Question 1

If real Gross Domestic Product (GDP) is above its equilibrium level,

Accepted Answer

A)  firms are not maximizing their profits. 
B)  planned investment is greater than planned saving. 
C)  firms accumulate unplanned inventories. 
D)  planned consumption is less than actual consumption. 
A)  firms are not maximizing their profits. 
B)  planned investment is greater than planned saving. 
C)  firms accumulate unplanned inventories. 
D)  planned consumption is less than actual consumption.

Question 2

-Use the above table. When real disposable income is $125,

Accepted Answer

A)  APC = 0.96. 
B)  APC = 0.80. 
C)  APS = 0.20. 
D)  MPS = 0.96. 
A)  APC = 0.96. 
B)  APC = 0.80. 
C)  APS = 0.20. 
D)  MPS = 0.96.

Question 3

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 4

The larger the marginal propensity to consume,

Accepted Answer

A)  the larger the marginal propensity to save is. 
B)  the larger the multiplier is. 
C)  the smaller the multiplier is. 
D)  the smaller autonomous consumption is. 
A)  the larger the marginal propensity to save is. 
B)  the larger the multiplier is. 
C)  the smaller the multiplier is. 
D)  the smaller autonomous consumption is.

Question 5

-In the above figure, if real GDP is $1 trillion, there is

Accepted Answer

A)  dissaving. 
B)  positive saving. 
C)  negative investment. 
D)  negative consumption. 
A)  dissaving. 
B)  positive saving. 
C)  negative investment. 
D)  negative consumption.

Question 6

Which one of the following statements is true?

Accepted Answer

A)  In the classical model, the supply of saving is determined by the rate of interest. 
B)  In the classical model, the supply of saving is determined by the level of income. 
C)  In the Keynesian model, the supply of saving is determined by the rate of interest. 
D)  In the Keynesian model, the supply of saving is determined by the level of investment. 
A)  In the classical model, the supply of saving is determined by the rate of interest. 
B)  In the classical model, the supply of saving is determined by the level of income. 
C)  In the Keynesian model, the supply of saving is determined by the rate of interest. 
D)  In the Keynesian model, the supply of saving is determined by the level of investment.

Question 7

When the equilibrium price level adjusts to an increase in autonomous investment spending, the impact of the multiplier effect resulting from that spending increase

Accepted Answer

A)  will increase real GDP by an amount smaller than the multiplier effect would indicate. 
B)  will increase nominal GDP by an amount smaller than the multiplier effect would indicate. 
C)  will have no impact on the real GDP. 
D)  is only felt when there are changes in consumption. 
A)  will increase real GDP by an amount smaller than the multiplier effect would indicate. 
B)  will increase nominal GDP by an amount smaller than the multiplier effect would indicate. 
C)  will have no impact on the real GDP. 
D)  is only felt when there are changes in consumption.

Question 8

Distinguish between saving and savings. How does investment relate to this distinction, if at all?

Accepted Answer

Saving is a flow concept and savings is

Question 9

What determines investment in the Keynesian framework? How is investment related to real Gross Domestic Product (GDP)?

Accepted Answer

Investment is determined by business peo

Question 10

-Use the above table. We can infer from the table that when real disposable income is $175,

Accepted Answer

A)  APC = 0.91. 
B)  APC = 0.80. 
C)  APC = 0.20. 
D)  APC = 0.09. 
A)  APC = 0.91. 
B)  APC = 0.80. 
C)  APC = 0.20. 
D)  APC = 0.09.

Question 11

The investment function is represented by

Accepted Answer

A)  an inverse relationship between the interest rate and the value of planned investment. 
B)  the direct relationship between the interest rate and the value of planned investment. 
C)  the direct relationship between taxes and government spending. 
D)  the indirect relationship between taxes and government spending. 
A)  an inverse relationship between the interest rate and the value of planned investment. 
B)  the direct relationship between the interest rate and the value of planned investment. 
C)  the direct relationship between taxes and government spending. 
D)  the indirect relationship between taxes and government spending.

Question 12

Which one of the following would shift your consumption function in an upward direction?

Accepted Answer

A)  an increase in your wealth 
B)  a decrease in your wealth 
C)  an increase in your real disposable income 
D)  a decrease in your real disposable income 
A)  an increase in your wealth 
B)  a decrease in your wealth 
C)  an increase in your real disposable income 
D)  a decrease in your real disposable income

Question 13

The difference between savings and saving

Accepted Answer

A)  is nonexistent. 
B)  is that savings occurs when consumption does not and saving is used to purchase consumption goods. 
C)  is that savings is a stock concept and saving is a flow concept. 
D)  is that savings is measured in real terms while saving is measured in nominal terms. 
A)  is nonexistent. 
B)  is that savings occurs when consumption does not and saving is used to purchase consumption goods. 
C)  is that savings is a stock concept and saving is a flow concept. 
D)  is that savings is measured in real terms while saving is measured in nominal terms.

Question 14

If the average propensity to save (APS) is 0.60, then this means

Accepted Answer

A)  people are saving 60 percent of their disposable income. 
B)  people are spending 60 percent of their disposable income. 
C)  the marginal tax rate is 60. 
D)  the government spends 60 percent of its revenues. 
A)  people are saving 60 percent of their disposable income. 
B)  people are spending 60 percent of their disposable income. 
C)  the marginal tax rate is 60. 
D)  the government spends 60 percent of its revenues.

Question 15

If the marginal propensity to consume is unchanged and autonomous consumption expenditures increase, then

Accepted Answer

A)  saving at every level of disposable income increases. 
B)  the break-even disposable income decreases. 
C)  the break-even disposable income increases. 
D)  saving is unaffected. 
A)  saving at every level of disposable income increases. 
B)  the break-even disposable income decreases. 
C)  the break-even disposable income increases. 
D)  saving is unaffected.

Question 16

The multiplier effect applies to any

Accepted Answer

A)  change in autonomous investment but not autonomous consumption. 
B)  change in autonomous consumption but not autonomous investment. 
C)  change in both autonomous consumption and autonomous investment. 
D)  change in any source of spending other than consumption and investment. 
A)  change in autonomous investment but not autonomous consumption. 
B)  change in autonomous consumption but not autonomous investment. 
C)  change in both autonomous consumption and autonomous investment. 
D)  change in any source of spending other than consumption and investment.

Question 17

The marginal propensity to save 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 18

Suppose the economy is initially at equilibrium, in which total planned real expenditures equals real GDP. Which of the following will occur if there is an increase in autonomous investment?

Accepted Answer

A)  Inventories will increase immediately and production of goods and services will decrease until real GDP catches up with total planned real expenditures. 
B)  Inventories will decrease immediately and production of goods and services will increase until real GDP catches up with total planned real expenditures. 
C)  Both inventories and production of goods and services will increase. 
D)  Inventories will not change and production of goods and services will not change either. 
A)  Inventories will increase immediately and production of goods and services will decrease until real GDP catches up with total planned real expenditures. 
B)  Inventories will decrease immediately and production of goods and services will increase until real GDP catches up with total planned real expenditures. 
C)  Both inventories and production of goods and services will increase. 
D)  Inventories will not change and production of goods and services will not change either.

Question 19

A permanent reduction in planned real investment spending leads to

Accepted Answer

A)  a more than proportional increase in real GDP. 
B)  a more than proportional decrease in real GDP. 
C)  a less than proportional decrease in real GDP. 
D)  a proportional decrease in real GDP. 
A)  a more than proportional increase in real GDP. 
B)  a more than proportional decrease in real GDP. 
C)  a less than proportional decrease in real GDP. 
D)  a proportional decrease in real GDP.

Question 20

The marginal propensity to save (MPS) is

Accepted Answer

A)  the rate at which real savings changes over time. 
B)  the percentage of real disposable income saved. 
C)  the difference between the amounts of real disposable income consumed and saved. 
D)  the percentage of an additional dollar of real disposable income that will go toward additional real savings. 
A)  the rate at which real savings changes over time. 
B)  the percentage of real disposable income saved. 
C)  the difference between the amounts of real disposable income consumed and saved. 
D)  the percentage of an additional dollar of real disposable income that will go toward additional real savings.

Exam 12: Consumption, Real GDP, and the Multiplier

If real Gross Domestic Product (GDP) is above its equilibrium level,

-Use the above table. When real disposable income is $125,

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

The larger the marginal propensity to consume,

-In the above figure, if real GDP is $1 trillion, there is

Which one of the following statements is true?

When the equilibrium price level adjusts to an increase in autonomous investment spending, the impact of the multiplier effect resulting from that spending increase

Distinguish between saving and savings. How does investment relate to this distinction, if at all?

What determines investment in the Keynesian framework? How is investment related to real Gross Domestic Product (GDP)?

-Use the above table. We can infer from the table that when real disposable income is $175,

The investment function is represented by

Which one of the following would shift your consumption function in an upward direction?

The difference between savings and saving

If the average propensity to save (APS) is 0.60, then this means

If the marginal propensity to consume is unchanged and autonomous consumption expenditures increase, then

The multiplier effect applies to any

The marginal propensity to save is

Suppose the economy is initially at equilibrium, in which total planned real expenditures equals real GDP. Which of the following will occur if there is an increase in autonomous investment?

A permanent reduction in planned real investment spending leads to

The marginal propensity to save (MPS) is

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