Question 1

The smaller is the marginal propensity to consume (MPC)

Accepted Answer

A)  the smaller is the multiplier. 
B)  the larger is the multiplier. 
C)  the larger is the slope of the consumption function. 
D)  the smaller is the slope of the saving function. 
A)  the smaller is the multiplier. 
B)  the larger is the multiplier. 
C)  the larger is the slope of the consumption function. 
D)  the smaller is the slope of the saving function.

Question 2

How is investment defined as an economic concept?

Accepted Answer

A)  Investment is primarily the market value of all shares of stock held by the public. 
B)  Investment is primarily the market value of all equipment, buildings, and inventories held by corporations, partnerships, and proprietorships. 
C)  Investment is primarily the sum of expenditures by businesses on new capital goods that will yield a future stream of income. 
D)  Investment is primarily the portion of your savings held in an interest-earning account. 
A)  Investment is primarily the market value of all shares of stock held by the public. 
B)  Investment is primarily the market value of all equipment, buildings, and inventories held by corporations, partnerships, and proprietorships. 
C)  Investment is primarily the sum of expenditures by businesses on new capital goods that will yield a future stream of income. 
D)  Investment is primarily the portion of your savings held in an interest-earning account.

Question 3

Aging baby-boomers, predisposed to hearing loss because of years of listening to loud music, are now approaching the age range in which hearing loss starts to become apparent. What effect does this have on investment spending within the hearing aid industry?

Accepted Answer

A)  There will no longer be an opportunity cost associated with investment spending. 
B)  There will be no change in real investment spending, because hearing aid manufacturers will look only at the interest rate in determining whether to expand production. 
C)  The investment function relating planned real investment spending to the interest rate can be expected to shift rightward. 
D)  The investment function relating planned real investment spending to the interest rate can be expected to shift leftward. 
A)  There will no longer be an opportunity cost associated with investment spending. 
B)  There will be no change in real investment spending, because hearing aid manufacturers will look only at the interest rate in determining whether to expand production. 
C)  The investment function relating planned real investment spending to the interest rate can be expected to shift rightward. 
D)  The investment function relating planned real investment spending to the interest rate can be expected to shift leftward.

Question 4

In the above figure, at an income level of Y1 and planned expenditures of (C + I)1, the level of autonomous investment is

Accepted Answer

A)  ED. 
B)  EF. 
C)  JK. 
D)  GK. 
A)  ED. 
B)  EF. 
C)  JK. 
D)  GK.

Question 5

Expenditures by firms on new machines and buildings that are expected to yield a future stream of income is known as

Accepted Answer

A)  consumer durable. 
B)  consumption goods. 
C)  fixed investment. 
D)  inventory investment. 
A)  consumer durable. 
B)  consumption goods. 
C)  fixed investment. 
D)  inventory investment.

Question 6

A permanent increase in autonomous investment causes

Accepted Answer

A)  a more than proportional increase in real Gross Domestic Product (GDP). 
B)  a proportional increase in real Gross Domestic Product (GDP). 
C)  a less than proportional increase in real Gross Domestic Product (GDP). 
D)  an offsetting change in saving that leaves real Gross Domestic Product (GDP) at the same level. 
A)  a more than proportional increase in real Gross Domestic Product (GDP). 
B)  a proportional increase in real Gross Domestic Product (GDP). 
C)  a less than proportional increase in real Gross Domestic Product (GDP). 
D)  an offsetting change in saving that leaves real Gross Domestic Product (GDP) at the same level.

Question 7

Suppose government spending decreases by $10 billion and the marginal propensity to consume (MPC) is 0.8. Given this information, this decrease in government spending will cause a(n)

Accepted Answer

A)  increase in equilibrium real GDP equal to $50 billion. 
B)  increase in equilibrium real GDP equal to $80 billion. 
C)  decrease in equilibrium real GDP equal to $50 billion. 
D)  decrease in equilibrium real GDP equal to $80 billion. 
A)  increase in equilibrium real GDP equal to $50 billion. 
B)  increase in equilibrium real GDP equal to $80 billion. 
C)  decrease in equilibrium real GDP equal to $50 billion. 
D)  decrease in equilibrium real GDP equal to $80 billion.

Question 8

The fraction of a change in real disposable income that is spent is referred to as the

Accepted Answer

A)  APC. 
B)  MPC. 
C)  MPS. 
D)  APS. 
A)  APC. 
B)  MPC. 
C)  MPS. 
D)  APS.

Question 9

-Consider the above figure. At income level Yd = $30, the APC is equal to

Accepted Answer

A)  1.25. 
B)  1.67. 
C)  1.05. 
D)  0.05. 
A)  1.25. 
B)  1.67. 
C)  1.05. 
D)  0.05.

Question 10

A decrease in autonomous investment of $200 that occurs when the marginal propensity to save (MPS) equals 0.25 will lead to a decrease in real Gross Domestic Product (GDP) of

Accepted Answer

A)  $25. 
B)  $50. 
C)  $800. 
D)  $80. 
A)  $25. 
B)  $50. 
C)  $800. 
D)  $80.

Question 11

In a closed economy, real Gross Domestic Product (GDP) is at equilibrium occurs where

Accepted Answer

A)  the C + I + G line crosses the 45-degree line. 
B)  planned expenditures exceed national income. 
C)  saving exceeds planned investment. 
D)  all of these. 
A)  the C + I + G line crosses the 45-degree line. 
B)  planned expenditures exceed national income. 
C)  saving exceeds planned investment. 
D)  all of these.

Question 12

The consumption function shifts upward when

Accepted Answer

A)  real income increases. 
B)  saving increases. 
C)  households' real wealth increases. 
D)  households buy more imports. 
A)  real income increases. 
B)  saving increases. 
C)  households' real wealth increases. 
D)  households buy more imports.

Question 13

Keynes thought that the key to determining the broader economic effects of investment fluctuations

Accepted Answer

A)  was to examine how businesses react to flexible prices and wages. 
B)  was to closely regulate the real interest rate. 
C)  was to understand the relationship between how much people earn and their willingness to engage in personal consumption spending. 
D)  was to understand how changes in the money supply influences consumption decisions. 
A)  was to examine how businesses react to flexible prices and wages. 
B)  was to closely regulate the real interest rate. 
C)  was to understand the relationship between how much people earn and their willingness to engage in personal consumption spending. 
D)  was to understand how changes in the money supply influences consumption decisions.

Question 14

-In the above table, the level of autonomous consumption is

Accepted Answer

A)  $0. 
B)  $1,000. 
C)  $5,000. 
D)  $9,000. 
A)  $0. 
B)  $1,000. 
C)  $5,000. 
D)  $9,000.

Question 15

-In the above figure, point E represents the level of real GDP at which planned saving equals planned investment. At point A

Accepted Answer

A)  unplanned inventories increase. 
B)  changes in inventories cannot be determined. 
C)  unused industrial capacity exists in the economy. 
D)  unplanned inventories decrease. 
A)  unplanned inventories increase. 
B)  changes in inventories cannot be determined. 
C)  unused industrial capacity exists in the economy. 
D)  unplanned inventories decrease.

Question 16

-Refer to the above figure. The figure represents the consumption function for a consumer. The distance between A and B represents

Accepted Answer

A)  the amount of autonomous consumption. 
B)  the amount of autonomous saving. 
C)  the amount of total consumption. 
D)  none of the above. 
A)  the amount of autonomous consumption. 
B)  the amount of autonomous saving. 
C)  the amount of total consumption. 
D)  none of the above.

Question 17

Dissaving occurs when

Accepted Answer

A)  the amount of consumption exceeds the amount of saving. 
B)  saving exceeds consumption. 
C)  consumption spending exceeds disposable income. 
D)  people save smaller and smaller amounts. 
A)  the amount of consumption exceeds the amount of saving. 
B)  saving exceeds consumption. 
C)  consumption spending exceeds disposable income. 
D)  people save smaller and smaller amounts.

Question 18

At a level of real disposable income of 0, consumption is $1000. Then

Accepted Answer

A)  saving equals 0. 
B)  saving equals -$1000. 
C)  savings equal -$1000. 
D)  saving equals $1000. 
A)  saving equals 0. 
B)  saving equals -$1000. 
C)  savings equal -$1000. 
D)  saving equals $1000.

Question 19

Which of the following is FALSE?

Accepted Answer

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

Question 20

In the Keynesian model, whenever planned saving exceeds planned investment

Accepted Answer

A)  there will be unplanned inventory accumulation. 
B)  there will be unplanned inventory depletion. 
C)  real GDP will not be influenced. 
D)  the interest rate will remain unchanged. 
A)  there will be unplanned inventory accumulation. 
B)  there will be unplanned inventory depletion. 
C)  real GDP will not be influenced. 
D)  the interest rate will remain unchanged.

Exam 12: Consumption, Real GDP, and the Multiplier

The smaller is the marginal propensity to consume (MPC)

How is investment defined as an economic concept?

Aging baby-boomers, predisposed to hearing loss because of years of listening to loud music, are now approaching the age range in which hearing loss starts to become apparent. What effect does this have on investment spending within the hearing aid industry?

In the above figure, at an income level of Y1 and planned expenditures of (C + I)1, the level of autonomous investment is

Expenditures by firms on new machines and buildings that are expected to yield a future stream of income is known as

A permanent increase in autonomous investment causes

Suppose government spending decreases by $10 billion and the marginal propensity to consume (MPC) is 0.8. Given this information, this decrease in government spending will cause a(n)

The fraction of a change in real disposable income that is spent is referred to as the

-Consider the above figure. At income level Yd = $30, the APC is equal to

A decrease in autonomous investment of $200 that occurs when the marginal propensity to save (MPS) equals 0.25 will lead to a decrease in real Gross Domestic Product (GDP) of

In a closed economy, real Gross Domestic Product (GDP) is at equilibrium occurs where

The consumption function shifts upward when

Keynes thought that the key to determining the broader economic effects of investment fluctuations

-In the above table, the level of autonomous consumption is

-In the above figure, point E represents the level of real GDP at which planned saving equals planned investment. At point A

-Refer to the above figure. The figure represents the consumption function for a consumer. The distance between A and B represents

Dissaving occurs when

At a level of real disposable income of 0, consumption is $1000. Then

Which of the following is FALSE?

In the Keynesian model, whenever planned saving exceeds planned investment

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