Question 1

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. B

Question 2

Dissaving means

Accepted Answer

A)  the same thing as disinvesting. 
B)  that households are spending more than their current incomes. 
C)  that saving and investment are equal. 
D)  that disposable income is less than zero. 
A)  the same thing as disinvesting. 
B)  that households are spending more than their current incomes. 
C)  that saving and investment are equal. 
D)  that disposable income is less than zero. B

Question 3

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. B

Question 4

1 − MPC = MPS.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the

Accepted Answer

A)  MPC is greater in B than in A. 
B)  APC at any given income level is greater in B than in A. 
C)  MPS is smaller in B than in A. 
D)  MPC is greater in A than in B. 
A)  MPC is greater in B than in A. 
B)  APC at any given income level is greater in B than in A. 
C)  MPS is smaller in B than in A. 
D)  MPC is greater in A than in B.

Question 7

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 8

(Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. The MPC is

Accepted Answer

A)  0.45. 
B)  0.20. 
C)  0.50. 
D)  0.90. 
A)  0.45. 
B)  0.20. 
C)  0.50. 
D)  0.90.

Question 9

$$\begin{array} { | c | r | } 
\hline \text { Disposable Income } & \text { Saving } \
\hline \$ 0 & - \$ 10 \
\hline 50 & 0 \
\hline 100 & 10 \
\hline 150 & 20 \
\hline 200 & 30 \
\hline
\end{array}$$ Refer to the given data for a hypothetical economy. At the $100 level of income, the average propensity to save is

Accepted Answer

A)  0.10. 
B)  0.20. 
C)  0.25. 
D)  0.90. 
A)  0.10. 
B)  0.20. 
C)  0.25. 
D)  0.90.

Question 10

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID3?

Accepted Answer

A)  a lower interest rate 
B)  lower expected rates of return on investment 
C)  a higher interest rate 
D)  higher expected rates of return on investment 
A)  a lower interest rate 
B)  lower expected rates of return on investment 
C)  a higher interest rate 
D)  higher expected rates of return on investment

Question 11

If DI is $275 billion and the APC is 0.8, we can conclude that saving is $55 billion.

Accepted Answer

A) True 
 B)False

Question 12

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 13

If Trent's MPC is 0.80, this means that he will

Accepted Answer

A)  spend eight-tenths of any increase in his disposable income. 
B)  spend eight-tenths of any level of disposable income. 
C)  break even when his disposable income is $8,000. 
D)  save two-tenths of any level of disposable income. 
A)  spend eight-tenths of any increase in his disposable income. 
B)  spend eight-tenths of any level of disposable income. 
C)  break even when his disposable income is $8,000. 
D)  save two-tenths of any level of disposable income.

Question 14

The slope of the consumption schedule between two points on the schedule is

Accepted Answer

A)  the ratio of the change in consumption to the change in disposable income between those two points. 
B)  the ratio of the change in disposable income over the change in consumption between those two points. 
C)  equivalent to one plus the marginal propensity to save. 
D)  equivalent to the average propensity to consume. 
A)  the ratio of the change in consumption to the change in disposable income between those two points. 
B)  the ratio of the change in disposable income over the change in consumption between those two points. 
C)  equivalent to one plus the marginal propensity to save. 
D)  equivalent to the average propensity to consume.

Question 15

If business taxes are reduced and the real interest rate increases,

Accepted Answer

A)  consumption and saving will necessarily increase. 
B)  the level of investment spending might either increase or decrease. 
C)  the level of investment spending will necessarily increase. 
D)  the level of investment spending will necessarily decrease. 
A)  consumption and saving will necessarily increase. 
B)  the level of investment spending might either increase or decrease. 
C)  the level of investment spending will necessarily increase. 
D)  the level of investment spending will necessarily decrease.

Question 16

If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to

Accepted Answer

A)  consume is 0.80. 
B)  consume is 0.75. 
C)  consume is 0.60. 
D)  save is 0.30. 
A)  consume is 0.80. 
B)  consume is 0.75. 
C)  consume is 0.60. 
D)  save is 0.30.

Question 17

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 18

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 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

Refer to the given graph. A shift of the consumption schedule from C1 to C2 might be caused by a(n)

Accepted Answer

A)  recession. 
B)  wealth effect of an increase in stock market prices. 
C)  increase in income tax rates. 
D)  increase in saving. 
A)  recession. 
B)  wealth effect of an increase in stock market prices. 
C)  increase in income tax rates. 
D)  increase in saving.

Exam 10: Basic Macroeconomic Relationships

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

Dissaving means

In contrast to investment, consumption is

1 − MPC = MPS.

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

Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the

Dissaving occurs where

(Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. The MPC is

Disposable Income Saving \ 0 -\ 10 50 0 100 10 150 20 200 30 Refer to the given data for a hypothetical economy. At the $100 level of income, the average propensity to save is

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID3?

If DI is $275 billion and the APC is 0.8, we can conclude that saving is $55 billion.

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

If Trent's MPC is 0.80, this means that he will

The slope of the consumption schedule between two points on the schedule is

If business taxes are reduced and the real interest rate increases,

If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to

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

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

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

Refer to the given graph. A shift of the consumption schedule from C1 to C2 might be caused by a(n)

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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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