Question 1

The simple multiplier formula assumes the following, except:

Accepted Answer

A)  The economy has excess capacity and room to expand output 
B)  Firms will raise prices as buyers buy more of their output 
C)  People will spend more if they earn additional income 
D)  Business firms will increase production if demand for their output increases 
A)  The economy has excess capacity and room to expand output 
B)  Firms will raise prices as buyers buy more of their output 
C)  People will spend more if they earn additional income 
D)  Business firms will increase production if demand for their output increases

Question 2

Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), line A2 shifts to A3 because of the so-called wealth effect, then in figure (B) line:

Accepted Answer

A)  B2 will shift to B3 
B)  B1 will shift to B2 
C)  B2 will shift to B1 
D)  B3 will shift to B2 
A)  B2 will shift to B3 
B)  B1 will shift to B2 
C)  B2 will shift to B1 
D)  B3 will shift to B2

Question 3

The multiplier effect relates:

Accepted Answer

A)  Changes in the price level to changes in real GDP 
B)  Changes in the interest rate to changes in investment 
C)  Changes in disposable income to changes in consumption 
D)  Changes in spending to changes in real GDP 
A)  Changes in the price level to changes in real GDP 
B)  Changes in the interest rate to changes in investment 
C)  Changes in disposable income to changes in consumption 
D)  Changes in spending to changes in real GDP

Question 4

The multiplier measures the change in real GDP that results from a given change in the price level.

Accepted Answer

A) True 
 B)False

Question 5

Refer to the consumption schedule above. If disposable income is $42,000, then saving is:

Accepted Answer

A)  $0 
B)  $2,000 
C)  $4,000 
D)  $6,000 
A)  $0 
B)  $2,000 
C)  $4,000 
D)  $6,000

Question 6

The table shows a consumption schedule.   Refer to the data above. If disposable income is $550, we would expect consumption to be:

Accepted Answer

A)  $430 
B)  $450 
C)  $460 
D)  $470 
A)  $430 
B)  $450 
C)  $460 
D)  $470

Question 7

Art Buchwald's article, "Squaring the Economic Circle," is a humorous description of what happens to total income if:

Accepted Answer

A)  Prices of products started falling significantly 
B)  People bought consumer goods instead of investment goods 
C)  Consumers bought imported goods instead of domestic products 
D)  People and firms stopped buying from one another 
A)  Prices of products started falling significantly 
B)  People bought consumer goods instead of investment goods 
C)  Consumers bought imported goods instead of domestic products 
D)  People and firms stopped buying from one another

Question 8

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 total change in income resulting from the initial change in investment will be:

Accepted Answer

A)  $5 
B)  $10 
C)  $15 
D)  $20 
A)  $5 
B)  $10 
C)  $15 
D)  $20

Question 9

If people saved more of any extra income that they receive, then the consumption schedule will become flatter.

Accepted Answer

A) True 
 B)False

Question 10

When a consumption schedule is plotted as a straight line, the slope of the consumption line is:

Accepted Answer

A)  Vertical 
B)  Horizontal 
C)  Greater than the slope of the 45° line 
D)  Less than the slope of the 45° line 
A)  Vertical 
B)  Horizontal 
C)  Greater than the slope of the 45° line 
D)  Less than the slope of the 45° line

Question 11

The simple multiplier 1/MPS:

Accepted Answer

A)  Understates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes 
B)  Understates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes 
C)  Overstates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes 
D)  Overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes 
A)  Understates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes 
B)  Understates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes 
C)  Overstates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes 
D)  Overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes

Question 12

Refer to the saving schedule above. As income falls from level 3 to level 2, the amount of:

Accepted Answer

A)  Dissaving decreases 
B)  Dissaving increases 
C)  Saving decreases 
D)  Saving increases 
A)  Dissaving decreases 
B)  Dissaving increases 
C)  Saving decreases 
D)  Saving increases

Question 13

Assume there are no investment projects that will produce an expected rate of return of 8 percent or more. There are, however, $2 billion worth of investment projects with an expected rate of return at 7 percent, an additional $2 billion for every drop of the interest rate by 1 percent. If the real interest rate is 3 percent in this economy, the cumulative amount of investment at the 3 percent or higher rate of return is:

Accepted Answer

A)  $10 billion 
B)  $8 billion 
C)  $6 billion 
D)  $4 billion 
A)  $10 billion 
B)  $8 billion 
C)  $6 billion 
D)  $4 billion

Question 14

The change in real GDP resulting from an initial change in spending can be calculated by:

Accepted Answer

A)  Dividing the multiplier by the initial change in spending 
B)  Dividing the initial change in spending by the multiplier 
C)  Multiplying the multiplier by the initial change in spending 
D)  Adding the initial change in spending to the multiplier 
A)  Dividing the multiplier by the initial change in spending 
B)  Dividing the initial change in spending by the multiplier 
C)  Multiplying the multiplier by the initial change in spending 
D)  Adding the initial change in spending to the multiplier

Question 15

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

Accepted Answer

A)  A falling real interest rate 
B)  A rising real interest rate 
C)  Increasing operating costs for capital goods 
D)  Decreasing operating costs for capital goods 
A)  A falling real interest rate 
B)  A rising real interest rate 
C)  Increasing operating costs for capital goods 
D)  Decreasing operating costs for capital goods

Question 16

The table shows a consumption schedule.   Refer to the data above. The marginal propensity to consume is:

Accepted Answer

A)  .80 
B)  .75 
C)  .60 
D)  .40 
A)  .80 
B)  .75 
C)  .60 
D)  .40

Question 17

Which of the following may shift the consumption schedule upward?

Accepted Answer

A)  An increase in disposable income 
B)  A decrease in interest rates 
C)  A significant decrease in stock prices 
D)  A decrease in people's ability to borrow 
A)  An increase in disposable income 
B)  A decrease in interest rates 
C)  A significant decrease in stock prices 
D)  A decrease in people's ability to borrow

Question 18

The table shows a consumption schedule.   Refer to the data above. At the $300 level of disposable income:

Accepted Answer

A)  The marginal propensity to save is .80 
B)  The average propensity to consume is .60 
C)  The average propensity to save is .30 
D)  There is a dissaving of $10 
A)  The marginal propensity to save is .80 
B)  The average propensity to consume is .60 
C)  The average propensity to save is .30 
D)  There is a dissaving of $10

Question 19

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will:

Accepted Answer

A)  Increase by $100 billion 
B)  Decrease by $100 billion 
C)  Increase by $16 billion 
D)  Will not change 
A)  Increase by $100 billion 
B)  Decrease by $100 billion 
C)  Increase by $16 billion 
D)  Will not change

Question 20

If the consumption schedule is a straight line, it can be concluded that the:

Accepted Answer

A)  APC is necessarily constant 
B)  MPC is zero 
C)  MPC is constant at various levels of income 
D)  APC is equal to the MPC 
A)  APC is necessarily constant 
B)  MPC is zero 
C)  MPC is constant at various levels of income 
D)  APC is equal to the MPC

Exam 10: Basic Macroeconomic Relationships

The simple multiplier formula assumes the following, except:

Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), line A2 shifts to A3 because of the so-called wealth effect, then in figure (B) line:

The multiplier effect relates:

The multiplier measures the change in real GDP that results from a given change in the price level.

Refer to the consumption schedule above. If disposable income is $42,000, then saving is:

The table shows a consumption schedule. Refer to the data above. If disposable income is $550, we would expect consumption to be:

Art Buchwald's article, "Squaring the Economic Circle," is a humorous description of what happens to total income if:

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 total change in income resulting from the initial change in investment will be:

If people saved more of any extra income that they receive, then the consumption schedule will become flatter.

When a consumption schedule is plotted as a straight line, the slope of the consumption line is:

The simple multiplier 1/MPS:

Refer to the saving schedule above. As income falls from level 3 to level 2, the amount of:

The change in real GDP resulting from an initial change in spending can be calculated by:

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

The table shows a consumption schedule. Refer to the data above. The marginal propensity to consume is:

Which of the following may shift the consumption schedule upward?

The table shows a consumption schedule. Refer to the data above. At the $300 level of disposable income:

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will:

If the consumption schedule is a straight line, it can be concluded that the:

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 above figures with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), line A₂ shifts to A₃ because of the so-called wealth effect, then in figure (B) line:

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