Question 1

Two basic determinants of investment spending are:

Accepted Answer

A)  Consumer spending and government spending 
B)  Expected returns and real interest rates 
C)  General price level and the level of output 
D)  Domestic trade and international trade 
A)  Consumer spending and government spending 
B)  Expected returns and real interest rates 
C)  General price level and the level of output 
D)  Domestic trade and international trade

Question 2

One factor that shifts the consumption schedule is household wealth. Households build wealth by:

Accepted Answer

A)  Spending their current incomes 
B)  Spending out of their future incomes 
C)  Spending their incomes as they earn them 
D)  Not spending all their current incomes 
A)  Spending their current incomes 
B)  Spending out of their future incomes 
C)  Spending their incomes as they earn them 
D)  Not spending all their current incomes

Question 3

A lower real interest rate typically induces consumers to:

Accepted Answer

A)  Save more 
B)  Buy fewer imported goods 
C)  Purchase more goods that are bought using credit 
D)  Purchase fewer goods that are bought without using credit 
A)  Save more 
B)  Buy fewer imported goods 
C)  Purchase more goods that are bought using credit 
D)  Purchase fewer goods that are bought without using credit

Question 4

If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to:

Accepted Answer

A)  Consume is .80 
B)  Consume is .75 
C)  Consume is .60 
D)  Save is .30 
A)  Consume is .80 
B)  Consume is .75 
C)  Consume is .60 
D)  Save is .30

Question 5

Generally speaking, the greater the MPS, the:

Accepted Answer

A)  Smaller would be the increase in income which results from an increase in consumption spending 
B)  Larger would be the increase in income which results from an increase in consumption spending 
C)  Larger would be the increase in income which results from a decrease in consumption spending 
D)  Smaller would be the increase in income which results from a decrease in consumption spending 
A)  Smaller would be the increase in income which results from an increase in consumption spending 
B)  Larger would be the increase in income which results from an increase in consumption spending 
C)  Larger would be the increase in income which results from a decrease in consumption spending 
D)  Smaller would be the increase in income which results from a decrease in consumption spending

Question 6

Which of the following would shift the saving schedule upward?

Accepted Answer

A)  A decrease in wealth 
B)  A decrease in real interest rates 
C)  Consumer expectations of rising prices of products 
D)  Increased optimism about future incomes 
A)  A decrease in wealth 
B)  A decrease in real interest rates 
C)  Consumer expectations of rising prices of products 
D)  Increased optimism about future incomes

Question 7

The fraction, or percentage, of total income which is saved is called the:

Accepted Answer

A)  Average propensity to save 
B)  Marginal propensity to save 
C)  Disposable income schedule 
D)  Saving schedule 
A)  Average propensity to save 
B)  Marginal propensity to save 
C)  Disposable income schedule 
D)  Saving schedule

Question 8

When consumers decide to increase household debt, this action will:

Accepted Answer

A)  Shift the consumption schedule upward 
B)  Shift the consumption schedule downward 
C)  Increase the amount consumed along a stable consumption schedule 
D)  Decrease the amount consumed along a stable consumption schedule 
A)  Shift the consumption schedule upward 
B)  Shift the consumption schedule downward 
C)  Increase the amount consumed along a stable consumption schedule 
D)  Decrease the amount consumed along a stable consumption schedule

Question 9

The MPC can be defined as the:

Accepted Answer

A)  Change in consumption divided by the change in income 
B)  Change in income divided by the change in consumption 
C)  Ratio of income to saving 
D)  Ratio of saving to consumption 
A)  Change in consumption divided by the change in income 
B)  Change in income divided by the change in consumption 
C)  Ratio of income to saving 
D)  Ratio of saving to consumption

Question 10

In an economy, for every $1600 decrease in income, spending falls by $1200. It can be concluded that the:

Accepted Answer

A)  Slope of the saving schedule is 1.33 
B)  Slope of the saving schedule is 0.75 
C)  Marginal propensity to consume is 1.33 
D)  Marginal propensity to save is .25 
A)  Slope of the saving schedule is 1.33 
B)  Slope of the saving schedule is 0.75 
C)  Marginal propensity to consume is 1.33 
D)  Marginal propensity to save is .25

Question 11

The Paradox of Thrift highlights the idea that:

Accepted Answer

A)  Saving more is good for the economy in the short run 
B)  Saving more can be bad for the economy during a recession 
C)  In spending more, households will end up saving less 
D)  In spending more, workers may end up losing their jobs 
A)  Saving more is good for the economy in the short run 
B)  Saving more can be bad for the economy during a recession 
C)  In spending more, households will end up saving less 
D)  In spending more, workers may end up losing their jobs

Question 12

According to the cumulative investment table above, if the real interest rate falls from 20% to 16%, then:

Accepted Answer

A)  $180 billion of additional investments will be undertaken 
B)  $330 billion of total investments will be undertaken 
C)  $30 billion of additional investments will be undertaken 
D)  $440 billion of total investments will be undertaken 
A)  $180 billion of additional investments will be undertaken 
B)  $330 billion of total investments will be undertaken 
C)  $30 billion of additional investments will be undertaken 
D)  $440 billion of total investments will be undertaken

Question 13

There are only two things that people could do with their disposable income - spend it or save it.

Accepted Answer

A) True 
 B)False

Question 14

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. At the $320 billion level of disposable income, the average propensity to save is:

Accepted Answer

A)  .015 
B)  .075 
C)  .335 
D)  .925 
A)  .015 
B)  .075 
C)  .335 
D)  .925

Question 15

Answer the following question based on the table below which illustrates the multiplier process resulting from an autonomous increase in investment by $5.   Refer to the above table. The multiplier in this economy is:

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  5 
A)  2 
B)  3 
C)  4 
D)  5

Question 16

The marginal propensity to consume shows the fraction of any level of total income that is consumed.

Accepted Answer

A) True 
 B)False

Question 17

Refer to the consumption schedule above. The average propensity to save at income level B is represented by:

Accepted Answer

A)  0C/0B 
B)  EF/BE 
C)  EF/BF 
D)  DE/AB 
A)  0C/0B 
B)  EF/BE 
C)  EF/BF 
D)  DE/AB

Question 18

As disposable income decreases, the:

Accepted Answer

A)  Average propensity to consume increases 
B)  Average propensity to consume decreases 
C)  Level of consumption increases 
D)  Level of saving increases 
A)  Average propensity to consume increases 
B)  Average propensity to consume decreases 
C)  Level of consumption increases 
D)  Level of saving increases

Question 19

An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round. The multiplier in the economy is:

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  5 
A)  2 
B)  3 
C)  4 
D)  5

Question 20

Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,000 before it needs to be upgraded to a new version. The revenue generated by this software is expected to be $250,000. The expected rate of return from this new computer software is:

Accepted Answer

A)  11 percent 
B)  20 percent 
C)  25 percent 
D)  80 percent 
A)  11 percent 
B)  20 percent 
C)  25 percent 
D)  80 percent

Exam 10: Basic Macroeconomic Relationships

Two basic determinants of investment spending are:

One factor that shifts the consumption schedule is household wealth. Households build wealth by:

A lower real interest rate typically induces consumers to:

If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to:

Generally speaking, the greater the MPS, the:

Which of the following would shift the saving schedule upward?

The fraction, or percentage, of total income which is saved is called the:

When consumers decide to increase household debt, this action will:

The MPC can be defined as the:

In an economy, for every $1600 decrease in income, spending falls by $1200. It can be concluded that the:

The Paradox of Thrift highlights the idea that:

According to the cumulative investment table above, if the real interest rate falls from 20% to 16%, then:

There are only two things that people could do with their disposable income - spend it or save it.

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. At the $320 billion level of disposable income, the average propensity to save is:

Answer the following question based on the table below which illustrates the multiplier process resulting from an autonomous increase in investment by $5. Refer to the above table. The multiplier in this economy is:

The marginal propensity to consume shows the fraction of any level of total income that is consumed.

Refer to the consumption schedule above. The average propensity to save at income level B is represented by:

As disposable income decreases, the:

An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round. The multiplier in the economy is:

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

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