Question 1

Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID3?

Accepted Answer

A)  A lower real interest rate 
B)  Rising maintenance costs of investment goods 
C)  Increasing business taxes 
D)  Falling stock of capital resources while output is high 
A)  A lower real interest rate 
B)  Rising maintenance costs of investment goods 
C)  Increasing business taxes 
D)  Falling stock of capital resources while output is high D

Question 2

The relationship between the MPS and the MPC is such that:

Accepted Answer

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

Question 3

The graph above shows the relationship between consumption and income. The ratio LM/PL would be a measure of the:

Accepted Answer

A)  Marginal propensity to consume 
B)  Marginal propensity to save 
C)  Average propensity to consume 
D)  Average propensity to save 
A)  Marginal propensity to consume 
B)  Marginal propensity to save 
C)  Average propensity to consume 
D)  Average propensity to save A

Question 4

If a family's MPC is 0.7, it means that the family is:

Accepted Answer

A)  Operating at the break-even point 
B)  Spending seven-tenths of any increment to its income 
C)  Necessarily dissaving 
D)  Spending 70 percent of its disposable income 
A)  Operating at the break-even point 
B)  Spending seven-tenths of any increment to its income 
C)  Necessarily dissaving 
D)  Spending 70 percent of its disposable income

Question 5

If the consumption schedule shifts downward, and the shift was not caused by a tax change, then the saving schedule:

Accepted Answer

A)  May shift either upward or downward 
B)  Will shift downward 
C)  Will shift upward 
D)  Will not shift 
A)  May shift either upward or downward 
B)  Will shift downward 
C)  Will shift upward 
D)  Will not shift

Question 6

The amount of consumption in an economy correlates:

Accepted Answer

A)  Inversely with the level of disposable income 
B)  Directly with the level of disposable income 
C)  Directly with the level of saving 
D)  Directly with the rate of interest 
A)  Inversely with the level of disposable income 
B)  Directly with the level of disposable income 
C)  Directly with the level of saving 
D)  Directly with the rate of interest

Question 7

The marginal propensity to consume is the ratio of consumption to saving.

Accepted Answer

A) True 
 B)False

Question 8

The slope of the consumption schedule between two points on the schedule is:

Accepted Answer

A)  The ratio of the change in consumption to the change in disposable income between those two points 
B)  The ratio of the change in disposable income over the change in consumption between those two points 
C)  Equivalent to one plus the marginal propensity to save 
D)  Equivalent to the average propensity to consume 
A)  The ratio of the change in consumption to the change in disposable income between those two points 
B)  The ratio of the change in disposable income over the change in consumption between those two points 
C)  Equivalent to one plus the marginal propensity to save 
D)  Equivalent to the average propensity to consume

Question 9

If consumers expect prices to rise and shortages to occur in the future, then there will be a shift:

Accepted Answer

A)  Upward of both the consumption and saving schedules 
B)  Downward of both the consumption and saving schedules 
C)  Of the consumption schedule upward and of the saving schedule downward 
D)  Of the consumption schedule downward and the saving schedule upward 
A)  Upward of both the consumption and saving schedules 
B)  Downward of both the consumption and saving schedules 
C)  Of the consumption schedule upward and of the saving schedule downward 
D)  Of the consumption schedule downward and the saving schedule upward

Question 10

In a private closed economy, national income is $4.5 trillion and savings equals $6.4 billion. Based on this data, the marginal propensity to consume:

Accepted Answer

A)  Decreases as income increases 
B)  Is greater than the marginal propensity to save 
C)  Is less than the average propensity to consume 
D)  Cannot be calculated from the data given 
A)  Decreases as income increases 
B)  Is greater than the marginal propensity to save 
C)  Is less than the average propensity to consume 
D)  Cannot be calculated from the data given

Question 11

A change in interest rates would shift the consumption schedule and the saving schedule ______; a change in taxes would shift these two schedules ______.

Accepted Answer

A)  In the same direction; also in the same direction 
B)  In the same direction; in opposite directions 
C)  In opposite directions; also in opposite directions 
D)  In opposite directions; in the same direction 
A)  In the same direction; also in the same direction 
B)  In the same direction; in opposite directions 
C)  In opposite directions; also in opposite directions 
D)  In opposite directions; in the same direction

Question 12

The graph above shows the relationship between consumption and income. Which of the following statements is correct?

Accepted Answer

A)  The marginal propensity to consume in the economy shown is greater than 1 
B)  The marginal propensity to consume varies across income levels 
C)  The average propensity to consume at income level K is given by KM divided by KN 
D)  The marginal propensity to consume can be calculated by dividing LM by 0K 
A)  The marginal propensity to consume in the economy shown is greater than 1 
B)  The marginal propensity to consume varies across income levels 
C)  The average propensity to consume at income level K is given by KM divided by KN 
D)  The marginal propensity to consume can be calculated by dividing LM by 0K

Question 13

The investment demand curve is drawn with the amount of investment on the:

Accepted Answer

A)  Vertical axis and disposable income on the horizontal axis 
B)  Horizontal axis and disposable income on the vertical axis 
C)  Horizontal axis and the expected rate of return and interest rate on the vertical axis 
D)  Vertical axis and the expected rate of return and interest rate on the horizontal axis 
A)  Vertical axis and disposable income on the horizontal axis 
B)  Horizontal axis and disposable income on the vertical axis 
C)  Horizontal axis and the expected rate of return and interest rate on the vertical axis 
D)  Vertical axis and the expected rate of return and interest rate on the horizontal axis

Question 14

The value of the multiplier is likely to fall if there is a fall in:

Accepted Answer

A)  Consumption 
B)  Income 
C)  Total spending 
D)  The marginal propensity to consume 
A)  Consumption 
B)  Income 
C)  Total spending 
D)  The marginal propensity to consume

Question 15

In general, the steeper the consumption schedule the:

Accepted Answer

A)  Smaller is the marginal propensity to consume 
B)  Greater is the marginal propensity to save 
C)  Smaller is the multiplier 
D)  Larger is the multiplier 
A)  Smaller is the marginal propensity to consume 
B)  Greater is the marginal propensity to save 
C)  Smaller is the multiplier 
D)  Larger is the multiplier

Question 16

The disposable income (DI) and consumption (C) schedules are for a private, closed economy. All figures are in billions of dollars.   Refer to the data above. The marginal propensity to save in this economy is:

Accepted Answer

A)  .1 
B)  .72 
C)  .8 
D)  .9 
A)  .1 
B)  .72 
C)  .8 
D)  .9

Question 17

If disposable income is $900 billion when the average propensity to consume is 0.9, it can be concluded that:

Accepted Answer

A)  The marginal propensity to consume is also 0.9 
B)  The marginal propensity to save is 0.1 
C)  Consumption is $900 billion 
D)  Saving is $90 billion 
A)  The marginal propensity to consume is also 0.9 
B)  The marginal propensity to save is 0.1 
C)  Consumption is $900 billion 
D)  Saving is $90 billion

Question 18

If disposable income is $350 billion and the average propensity to consume is .80, then personal saving is $70 billion.

Accepted Answer

A) True 
 B)False

Question 19

When the marginal propensity to consume is less than 1, the:

Accepted Answer

A)  Average propensity to consume is greater than 1 
B)  Average propensity to save is greater than 1 
C)  Marginal propensity to save is negative 
D)  Marginal propensity to save is positive 
A)  Average propensity to consume is greater than 1 
B)  Average propensity to save is greater than 1 
C)  Marginal propensity to save is negative 
D)  Marginal propensity to save is positive

Question 20

Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID1?

Accepted Answer

A)  Rising real interest rates 
B)  Increasing business taxes 
C)  Lower acquisition cost of capital goods 
D)  Higher expected rates of return on investment 
A)  Rising real interest rates 
B)  Increasing business taxes 
C)  Lower acquisition cost of capital goods 
D)  Higher expected rates of return on investment

Exam 10: Basic Macroeconomic Relationships

Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID3?

The relationship between the MPS and the MPC is such that:

The graph above shows the relationship between consumption and income. The ratio LM/PL would be a measure of the:

If a family's MPC is 0.7, it means that the family is:

If the consumption schedule shifts downward, and the shift was not caused by a tax change, then the saving schedule:

The amount of consumption in an economy correlates:

The marginal propensity to consume is the ratio of consumption to saving.

The slope of the consumption schedule between two points on the schedule is:

If consumers expect prices to rise and shortages to occur in the future, then there will be a shift:

In a private closed economy, national income is $4.5 trillion and savings equals $6.4 billion. Based on this data, the marginal propensity to consume:

A change in interest rates would shift the consumption schedule and the saving schedule ______; a change in taxes would shift these two schedules ______.

The graph above shows the relationship between consumption and income. Which of the following statements is correct?

The investment demand curve is drawn with the amount of investment on the:

The value of the multiplier is likely to fall if there is a fall in:

In general, the steeper the consumption schedule the:

The disposable income (DI) and consumption (C) schedules are for a private, closed economy. All figures are in billions of dollars. Refer to the data above. The marginal propensity to save in this economy is:

If disposable income is $900 billion when the average propensity to consume is 0.9, it can be concluded that:

If disposable income is $350 billion and the average propensity to consume is .80, then personal saving is $70 billion.

When the marginal propensity to consume is less than 1, the:

Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID1?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

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

Fiscal Policy, Deficits, and Debt

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

Filters

Refer to the graph above. Which of the following would shift the investment demand curve from ID₂ to ID₃?

A change in interest rates would shift the consumption schedule and the saving schedule ; a change in taxes would shift these two schedules .

Refer to the graph above. Which of the following would shift the investment demand curve from ID₂ to ID₁?