Question 1

Keynes thought that the key to determining the broader economic effects of investment fluctuations

Accepted Answer

A)  was to examine how businesses react to flexible prices and wages. 
B)  was to closely regulate the real interest rate. 
C)  was to understand the relationship between how much people earn and their willingness to engage in personal consumption spending. 
D)  was to understand how changes in the money supply influences consumption decisions. 
A)  was to examine how businesses react to flexible prices and wages. 
B)  was to closely regulate the real interest rate. 
C)  was to understand the relationship between how much people earn and their willingness to engage in personal consumption spending. 
D)  was to understand how changes in the money supply influences consumption decisions.

Question 2

The average propensity to consume is the

Accepted Answer

A)  percentage of total disposable income consumed. 
B)  rate at which real disposable income changes as planned consumption changes. 
C)  ratio of changes in planned consumption to changes in real disposable income. 
D)  slope of the consumption function. 
A)  percentage of total disposable income consumed. 
B)  rate at which real disposable income changes as planned consumption changes. 
C)  ratio of changes in planned consumption to changes in real disposable income. 
D)  slope of the consumption function.

Question 3

-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 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 4

One of the primary determinants of planned real investment spending is the

Accepted Answer

A)  expectation of future profits. 
B)  rate of real consumption spending. 
C)  rate of real government spending. 
D)  rate of real saving. 
A)  expectation of future profits. 
B)  rate of real consumption spending. 
C)  rate of real government spending. 
D)  rate of real saving.

Question 5

In the Keynesian model, consumption

Accepted Answer

A)  is positively related to income and saving is negatively related to the stock market. 
B)  is positively related to income but saving is not systematically related to either income or interest rates. 
C)  and saving are positively related to the real interest rate. 
D)  and saving are positively related to income. 
A)  is positively related to income and saving is negatively related to the stock market. 
B)  is positively related to income but saving is not systematically related to either income or interest rates. 
C)  and saving are positively related to the real interest rate. 
D)  and saving are positively related to income.

Question 6

The saving function shows the relationship between planned real saving and

Accepted Answer

A)  real wealth. 
B)  real disposable income. 
C)  the average propensity to save. 
D)  the marginal propensity to save. 
A)  real wealth. 
B)  real disposable income. 
C)  the average propensity to save. 
D)  the marginal propensity to save.

Question 7

If the marginal propensity to save (MPS) is 0.5 and net exports falls by $100 million, then

Accepted Answer

A)  real Gross Domestic Product (GDP) will increase by $100 million. 
B)  real Gross Domestic Product (GDP) will fall by $200 million. 
C)  real Gross Domestic Product (GDP) will not change. 
D)  the effect on real Gross Domestic Product (GDP) cannot be determined from the given information. 
A)  real Gross Domestic Product (GDP) will increase by $100 million. 
B)  real Gross Domestic Product (GDP) will fall by $200 million. 
C)  real Gross Domestic Product (GDP) will not change. 
D)  the effect on real Gross Domestic Product (GDP) cannot be determined from the given information.

Question 8

The non-income determinants of consumption include all of the following EXCEPT

Accepted Answer

A)  stock of assets owned by household. 
B)  innovation. 
C)  the interest rate. 
D)  real wealth. 
A)  stock of assets owned by household. 
B)  innovation. 
C)  the interest rate. 
D)  real wealth.

Question 9

Dissaving occurs when

Accepted Answer

A)  disposable income exceeds consumption. 
B)  disposable income is less than consumption. 
C)  the marginal propensity to save is less than .5. 
D)  the marginal propensity to consume is less than .5. 
A)  disposable income exceeds consumption. 
B)  disposable income is less than consumption. 
C)  the marginal propensity to save is less than .5. 
D)  the marginal propensity to consume is less than .5.

Question 10

The marginal propensity to consume (MPC)

Accepted Answer

A)  shows how much real disposable income changes when consumption falls. 
B)  is greater than 1 only if the marginal propensity to save is greater than 1. 
C)  shows how much of an extra dollar of real disposable income is spent. 
D)  shows the percentage of real disposable income consumed at each level of income. 
A)  shows how much real disposable income changes when consumption falls. 
B)  is greater than 1 only if the marginal propensity to save is greater than 1. 
C)  shows how much of an extra dollar of real disposable income is spent. 
D)  shows the percentage of real disposable income consumed at each level of income.

Question 11

Which of the following is false?

Accepted Answer

A)  APC + MPS = 1 
B)  MPC + MPS = 1 
C)  1 - APC = APS 
D)  APC + APS = 1 
A)  APC + MPS = 1 
B)  MPC + MPS = 1 
C)  1 - APC = APS 
D)  APC + APS = 1

Question 12

Assuming that   = $20,000 and C = $22,000, we would find that the average propensity to save equals

Accepted Answer

A)  0.9. 
B)  1.1. 
C)  -0.1. 
D)  -0.8. 
A)  0.9. 
B)  1.1. 
C)  -0.1. 
D)  -0.8.

Question 13

An increase in real net exports leads to an increase in real GDP. Further,

Accepted Answer

A)  real consumption spending and real saving increase. 
B)  real consumption spending increases but real saving does not change. 
C)  real consumption spending increases while real investment spending decreases. 
D)  real government spending decreases to offset the increase in real net exports. 
A)  real consumption spending and real saving increase. 
B)  real consumption spending increases but real saving does not change. 
C)  real consumption spending increases while real investment spending decreases. 
D)  real government spending decreases to offset the increase in real net exports.

Question 14

-In the above figure, the equilibrium level of planned saving plus net taxes 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 15

If the marginal propensity to consume (MPC) is 0.75, what is the value of the multiplier?

Accepted Answer

A)  4.0 
B)  3.0 
C)  2.0 
D)  1.0 
A)  4.0 
B)  3.0 
C)  2.0 
D)  1.0

Question 16

Which of the following is correct?

Accepted Answer

A)  1 + MPS = MPC 
B)  1 - MPC = MPS 
C)  1 - MPS = MPC + 1 
D)  1 - MPS = MPC - 1 
A)  1 + MPS = MPC 
B)  1 - MPC = MPS 
C)  1 - MPS = MPC + 1 
D)  1 - MPS = MPC - 1

Question 17

If an increase of $5 billion in investment is associated with an increase of $25 billion in real Gross Domestic Product (GDP), the multiplier is

Accepted Answer

A)  1. 
B)  3. 
C)  5. 
D)  7. 
A)  1. 
B)  3. 
C)  5. 
D)  7.

Question 18

Suppose the marginal propensity to consume (MPC) equals 0.80, an increase in autonomous investment of $100 will lead to an increase in real Gross Domestic Product (GDP) by

Accepted Answer

A)  $100. 
B)  $400. 
C)  $500. 
D)  $800. 
A)  $100. 
B)  $400. 
C)  $500. 
D)  $800.

Question 19

-Refer to the above figure. Autonomous consumption equals

Accepted Answer

A)  0. 
B)  -$5000. 
C)  $5000. 
D)  $25,000. 
A)  0. 
B)  -$5000. 
C)  $5000. 
D)  $25,000.

Question 20

If society wants aggregate demand to increase without changes in the price level, then there must be

Accepted Answer

A)  a gap between full employment and the current level of real GDP and an increase in autonomous spending. 
B)  an increase in autonomous spending combined with an increase in the marginal propensity to save. 
C)  an increase in autonomous saving so that autonomous investment spending can increase. 
D)  an increase in autonomous spending and a horizontal short-run aggregate supply curve. 
A)  a gap between full employment and the current level of real GDP and an increase in autonomous spending. 
B)  an increase in autonomous spending combined with an increase in the marginal propensity to save. 
C)  an increase in autonomous saving so that autonomous investment spending can increase. 
D)  an increase in autonomous spending and a horizontal short-run aggregate supply curve.

Exam 12: Consumption, Real GDP, and the Multiplier

Keynes thought that the key to determining the broader economic effects of investment fluctuations

The average propensity to consume is the

-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 when real disposable income equals $4,000?

One of the primary determinants of planned real investment spending is the

In the Keynesian model, consumption

The saving function shows the relationship between planned real saving and

If the marginal propensity to save (MPS) is 0.5 and net exports falls by $100 million, then

The non-income determinants of consumption include all of the following EXCEPT

Dissaving occurs when

The marginal propensity to consume (MPC)

Which of the following is false?

Assuming that = $20,000 and C = $22,000, we would find that the average propensity to save equals

An increase in real net exports leads to an increase in real GDP. Further,

-In the above figure, the equilibrium level of planned saving plus net taxes is

If the marginal propensity to consume (MPC) is 0.75, what is the value of the multiplier?

Which of the following is correct?

If an increase of $5 billion in investment is associated with an increase of $25 billion in real Gross Domestic Product (GDP), the multiplier is

Suppose the marginal propensity to consume (MPC) equals 0.80, an increase in autonomous investment of $100 will lead to an increase in real Gross Domestic Product (GDP) by

-Refer to the above figure. Autonomous consumption equals

If society wants aggregate demand to increase without changes in the price level, then there must be

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

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The Firm: Cost and Output Determination

Perfect Competition

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Regulation and Antitrust Policy in a Globalized Economy

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