Question 1

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. A

Question 2

The most important determinant of consumer spending is:

Accepted Answer

A)  the level of household borrowing. 
B)  consumer expectations. 
C)  the stock of wealth. 
D)  the level of income. 
A)  the level of household borrowing. 
B)  consumer expectations. 
C)  the stock of wealth. 
D)  the level of income. D

Question 3

Other things equal,a 10 percent decrease in corporate income taxes will:

Accepted Answer

A)  decrease the market price of real capital goods. 
B)  have no effect on the location of the investment-demand curve. 
C)  shift the investment-demand curve to the right. 
D)  shift the investment-demand curve to the left. 
A)  decrease the market price of real capital goods. 
B)  have no effect on the location of the investment-demand curve. 
C)  shift the investment-demand curve to the right. 
D)  shift the investment-demand curve to the left. C

Question 4

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars.   Refer to the given data.The marginal propensity to save:

Accepted Answer

A)  is highest in economy (1). 
B)  is highest in economy (2). 
C)  is highest in economy (3). 
D)  cannot be determined from the data given. 
A)  is highest in economy (1). 
B)  is highest in economy (2). 
C)  is highest in economy (3). 
D)  cannot be determined from the data given.

Question 5

The relationship between consumption and disposable income is such that:

Accepted Answer

A)  an inverse and stable relationship exists between consumption and income. 
B)  a direct,but very volatile,relationship exists between consumption and income. 
C)  a direct and relatively stable relationship exists between consumption and income. 
D)  the two are usually equal. 
A)  an inverse and stable relationship exists between consumption and income. 
B)  a direct,but very volatile,relationship exists between consumption and income. 
C)  a direct and relatively stable relationship exists between consumption and income. 
D)  the two are usually equal.

Question 6

Assume there are no prospective investment projects (I)that will yield an expected rate of return (r)of 25 percent or more,but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent,an additional $5 billion between 15 and 20 percent,and so on.The investment demand curve for this economy is:

Accepted Answer

A) 
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$10\
20&15\
15&20\
10&25\
5&30\
0&35
\end{array}$ 
B) 
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$10\
20&5\
15&10\
10&15\
5&20\
0&25
\end{array}$ 
C) 
$\begin{array}{l}
\underline{r}&\underline{I} \
20\%&\$10\
15&20\
10&30\
5&40\
0&50
\end{array}$ 
D) 
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$5\
20&10\
15&15\
10&20\
5&25\
0&30
\end{array}$ 
A) 
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$10\
20&15\
15&20\
10&25\
5&30\
0&35
\end{array}$ 
B) 
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$10\
20&5\
15&10\
10&15\
5&20\
0&25
\end{array}$ 
C) 
$\begin{array}{l}
\underline{r}&\underline{I} \
20\%&\$10\
15&20\
10&30\
5&40\
0&50
\end{array}$ 
D) 
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$5\
20&10\
15&15\
10&20\
5&25\
0&30
\end{array}$

Question 7

If the inflation rate is 10 percent and the real interest rate is 12 percent,the nominal interest rate is:

Accepted Answer

A)  2 percent. 
B)  zero percent. 
C)  10 percent. 
D)  22 percent. 
A)  2 percent. 
B)  zero percent. 
C)  10 percent. 
D)  22 percent.

Question 8

Answer the question on the basis of the following table: $\begin{array}{l}
\text { Expected Rate Amount of Investment With This }\
\begin{array} { c c c } 
\underline{\text { of Return } ( \% ) }& \underline{\text { Rate of Return or Higher } ( \$ B ) }\
12\%& \$ 10 \
10 & 20 \
8 & 30 \
6 & 40 \
4 & 50 \
2 & 60
\end{array}
\end{array}$ The given schedule indicates that if the real interest rate is 8 percent,then:

Accepted Answer

A)  we cannot tell what volume of investment will be profitable. 
B)  $30 billion will be both saved and invested. 
C)  $30 billion of investment will be undertaken. 
D)  $60 billion of investment will be undertaken. 
A)  we cannot tell what volume of investment will be profitable. 
B)  $30 billion will be both saved and invested. 
C)  $30 billion of investment will be undertaken. 
D)  $60 billion of investment will be undertaken.

Question 9

Which of the following is correct?

Accepted Answer

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

Question 10

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 11

At the point where the consumption schedule intersects the 45-degree line:

Accepted Answer

A)  the MPC equals 1. 
B)  the APC is zero. 
C)  saving equals income. 
D)  saving is zero. 
A)  the MPC equals 1. 
B)  the APC is zero. 
C)  saving equals income. 
D)  saving is zero.

Question 12

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 13

Investment spending in the United States tends to be unstable because:

Accepted Answer

A)  profits are highly variable. 
B)  the price level fluctuates rapidly. 
C)  investment spending is affected by interest rates. 
D)  capital wears out quickly and must be replaced often. 
A)  profits are highly variable. 
B)  the price level fluctuates rapidly. 
C)  investment spending is affected by interest rates. 
D)  capital wears out quickly and must be replaced often.

Question 14

Assume a machine that has a useful life of only one year costs $2,000.Assume,also,that net of such operating costs as power,taxes,and so forth,the additional revenue from the output of this machine is expected to be $2,300.The expected rate of return on this machine is:

Accepted Answer

A)  7.5 percent. 
B)  10 percent. 
C)  15 percent. 
D)  20 percent. 
A)  7.5 percent. 
B)  10 percent. 
C)  15 percent. 
D)  20 percent.

Question 15

(Advanced analysis)If the equation C = 20 + .6Y,where C is consumption and Y is disposable income,were graphed:

Accepted Answer

A)  the vertical intercept would be +.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 +.6. 
A)  the vertical intercept would be +.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 +.6.

Question 16

Answer the question on the basis of the following table that illustrates the multiplier process.   Refer to the given table.The multiplier in this economy is:

Accepted Answer

A)  2. 
B)  4. 
C)  5. 
D)  10. 
A)  2. 
B)  4. 
C)  5. 
D)  10.

Question 17

Answer the question on the basis of the following table that illustrates the multiplier process.   Refer to the given table.The total change in income resulting from the initial change in investment will be:

Accepted Answer

A)  $100. 
B)  $20. 
C)  $80. 
D)  $200. 
A)  $100. 
B)  $20. 
C)  $80. 
D)  $200.

Question 18

A specific investment will be undertaken if the expected rate of return,r,exceeds the interest rate,i.

Accepted Answer

A) True 
 B)False

Question 19

The size of the multiplier is equal to the:

Accepted Answer

A)  slope of the consumption schedule. 
B)  reciprocal of the slope of the consumption schedule. 
C)  slope of the saving schedule. 
D)  reciprocal of the slope of the saving schedule. 
A)  slope of the consumption schedule. 
B)  reciprocal of the slope of the consumption schedule. 
C)  slope of the saving schedule. 
D)  reciprocal of the slope of the saving schedule.

Question 20

The 45-degree line on a graph relating consumption and income shows:

Accepted Answer

A)  all the points where the MPC is constant. 
B)  all the points at which saving and income are equal. 
C)  all the points at which consumption and income are equal. 
D)  the amounts households will plan to save at each possible level of income. 
A)  all the points where the MPC is constant. 
B)  all the points at which saving and income are equal. 
C)  all the points at which consumption and income are equal. 
D)  the amounts households will plan to save at each possible level of income.

A $1 billion increase in investment will cause a:

The most important determinant of consumer spending is:

Other things equal,a 10 percent decrease in corporate income taxes will:

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the given data.The marginal propensity to save:

The relationship between consumption and disposable income is such that:

If the inflation rate is 10 percent and the real interest rate is 12 percent,the nominal interest rate is:

Answer the question on the basis of the following table: Expected Rate Amount of Investment With This 12\% \ 10 10 20 8 30 6 40 4 50 2 60 The given schedule indicates that if the real interest rate is 8 percent,then:

Which of the following is correct?

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:

At the point where the consumption schedule intersects the 45-degree line:

The consumption schedule shows:

Investment spending in the United States tends to be unstable because:

Assume a machine that has a useful life of only one year costs $2,000.Assume,also,that net of such operating costs as power,taxes,and so forth,the additional revenue from the output of this machine is expected to be $2,300.The expected rate of return on this machine is:

(Advanced analysis)If the equation C = 20 + .6Y,where C is consumption and Y is disposable income,were graphed:

Answer the question on the basis of the following table that illustrates the multiplier process. Refer to the given table.The multiplier in this economy is:

Answer the question on the basis of the following table that illustrates the multiplier process. Refer to the given table.The total change in income resulting from the initial change in investment will be:

A specific investment will be undertaken if the expected rate of return,r,exceeds the interest rate,i.

The size of the multiplier is equal to the:

The 45-degree line on a graph relating consumption and income shows:

Income Inequality Poverty and Discrimination

Health Care

Immigration

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

The Balance of Payments, Exchange Rates, and Trade Deficits

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

The United States and the Global Economy

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Exam 29: Basic Macroeconomic Relationships

A $1 billion increase in investment will cause a:

The most important determinant of consumer spending is:

Other things equal,a 10 percent decrease in corporate income taxes will:

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the given data.The marginal propensity to save:

The relationship between consumption and disposable income is such that:

If the inflation rate is 10 percent and the real interest rate is 12 percent,the nominal interest rate is:

Answer the question on the basis of the following table: Expected Rate Amount of Investment With This 12\% \ 10 10 20 8 30 6 40 4 50 2 60 The given schedule indicates that if the real interest rate is 8 percent,then:

Which of the following is correct?

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:

At the point where the consumption schedule intersects the 45-degree line:

The consumption schedule shows:

Investment spending in the United States tends to be unstable because:

Assume a machine that has a useful life of only one year costs $2,000.Assume,also,that net of such operating costs as power,taxes,and so forth,the additional revenue from the output of this machine is expected to be $2,300.The expected rate of return on this machine is:

(Advanced analysis)If the equation C = 20 + .6Y,where C is consumption and Y is disposable income,were graphed:

Answer the question on the basis of the following table that illustrates the multiplier process. Refer to the given table.The multiplier in this economy is:

Answer the question on the basis of the following table that illustrates the multiplier process. Refer to the given table.The total change in income resulting from the initial change in investment will be:

A specific investment will be undertaken if the expected rate of return,r,exceeds the interest rate,i.

The size of the multiplier is equal to the:

The 45-degree line on a graph relating consumption and income shows:

Income Inequality Poverty and Discrimination

Health Care

Immigration

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

The Balance of Payments, Exchange Rates, and Trade Deficits

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

The United States and the Global Economy

Filters