Question 1

If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by

Accepted Answer

A)  $6 billion. 
B)  $9 billion. 
C)  $54 billion. 
D)  $56 billion. 
A)  $6 billion. 
B)  $9 billion. 
C)  $54 billion. 
D)  $56 billion.

Question 2

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The
Expected rate of return on this tool is

Accepted Answer

A)  80 percent. 
B)  8 percent. 
C)  2 percent. 
D)  20 percent. 
A)  80 percent. 
B)  8 percent. 
C)  2 percent. 
D)  20 percent.

Question 3

Refer to the given diagram. The marginal propensity to consume is

Accepted Answer

A)  0.2. 
B)  0.8. 
C)  0.4. 
D)  0.3. 
A)  0.2. 
B)  0.8. 
C)  0.4. 
D)  0.3.

Question 4

If the MPC is 0.8 and disposable income is $200, then

Accepted Answer

A)  consumption and saving cannot be determined from the information given. 
B)  saving will be $20. 
C)  personal consumption expenditures must be $160. 
D)  saving will be $40. 
A)  consumption and saving cannot be determined from the information given. 
B)  saving will be $20. 
C)  personal consumption expenditures must be $160. 
D)  saving will be $40.

Question 5

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 6

(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 7

The consumption schedule shows

Accepted Answer

A)  that the MPC increases in proportion to GDP. 
B)  that households consume more when interest rates are low. 
C)  that consumption depends primarily on the level of business investment. 
D)  the amounts households intend to consume at various possible levels of aggregate income. 
A)  that the MPC increases in proportion to GDP. 
B)  that households consume more when interest rates are low. 
C)  that consumption depends primarily on the level of business investment. 
D)  the amounts households intend to consume at various possible levels of aggregate income.

Question 8

An MPC value of less than 1.0 indicates that as income increases,

Accepted Answer

A)  consumption also increases, and by more than the increase in income. 
B)  consumption also increases, and at the same rate as the increase in income. 
C)  consumption will go in the opposite direction and decrease. 
D)  consumption also increases, though not as much as income. 
A)  consumption also increases, and by more than the increase in income. 
B)  consumption also increases, and at the same rate as the increase in income. 
C)  consumption will go in the opposite direction and decrease. 
D)  consumption also increases, though not as much as income.

Question 9

$$\begin{array} { | c | c | } 
\hline \text { Disposable Income } \left( Y _ { d } \right) & \text { Consumption } ( C ) \
\hline \$ 0 & \$ 40 \
\hline 100 & 100 \
\hline 200 & 160 \
\hline 300 & 220 \
\hline 400 & 280 \
\hline
\end{array}$$ (Advanced analysis) Which of the following equations represents the saving schedule implicit in the given data?

Accepted Answer

A)  S = C ? Yd. 
B)  S = 40 + 0.4Yd. 
C)  S = 40 + 0.6Yd. 
D)  S = ?40 + 0.4Yd. 
A)  S = C ? Yd. 
B)  S = 40 + 0.4Yd. 
C)  S = 40 + 0.6Yd. 
D)  S = ?40 + 0.4Yd.

Question 10

The investment demand curve will shift to the left as a result of

Accepted Answer

A)  an increase in the excess production capacity available in industry. 
B)  a decrease in business taxes. 
C)  increased business optimism with respect to future economic conditions. 
D)  a decrease in labor costs. 
A)  an increase in the excess production capacity available in industry. 
B)  a decrease in business taxes. 
C)  increased business optimism with respect to future economic conditions. 
D)  a decrease in labor costs.

Question 11

With a marginal propensity to save of 0.4, the marginal propensity to consume will be

Accepted Answer

A)  1.0 minus 0.4. 
B)  0.4 minus 1.0. 
C)  the reciprocal of the MPS. 
D)  0.4. 
A)  1.0 minus 0.4. 
B)  0.4 minus 1.0. 
C)  the reciprocal of the MPS. 
D)  0.4.

Question 12

(Advanced analysis) If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when
Disposable income is

Accepted Answer

A)  $80. 
B)  $100. 
C)  $120. 
D)  $160. 
A)  $80. 
B)  $100. 
C)  $120. 
D)  $160.

Question 13

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 14

(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.

Question 15

The APC is calculated as

Accepted Answer

A)  change in consumption/change in income. 
B)  consumption/income. 
C)  change in income/change in consumption. 
D)  income/consumption. 
A)  change in consumption/change in income. 
B)  consumption/income. 
C)  change in income/change in consumption. 
D)  income/consumption.

Question 16

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 17

The purchase of capital goods, like ____ consumer goods, can be postponed; it tends to contribute to _____ in investment spending.

Accepted Answer

A)  nondurable; instability 
B)  nondurable; stability 
C)  durable; instability 
D)  durable; stability 
A)  nondurable; instability 
B)  nondurable; stability 
C)  durable; instability 
D)  durable; stability

Question 18

The consumption schedule shows the relationship of household consumption to the level of

Accepted Answer

A)  saving 
B)  investment. 
C)  disposable income. 
D)  the marginal propensity to consume. 
A)  saving 
B)  investment. 
C)  disposable income. 
D)  the marginal propensity to consume.

Question 19

If the MPS is only half as large as the MPC, the multiplier is

Accepted Answer

A)  2. 
B)  3. 
C)  4. 
D)  5. 
A)  2. 
B)  3. 
C)  4. 
D)  5.

Question 20

The multiplier effect means that

Accepted Answer

A)  consumption is typically several times as large as saving. 
B)  a change in consumption can cause a larger increase in investment. 
C)  an increase in investment can cause GDP to change by a larger amount. 
D)  a decline in the MPC can cause GDP to rise by several times that amount. 
A)  consumption is typically several times as large as saving. 
B)  a change in consumption can cause a larger increase in investment. 
C)  an increase in investment can cause GDP to change by a larger amount. 
D)  a decline in the MPC can cause GDP to rise by several times that amount.

Exam 10: Basic Macroeconomic Relationships

If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The Expected rate of return on this tool is

Refer to the given diagram. The marginal propensity to consume is

If the MPC is 0.8 and disposable income is $200, then

A $1 billion increase in investment will cause a

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

The consumption schedule shows

An MPC value of less than 1.0 indicates that as income increases,

Disposable Income Consumption (C) \ 0 \ 40 100 100 200 160 300 220 400 280 (Advanced analysis) Which of the following equations represents the saving schedule implicit in the given data?

The investment demand curve will shift to the left as a result of

With a marginal propensity to save of 0.4, the marginal propensity to consume will be

(Advanced analysis) If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when Disposable income is

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

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

The APC is calculated as

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

The purchase of capital goods, like ____ consumer goods, can be postponed; it tends to contribute to _____ in investment spending.

The consumption schedule shows the relationship of household consumption to the level of

If the MPS is only half as large as the MPC, the multiplier is

The multiplier effect means that

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

Filters

The purchase of capital goods, like consumer goods, can be postponed; it tends to contribute to _ in investment spending.