Question 1

In the Keynesian model, whenever planned saving is less than planned investment

Accepted Answer

A) there will be unplanned inventory accumulation. 
B) there will be unplanned inventory depletion. 
C) real GDP will not be influenced. 
D) the interest rate will remain unchanged. 
A) there will be unplanned inventory accumulation. 
B) there will be unplanned inventory depletion. 
C) real GDP will not be influenced. 
D) the interest rate will remain unchanged.

Question 2

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $4,000?

Accepted Answer

A) -0.45 
B) 0.69 
C) 0.7 
D) 1.45 
A) -0.45 
B) 0.69 
C) 0.7 
D) 1.45

Question 3

If the MPC is 0.8, then the MPS is

Accepted Answer

A) 0.2. 
B) 1. 
C) 5. 
D) 8. 
A) 0.2. 
B) 1. 
C) 5. 
D) 8.

Question 4

Real consumption is a function of real disposable income, but the simple Keynesian model uses real GDP instead of real disposable income. This is appropriate since

Accepted Answer

A) real disposable income tends to move proportionately with real GDP. 
B) real disposable income is a fixed percentage of real GDP. 
C) real GDP is a fixed percentage of real disposable income. 
D) we cannot measure either exactly and the purpose of the exercise is theoretical only. 
A) real disposable income tends to move proportionately with real GDP. 
B) real disposable income is a fixed percentage of real GDP. 
C) real GDP is a fixed percentage of real disposable income. 
D) we cannot measure either exactly and the purpose of the exercise is theoretical only.

Question 5

Suppose the marginal propensity to consume (MPC)is 0.9 and there is a $3,000 increase in planned investment. Given this information, real GDP will increase by

Accepted Answer

A) $3,000. 
B) $2,700. 
C) $30,000. 
D) $3,333. 
A) $3,000. 
B) $2,700. 
C) $30,000. 
D) $3,333.

Question 6

Which of the following theories predicts that current consumption increases when a person expects an increase in future income?

Accepted Answer

A) the life-cycle theory of consumption 
B) the permanent income hypothesis 
C) the Keynesian theory of consumption 
D) all of the above 
A) the life-cycle theory of consumption 
B) the permanent income hypothesis 
C) the Keynesian theory of consumption 
D) all of the above

Question 7

If the multiplier is 10, then the marginal propensity to consume (MPC)is

Accepted Answer

A) 0.9. 
B) 0.1. 
C) 1. 
D) 9. 
A) 0.9. 
B) 0.1. 
C) 1. 
D) 9.

Question 8

-In the above figure, what is the equilibrium level of real GDP with government and the foreign sector?

Accepted Answer

A) $2.0 trillion 
B) $2.5 trillion 
C) $3.0 trillion 
D) $4.0 trillion 
A) $2.0 trillion 
B) $2.5 trillion 
C) $3.0 trillion 
D) $4.0 trillion

Question 9

-Refer to the above figure. Line BCD is called

Accepted Answer

A) the saving function. 
B) the savings function. 
C) the 45-degree line. 
D) the consumption function. 
A) the saving function. 
B) the savings function. 
C) the 45-degree line. 
D) the consumption function.

Question 10

-Consider the above figure. At an income of $60 we would expect saving to be equal to

Accepted Answer

A) $60. 
B) $40. 
C) $10. 
D) $0. 
A) $60. 
B) $40. 
C) $10. 
D) $0.

Question 11

What is the result when real planned saving exceeds real planned investment spending?

Accepted Answer

A) The economy is in equilibrium. 
B) There is unplanned accumulation of business inventories. 
C) There is unplanned depletion of business inventories. 
D) Employment expands. 
A) The economy is in equilibrium. 
B) There is unplanned accumulation of business inventories. 
C) There is unplanned depletion of business inventories. 
D) Employment expands.

Question 12

Other things being constant, if the marginal propensity to save (MPS)is 0.1, and private investment spending falls by $100 million, then real Gross Domestic Product (GDP)

Accepted Answer

A) decreases by $10 million. 
B) increases by $90 million. 
C) decreases by $1 billion. 
D) increases by $1 billion. 
A) decreases by $10 million. 
B) increases by $90 million. 
C) decreases by $1 billion. 
D) increases by $1 billion.

Question 13

A firm will invest in a project if

Accepted Answer

A) the interest rate exceeds the opportunity cost of the project. 
B) the firm's level of capital is at the desired level. 
C) the firm's level of capital is higher than the desired level. 
D) the rate of return of the project is greater than the opportunity cost of the investment. 
A) the interest rate exceeds the opportunity cost of the project. 
B) the firm's level of capital is at the desired level. 
C) the firm's level of capital is higher than the desired level. 
D) the rate of return of the project is greater than the opportunity cost of the investment.

Question 14

-The above figure shows a consumption function and a 45-degree line. Real consumption is a function of disposable income. Why is real GDP used here instead?
 What is measured along the vertical axis?
 What is measured by point B?
 Explain the significance of point A.

Accepted Answer

Real disposable income is less than real

Question 15

If real disposable income increases, the average propensity to consume will

Accepted Answer

A) initially increase, and then decrease. 
B) remain constant. 
C) increase. 
D) decrease. 
A) initially increase, and then decrease. 
B) remain constant. 
C) increase. 
D) decrease.

Question 16

Fixed investment is

Accepted Answer

A) when a firm adds to its inventories of goods. 
B) when a firm accumulates profits. 
C) dissavings. 
D) an expenditure by firms on new machines that are expected to produce income in the future. 
A) when a firm adds to its inventories of goods. 
B) when a firm accumulates profits. 
C) dissavings. 
D) an expenditure by firms on new machines that are expected to produce income in the future.

Question 17

When a household's disposable income falls to zero, what do we expect will happen?

Accepted Answer

A) The household's consumption spending also falls to zero. 
B) The household will maintain a positive level of saving. 
C) The household will maintain its previous level of consumption. 
D) Consumption will fall to the level of autonomous consumption. 
A) The household's consumption spending also falls to zero. 
B) The household will maintain a positive level of saving. 
C) The household will maintain its previous level of consumption. 
D) Consumption will fall to the level of autonomous consumption.

Question 18

-According to the above table, the marginal propensity to consume is

Accepted Answer

A) 0.6. 
B) 0.5. 
C) 0.75. 
D) 0.8. 
A) 0.6. 
B) 0.5. 
C) 0.75. 
D) 0.8.

Question 19

-In the above figure, when real disposable income equals 600

Accepted Answer

A) there is dissaving. 
B) consumption is less than disposable income. 
C) real disposable income exceeds consumption. 
D) consumption equals real disposable income. 
A) there is dissaving. 
B) consumption is less than disposable income. 
C) real disposable income exceeds consumption. 
D) consumption equals real disposable income.

Question 20

The relationship between planned real investment spending and the interest rate is

Accepted Answer

A) inverse. 
B) direct. 
C) constant. 
D) highly volatile. 
A) inverse. 
B) direct. 
C) constant. 
D) highly volatile.

In the Keynesian model, whenever planned saving is less than planned investment

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $4,000?

If the MPC is 0.8, then the MPS is

Real consumption is a function of real disposable income, but the simple Keynesian model uses real GDP instead of real disposable income. This is appropriate since

Suppose the marginal propensity to consume (MPC)is 0.9 and there is a $3,000 increase in planned investment. Given this information, real GDP will increase by

Which of the following theories predicts that current consumption increases when a person expects an increase in future income?

If the multiplier is 10, then the marginal propensity to consume (MPC)is

-In the above figure, what is the equilibrium level of real GDP with government and the foreign sector?

-Refer to the above figure. Line BCD is called

-Consider the above figure. At an income of $60 we would expect saving to be equal to

What is the result when real planned saving exceeds real planned investment spending?

Other things being constant, if the marginal propensity to save (MPS)is 0.1, and private investment spending falls by $100 million, then real Gross Domestic Product (GDP)

A firm will invest in a project if

-The above figure shows a consumption function and a 45-degree line. Real consumption is a function of disposable income. Why is real GDP used here instead? What is measured along the vertical axis? What is measured by point B? Explain the significance of point A.

If real disposable income increases, the average propensity to consume will

Fixed investment is

When a household's disposable income falls to zero, what do we expect will happen?

-According to the above table, the marginal propensity to consume is

-In the above figure, when real disposable income equals 600

The relationship between planned real investment spending and the interest rate is

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Fiscal Policy

Deficit Spending and the Public Debt

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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Exam 11: Consumption, Real GDP, and the Multiplier

In the Keynesian model, whenever planned saving is less than planned investment

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $4,000?

If the MPC is 0.8, then the MPS is

Real consumption is a function of real disposable income, but the simple Keynesian model uses real GDP instead of real disposable income. This is appropriate since

Suppose the marginal propensity to consume (MPC)is 0.9 and there is a $3,000 increase in planned investment. Given this information, real GDP will increase by

Which of the following theories predicts that current consumption increases when a person expects an increase in future income?

If the multiplier is 10, then the marginal propensity to consume (MPC)is

-In the above figure, what is the equilibrium level of real GDP with government and the foreign sector?

-Refer to the above figure. Line BCD is called

-Consider the above figure. At an income of $60 we would expect saving to be equal to

What is the result when real planned saving exceeds real planned investment spending?

Other things being constant, if the marginal propensity to save (MPS)is 0.1, and private investment spending falls by $100 million, then real Gross Domestic Product (GDP)

A firm will invest in a project if

-The above figure shows a consumption function and a 45-degree line. Real consumption is a function of disposable income. Why is real GDP used here instead? What is measured along the vertical axis? What is measured by point B? Explain the significance of point A.

If real disposable income increases, the average propensity to consume will

Fixed investment is

When a household's disposable income falls to zero, what do we expect will happen?

-According to the above table, the marginal propensity to consume is

-In the above figure, when real disposable income equals 600

The relationship between planned real investment spending and the interest rate is

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Fiscal Policy

Deficit Spending and the Public Debt

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters