume three-fourths of whatever level of disposable income they receive. 
B) households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive. 
C) there is an inverse relationship between disposable income and consumption. 
D) households will save $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive. 
A) households will consume three-fourths of whatever level of disposable income they receive. 
B) households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive. 
C) there is an inverse relationship between disposable income and consumption. 
D) households will save $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.

Exam 30: Basic Macroeconomic Relationships

Saving equals disposable income plus consumption.

If households do not spend any extra income they receive but instead save the entire extra amount, then the multiplier will be zero.

Which one of the following will cause a movement down along an economy's consumption schedule?

Which of the following statements about investment spending is false?

An upward shift of the saving schedule suggests

If the consumption schedule shifts downward, and the shift was not caused by a tax change, then the saving schedule

During the Great Recession of 2007-2009, the investment demand curve shifted

Dissaving occurs when

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule

The so-called wealth effect will result in households

The investment demand curve portrays an inverse (negative) relationship between

The consumption schedule is such that

The size of the MPC is assumed to be

When a consumption schedule is plotted as a straight line, the slope of the consumption line is

A rightward shift of the investment demand curve might be caused by

Which one of the following will cause a movement up along an economy's saving schedule?

Which of the following relations is not correct?

Dissaving occurs where

A $1 billion increase in investment will cause a

(Advanced analysis) The equation C = 35 + 0.75Y, where C is consumption and Y is disposable income, shows that

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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