Question 1

Savings are an example of

Accepted Answer

A)  a flow concept. 
B)  a stock concept. 
C)  a depreciation concept. 
D)  an investment concept. 
A)  a flow concept. 
B)  a stock concept. 
C)  a depreciation concept. 
D)  an investment concept.

Question 2

The multiplier is the ratio of the

Accepted Answer

A)  change in the equilibrium level of real GDP to the change in autonomous expenditures. 
B)  equilibrium level of real GDP to the change in induced expenditures. 
C)  change in induced expenditures to the change in autonomous expenditures. 
D)  change in autonomous expenditures to the change in the equilibrium level of real GDP. 
A)  change in the equilibrium level of real GDP to the change in autonomous expenditures. 
B)  equilibrium level of real GDP to the change in induced expenditures. 
C)  change in induced expenditures to the change in autonomous expenditures. 
D)  change in autonomous expenditures to the change in the equilibrium level of real GDP.

Question 3

Which of the following correctly defines the average propensity to consume (APC)?

Accepted Answer

A)  Change in planned consumption divided by change in real disposable income 
B)  Planned consumption divided by real disposable income 
C)  Real disposable income divided by planned consumption 
D)  Change in real disposable income divided by change in planned consumption 
A)  Change in planned consumption divided by change in real disposable income 
B)  Planned consumption divided by real disposable income 
C)  Real disposable income divided by planned consumption 
D)  Change in real disposable income divided by change in planned consumption

Question 4

Keynesian theory is based on the hypothesis that

Accepted Answer

A)  saving and consumption are influenced primarily by real current disposable income. 
B)  saving is influenced primarily by the interest rate. 
C)  planned savings equal planned investment only at full employment. 
D)  full employment is automatically attained in any economy. 
A)  saving and consumption are influenced primarily by real current disposable income. 
B)  saving is influenced primarily by the interest rate. 
C)  planned savings equal planned investment only at full employment. 
D)  full employment is automatically attained in any economy.

Question 5

-Refer to the above figure. The figure represents the consumption function for a consumer. Point B represents

Accepted Answer

A)  autonomous consumption. 
B)  positive saving. 
C)  negative saving. 
D)  zero saving. 
A)  autonomous consumption. 
B)  positive saving. 
C)  negative saving. 
D)  zero saving.

Question 6

-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 save equal when real disposable income equals $14,000?

Accepted Answer

A)  0.09 
B)  0.7 
C)  0.91 
D)  1.1 
A)  0.09 
B)  0.7 
C)  0.91 
D)  1.1

Question 7

-In the above figure, the equilibrium level of real GDP per year is

Accepted Answer

A)  $1.0 trillion. 
B)  $2.0 trillion. 
C)  $3.0 trillion. 
D)  $4.0 trillion. 
A)  $1.0 trillion. 
B)  $2.0 trillion. 
C)  $3.0 trillion. 
D)  $4.0 trillion.

Question 8

The average propensity to consume is

Accepted Answer

A)  real consumption expenditures divided by real disposable income. 
B)  real disposable income divided by real consumption expenditures. 
C)  real consumption expenditures divided by real saving. 
D)  real saving divided by real consumption expenditures. 
A)  real consumption expenditures divided by real disposable income. 
B)  real disposable income divided by real consumption expenditures. 
C)  real consumption expenditures divided by real saving. 
D)  real saving divided by real consumption expenditures.

Question 9

Suppose marginal propensity to consume (MPC) is 0.7 and there is a $1,000 increase in autonomous consumption. Given this information, real GDP will increase by

Accepted Answer

A)  $3,333. 
B)  $1,429. 
C)  $1,000. 
D)  $700. 
A)  $3,333. 
B)  $1,429. 
C)  $1,000. 
D)  $700.

Question 10

The consumption function shows the relationship between

Accepted Answer

A)  interest rates and planned real consumption. 
B)  employment and planned real consumption. 
C)  the price level and planned real consumption. 
D)  real disposable income and planned real consumption. 
A)  interest rates and planned real consumption. 
B)  employment and planned real consumption. 
C)  the price level and planned real consumption. 
D)  real disposable income and planned real consumption.

Question 11

The arithmetic value of (1 - MPC) equals

Accepted Answer

A)  APC. 
B)  MPS. 
C)  APS. 
D)  NDP. 
A)  APC. 
B)  MPS. 
C)  APS. 
D)  NDP.

Question 12

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 13

The marginal propensity to consume is

Accepted Answer

A)  real consumption/real disposable income. 
B)  real saving/real disposable income. 
C)  change in real consumption/change in real disposable income. 
D)  change in real saving/change in real disposable income. 
A)  real consumption/real disposable income. 
B)  real saving/real disposable income. 
C)  change in real consumption/change in real disposable income. 
D)  change in real saving/change in real disposable income.

Question 14

In the simple Keynesian model, why does actual investment spending have to equal saving in the absence of the government and foreign sectors? Is this true only for the equilibrium? Explain.

Accepted Answer

Real Gross Domestic Product (GDP) equals

Question 15

Which of the following statements is FALSE?

Accepted Answer

A)  Disposable income - saving = consumption 
B)  Consumption + saving = disposable income 
C)  Saving = disposable income - consumption 
D)  Consumption = saving - disposable income 
A)  Disposable income - saving = consumption 
B)  Consumption + saving = disposable income 
C)  Saving = disposable income - consumption 
D)  Consumption = saving - disposable income

Question 16

Which of the following is NOT a flow variable?

Accepted Answer

A)  Consumption 
B)  Investment 
C)  Savings 
D)  Saving 
A)  Consumption 
B)  Investment 
C)  Savings 
D)  Saving

Question 17

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 18

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

Accepted Answer

A)  the amount of planned investment will decrease, and real GDP will decrease. 
B)  the amount of planned investment will decrease, and real GDP will remain unchanged. 
C)  there will be an unplanned inventory decrease, and GDP will eventually increase. 
D)  there will be an unplanned inventory increase, and GDP will eventually decrease. 
A)  the amount of planned investment will decrease, and real GDP will decrease. 
B)  the amount of planned investment will decrease, and real GDP will remain unchanged. 
C)  there will be an unplanned inventory decrease, and GDP will eventually increase. 
D)  there will be an unplanned inventory increase, and GDP will eventually decrease.

Question 19

Dissaving is

Accepted Answer

A)  impossible in the simple Keynesian model. 
B)  the situation when saving exceeds consumption. 
C)  the situation when consumption spending exceeds disposable income. 
D)  the situation when people save smaller and smaller amounts. 
A)  impossible in the simple Keynesian model. 
B)  the situation when saving exceeds consumption. 
C)  the situation when consumption spending exceeds disposable income. 
D)  the situation when people save smaller and smaller amounts.

Question 20

Supposed actual investment is greater than planned investment at the current level of output in 2010. Given this information, we know that

Accepted Answer

A)  GDP will tend to increase over time. 
B)  firms' stock of inventories must have increased unexpectedly in 2010. 
C)  saving must be less than planned investment. 
D)  saving must be equal to planned investment. 
A)  GDP will tend to increase over time. 
B)  firms' stock of inventories must have increased unexpectedly in 2010. 
C)  saving must be less than planned investment. 
D)  saving must be equal to planned investment.

Exam 12: Consumption, Real GDP, and the Multiplier

Savings are an example of

The multiplier is the ratio of the

Which of the following correctly defines the average propensity to consume (APC)?

Keynesian theory is based on the hypothesis that

-Refer to the above figure. The figure represents the consumption function for a consumer. Point B represents

-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 save equal when real disposable income equals $14,000?

-In the above figure, the equilibrium level of real GDP per year is

The average propensity to consume is

Suppose marginal propensity to consume (MPC) is 0.7 and there is a $1,000 increase in autonomous consumption. Given this information, real GDP will increase by

The consumption function shows the relationship between

The arithmetic value of (1 - MPC) equals

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

The marginal propensity to consume is

In the simple Keynesian model, why does actual investment spending have to equal saving in the absence of the government and foreign sectors? Is this true only for the equilibrium? Explain.

Which of the following statements is FALSE?

Which of the following is NOT a flow variable?

If the MPC is 0.8, then the MPS is

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

Dissaving is

Supposed actual investment is greater than planned investment at the current level of output in 2010. Given this information, we know that

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