Question 1

Refer to the given diagram. The marginal propensity to save is equal to

Accepted Answer

A)  CD/0D. 
B)  0B/0A. 
C)  0A/0D. 
D)  CD/BD. 
A)  CD/0D. 
B)  0B/0A. 
C)  0A/0D. 
D)  CD/BD.

Question 2

The ﬁgure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the largest multiplier?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 3

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 4

The investment demand curve suggests that

Accepted Answer

A)  changes in the real interest rate will not affect the amount invested. 
B)  there is an inverse relationship between the real rate of interest and the level of investment spending. 
C)  an increase in business taxes will tend to stimulate investment spending. 
D)  there is a direct relationship between the real rate of interest and the level of investment spending. 
A)  changes in the real interest rate will not affect the amount invested. 
B)  there is an inverse relationship between the real rate of interest and the level of investment spending. 
C)  an increase in business taxes will tend to stimulate investment spending. 
D)  there is a direct relationship between the real rate of interest and the level of investment spending.

Question 5

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 6

Suppose the economy's saving schedule shifts from S1 to S2, as shown in the given diagram. We can say that its

Accepted Answer

A)  MPC has increased. 
B)  MPS has increased. 
C)  APS has increased at all levels of disposable income. 
D)  APS has decreased at all levels of disposable income. 
A)  MPC has increased. 
B)  MPS has increased. 
C)  APS has increased at all levels of disposable income. 
D)  APS has decreased at all levels of disposable income.

Question 7

Refer to the consumption schedule shown in the graph. At income level 3, the amount of saving is represented by the line segment

Accepted Answer

A)  FG. 
B)  FH. 
C)  FD. 
D)  GH. 
A)  FG. 
B)  FH. 
C)  FD. 
D)  GH.

Question 8

The saving schedule is such that as aggregate income increases by a certain amount, saving

Accepted Answer

A)  increases by the same amount as the increase in income. 
B)  does not change. 
C)  increases, but by a smaller amount. 
D)  increases by an even larger amount. 
A)  increases by the same amount as the increase in income. 
B)  does not change. 
C)  increases, but by a smaller amount. 
D)  increases by an even larger amount.

Question 9

Refer to the given graph. A movement from b to a along C1 might be caused by a(n)

Accepted Answer

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

Question 10

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 11

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. 
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.

Question 12

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is
Expected to be $2,300. The expected rate of return on this machine is

Accepted Answer

A)  7.5 percent. 
B)  10 percent. 
C)  15 percent. 
D)  20 percent. 
A)  7.5 percent. 
B)  10 percent. 
C)  15 percent. 
D)  20 percent.

Question 13

If the saving schedule is a straight line, the

Accepted Answer

A)  MPS must be constant. 
B)  APS must be constant. 
C)  APC must be constant. 
D)  MPC must be rising. 
A)  MPS must be constant. 
B)  APS must be constant. 
C)  APC must be constant. 
D)  MPC must be rising.

Question 14

As disposable income goes up, the

Accepted Answer

A)  average propensity to consume falls. 
B)  average propensity to save falls. 
C)  volume of consumption declines absolutely. 
D)  volume of investment diminishes. 
A)  average propensity to consume falls. 
B)  average propensity to save falls. 
C)  volume of consumption declines absolutely. 
D)  volume of investment diminishes.

Question 15

(Advanced analysis) Refer to the diagram. The equation for the consumption schedule is

Accepted Answer

A)  C = 0.6Y. 
B)  Y = 60 + 0.6C. 
C)  C = 60 + 0.6Y. 
D)  C = 60 + 0.4Y. 
A)  C = 0.6Y. 
B)  Y = 60 + 0.6C. 
C)  C = 60 + 0.6Y. 
D)  C = 60 + 0.4Y.

Question 16

$$\begin{array} { | c | c | } 
\hline \text { Expected Rate of Return (\%) } & \begin{array} { c } 
\text { Amount of Investment With This Rate of Return } \
\text { or Higher (\$B) }
\end{array} \
\hline 12 \% & \$ 10 \
\hline 10 & 20 \
\hline 8 & 30 \
\hline 6 & 40 \
\hline 4 & 50 \
\hline 2 & 60 \
\hline
\end{array}$$ The investment schedule in the given table indicates that if the real interest rate is 8 percent, then

Accepted Answer

A)  we cannot tell what volume of investment will be pro?table. 
B)  $30 billion will be both saved and invested. 
C)  $30 billion of investment will be undertaken. 
D)  $60 billion of investment will be undertaken. 
A)  we cannot tell what volume of investment will be pro?table. 
B)  $30 billion will be both saved and invested. 
C)  $30 billion of investment will be undertaken. 
D)  $60 billion of investment will be undertaken.

Question 17

The relationship between consumption and disposable income is such that

Accepted Answer

A)  an inverse and stable relationship exists between consumption and income. 
B)  a direct, but very volatile, relationship exists between consumption and income. 
C)  a direct and relatively stable relationship exists between consumption and income. 
D)  the two are usually equal. 
A)  an inverse and stable relationship exists between consumption and income. 
B)  a direct, but very volatile, relationship exists between consumption and income. 
C)  a direct and relatively stable relationship exists between consumption and income. 
D)  the two are usually equal.

Question 18

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2?

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 19

The investment demand slopes downward and to the right because lower real interest rates

Accepted Answer

A)  expand consumer borrowing, making investments more proﬁtable. 
B)  boost expected rates of returns on investment. 
C)  enable more investment projects to be undertaken proﬁtably. 
D)  create tax incentives to invest. 
A)  expand consumer borrowing, making investments more proﬁtable. 
B)  boost expected rates of returns on investment. 
C)  enable more investment projects to be undertaken proﬁtably. 
D)  create tax incentives to invest.

Question 20

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.

Refer to the given diagram. The marginal propensity to save is equal to

The ﬁgure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the largest multiplier?

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

The investment demand curve suggests that

Suppose the economy's saving schedule shifts from S1 to S2, as shown in the given diagram. We can say that its

Refer to the consumption schedule shown in the graph. At income level 3, the amount of saving is represented by the line segment

The saving schedule is such that as aggregate income increases by a certain amount, saving

Refer to the given graph. A movement from b to a along C1 might be caused by a(n)

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

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

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is Expected to be $2,300. The expected rate of return on this machine is

If the saving schedule is a straight line, the

As disposable income goes up, the

(Advanced analysis) Refer to the diagram. The equation for the consumption schedule is

Expected Rate of Return (\%) Amount of Investment With This Rate of Return or Higher ( \B ) 12\% \ 10 10 20 8 30 6 40 4 50 2 60 The investment schedule in the given table indicates that if the real interest rate is 8 percent, then

The relationship between consumption and disposable income is such that

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2?

The investment demand slopes downward and to the right because lower real interest rates

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

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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Exam 10: Basic Macroeconomic Relationships

Refer to the given diagram. The marginal propensity to save is equal to

The ﬁgure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the largest multiplier?

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

The investment demand curve suggests that

Suppose the economy's saving schedule shifts from S1 to S2, as shown in the given diagram. We can say that its

Refer to the consumption schedule shown in the graph. At income level 3, the amount of saving is represented by the line segment

The saving schedule is such that as aggregate income increases by a certain amount, saving

Refer to the given graph. A movement from b to a along C1 might be caused by a(n)

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

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

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is Expected to be $2,300. The expected rate of return on this machine is

If the saving schedule is a straight line, the

As disposable income goes up, the

(Advanced analysis) Refer to the diagram. The equation for the consumption schedule is

Expected Rate of Return (\%) Amount of Investment With This Rate of Return or Higher ( \B ) 12\% \ 10 10 20 8 30 6 40 4 50 2 60 The investment schedule in the given table indicates that if the real interest rate is 8 percent, then

The relationship between consumption and disposable income is such that

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2?

The investment demand slopes downward and to the right because lower real interest rates

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

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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