Question 1

Investment spending is

Accepted Answer

A)  directly related to the interest rate. 
B)  inversely related to the interest rate. 
C)  directly related to real disposable income. 
D)  inversely related to real disposable income. 
A)  directly related to the interest rate. 
B)  inversely related to the interest rate. 
C)  directly related to real disposable income. 
D)  inversely related to real disposable income.

Question 2

Real consumption is a function of real disposable income, but the simple Keynesian model uses real GDP instead of real disposable income. This is appropriate since

Accepted Answer

A)  real disposable income tends to move proportionately with real GDP. 
B)  real disposable income is a fixed percentage of real GDP. 
C)  real GDP is a fixed percentage of real disposable income. 
D)  we cannot measure either exactly and the purpose of the exercise is theoretical only. 
A)  real disposable income tends to move proportionately with real GDP. 
B)  real disposable income is a fixed percentage of real GDP. 
C)  real GDP is a fixed percentage of real disposable income. 
D)  we cannot measure either exactly and the purpose of the exercise is theoretical only.

Question 3

Which of the following statements is TRUE?

Accepted Answer

A)  consumption + saving = disposable income 
B)  consumption + saving = personal income 
C)  consumption - investment = disposable income 
D)  consumption - saving = personal income 
A)  consumption + saving = disposable income 
B)  consumption + saving = personal income 
C)  consumption - investment = disposable income 
D)  consumption - saving = personal income

Question 4

-In the above figure, the sum of real planned investment spending, government expenditures, and net export spending is equal to

Accepted Answer

A)  $0.5 trillion. 
B)  $1.0 trillion. 
C)  $1.5 trillion. 
D)  $2.0 trillion. 
A)  $0.5 trillion. 
B)  $1.0 trillion. 
C)  $1.5 trillion. 
D)  $2.0 trillion.

Question 5

-Refer to the above figure. The figure represents the consumption function for a consumer. Point B represents

Accepted Answer

A)  autonomous consumption. 
B)  positive saving. 
C)  negative saving. 
D)  zero saving. 
A)  autonomous consumption. 
B)  positive saving. 
C)  negative saving. 
D)  zero saving.

Question 6

The terms "saving" and "savings" differ in that

Accepted Answer

A)  saving is a stock, and savings are a flow. 
B)  saving always exceeds savings. 
C)  savings are a stock, and saving is a flow. 
D)  savings can be negative, but saving cannot. 
A)  saving is a stock, and savings are a flow. 
B)  saving always exceeds savings. 
C)  savings are a stock, and saving is a flow. 
D)  savings can be negative, but saving cannot.

Question 7

-Consider the above figure. The equation for the saving function is

Accepted Answer

A)  S = 40 - 0.67Yd. 
B)  S = 40 + 0.33Yd. 
C)  S = -40 + 0.67Yd. 
D)  S = -40 - 0.33Yd. 
A)  S = 40 - 0.67Yd. 
B)  S = 40 + 0.33Yd. 
C)  S = -40 + 0.67Yd. 
D)  S = -40 - 0.33Yd.

Question 8

The relationship between planned real investment spending and the interest rate is

Accepted Answer

A)  inverse. 
B)  direct. 
C)  constant. 
D)  positive. 
A)  inverse. 
B)  direct. 
C)  constant. 
D)  positive.

Question 9

If the marginal propensity to save is 0.4 and disposable income decreases from $2,000 to $1,000, saving will

Accepted Answer

A)  decrease by $400. 
B)  increase by $400. 
C)  decrease by $80. 
D)  increase by $80 
A)  decrease by $400. 
B)  increase by $400. 
C)  decrease by $80. 
D)  increase by $80

Question 10

If the average propensity to consume is 1.0, the marginal propensity to consume is 0.6, and real disposable income increases by $100, the additional saving is

Accepted Answer

A)  $0. 
B)  $40. 
C)  $60. 
D)  $100. 
A)  $0. 
B)  $40. 
C)  $60. 
D)  $100.

Question 11

Real planned investment spending is positively related to all of the following EXCEPT

Accepted Answer

A)  real disposable income. 
B)  wealth. 
C)  the interest rate. 
D)  producer expectations of future profit. 
A)  real disposable income. 
B)  wealth. 
C)  the interest rate. 
D)  producer expectations of future profit.

Question 12

The investment function will shift when there is a change in

Accepted Answer

A)  the interest rate. 
B)  firms' profit expectations. 
C)  the cost of borrowing. 
D)  the opportunity cost of retained earnings. 
A)  the interest rate. 
B)  firms' profit expectations. 
C)  the cost of borrowing. 
D)  the opportunity cost of retained earnings.

Question 13

The average propensity to save (APS) 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 additional real disposable income that will go toward real saving. 
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 additional real disposable income that will go toward real saving.

Question 14

Which of the following is TRUE?

Accepted Answer

A)  APC + MPS = 1 
B)  APC + APS = 1 
C)  1 + APC = APS 
D)  APC - APS = 1 
A)  APC + MPS = 1 
B)  APC + APS = 1 
C)  1 + APC = APS 
D)  APC - APS = 1

Question 15

If the marginal propensity to save (MPS) is 0.25, the multiplier will be

Accepted Answer

A)  0.75. 
B)  2.5. 
C)  4. 
D)  40. 
A)  0.75. 
B)  2.5. 
C)  4. 
D)  40.

Question 16

-Consider the above figure. At income level Yd = $110, the APS is equal to

Accepted Answer

A)  0.64. 
B)  0.32 
C)  1.10. 
D)  -0.36. 
A)  0.64. 
B)  0.32 
C)  1.10. 
D)  -0.36.

Question 17

Keynesian theory is based on the hypothesis that

Accepted Answer

A)  saving is influenced primarily by real current disposable income. 
B)  saving is influenced primarily by the interest rate. 
C)  planned savings equal planned investment only at full employment. 
D)  saving is always equal to savings. 
A)  saving is influenced primarily by real current disposable income. 
B)  saving is influenced primarily by the interest rate. 
C)  planned savings equal planned investment only at full employment. 
D)  saving is always equal to savings.

Question 18

According to the above figure, autonomous consumption equals

Accepted Answer

A)  $0. 
B)  $5,000. 
C)  $20,000. 
D)  -$5,000. 
A)  $0. 
B)  $5,000. 
C)  $20,000. 
D)  -$5,000.

Question 19

According to Keynes, the most important determinant of an individual's real saving is

Accepted Answer

A)  interest rates. 
B)  the foreign exchange rate. 
C)  the individual's real disposable income. 
D)  the level of investment. 
A)  interest rates. 
B)  the foreign exchange rate. 
C)  the individual's real disposable income. 
D)  the level of investment.

Question 20

-In the above figure, what is the equilibrium level of real GDP with government and the foreign sector?

Accepted Answer

A)  $2.0 trillion 
B)  $2.5 trillion 
C)  $3.0 trillion 
D)  $4.0 trillion 
A)  $2.0 trillion 
B)  $2.5 trillion 
C)  $3.0 trillion 
D)  $4.0 trillion

Exam 12: Consumption, Real GDP, and the Multiplier

Investment spending is

Real consumption is a function of real disposable income, but the simple Keynesian model uses real GDP instead of real disposable income. This is appropriate since

Which of the following statements is TRUE?

-In the above figure, the sum of real planned investment spending, government expenditures, and net export spending is equal to

-Refer to the above figure. The figure represents the consumption function for a consumer. Point B represents

The terms "saving" and "savings" differ in that

-Consider the above figure. The equation for the saving function is

The relationship between planned real investment spending and the interest rate is

If the marginal propensity to save is 0.4 and disposable income decreases from $2,000 to $1,000, saving will

If the average propensity to consume is 1.0, the marginal propensity to consume is 0.6, and real disposable income increases by $100, the additional saving is

Real planned investment spending is positively related to all of the following EXCEPT

The investment function will shift when there is a change in

The average propensity to save (APS) is

Which of the following is TRUE?

If the marginal propensity to save (MPS) is 0.25, the multiplier will be

-Consider the above figure. At income level Yd = $110, the APS is equal to

Keynesian theory is based on the hypothesis that

According to the above figure, autonomous consumption equals

According to Keynes, the most important determinant of an individual's real saving is

-In the above figure, what is the equilibrium level of real GDP with government and the foreign sector?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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