Question 1

The size of the multiplier depends on

Accepted Answer

A)  the level of autonomous investment. 
B)  the marginal propensity to consume. 
C)  the level of net exports. 
D)  the level of autonomous consumption. 
A)  the level of autonomous investment. 
B)  the marginal propensity to consume. 
C)  the level of net exports. 
D)  the level of autonomous consumption.

Question 2

What would happen to the planned investment function if business taxes were decreased?

Accepted Answer

A)  It would shift to the left. 
B)  It would shift to the right. 
C)  There would be a upward movement along the function. 
D)  There would be no change. 
A)  It would shift to the left. 
B)  It would shift to the right. 
C)  There would be a upward movement along the function. 
D)  There would be no change.

Question 3

At the point at which the consumption function intersects the 45 degree reference line

Accepted Answer

A)  planned real consumption equals real disposable income. 
B)  equilibrium output is supply determined equilibrium output is determined by both. 
C)  planned real saving equals real disposable income. 
D)  planned real consumption of real disposable income equals zero. 
A)  planned real consumption equals real disposable income. 
B)  equilibrium output is supply determined equilibrium output is determined by both. 
C)  planned real saving equals real disposable income. 
D)  planned real consumption of real disposable income equals zero.

Question 4

Another way of stating that investment is independent of real disposable income is to say that it is

Accepted Answer

A)  inversely related. 
B)  substitutable. 
C)  complementary. 
D)  autonomous. 
A)  inversely related. 
B)  substitutable. 
C)  complementary. 
D)  autonomous.

Question 5

-In the above figure, when disposable income is greater than 600

Accepted Answer

A)  saving is negative. 
B)  the MPC is greater than 1. 
C)  saving is positive. 
D)  the MPS is negative. 
A)  saving is negative. 
B)  the MPC is greater than 1. 
C)  saving is positive. 
D)  the MPS is negative.

Question 6

The difference between savings and saving

Accepted Answer

A)  is called money illusion. 
B)  is that savings occurs when consumption does not and saving is used to purchase consumption goods. 
C)  is that savings is a stock concept and saving is a flow concept. 
D)  is that savings is measured in real terms while saving is measured in nominal terms. 
A)  is called money illusion. 
B)  is that savings occurs when consumption does not and saving is used to purchase consumption goods. 
C)  is that savings is a stock concept and saving is a flow concept. 
D)  is that savings is measured in real terms while saving is measured in nominal terms.

Question 7

The consumption function shows the relationship

Accepted Answer

A)  between households' disposable income and their consumption spending. 
B)  between the relative prices of goods and the total amount of household consumption spending. 
C)  between consumption spending and capital gains. 
D)  between government spending and tax collection. 
A)  between households' disposable income and their consumption spending. 
B)  between the relative prices of goods and the total amount of household consumption spending. 
C)  between consumption spending and capital gains. 
D)  between government spending and tax collection.

Question 8

Spending by businesses on things such as machines and buildings which can be used to produce goods and services in the future is

Accepted Answer

A)  investment. 
B)  consumption. 
C)  consumption goods. 
D)  savings. 
A)  investment. 
B)  consumption. 
C)  consumption goods. 
D)  savings.

Question 9

The equation is the

Accepted Answer

A)  average propensity to consume. 
B)  average propensity to save. 
C)  marginal propensity to consume. 
D)  marginal propensity to save. 
A)  average propensity to consume. 
B)  average propensity to save. 
C)  marginal propensity to consume. 
D)  marginal propensity to save.

Question 10

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to save when real disposable income equals $400?

Accepted Answer

A)  -0.45 
B)  0.69 
C)  0.7 
D)  1.45 
A)  -0.45 
B)  0.69 
C)  0.7 
D)  1.45

Question 11

A permanent reduction in planned real investment spending leads to

Accepted Answer

A)  a more than proportional increase in real GDP. 
B)  a more than proportional decrease in real GDP. 
C)  a less than proportional decrease in real GDP. 
D)  a proportional decrease in real GDP. 
A)  a more than proportional increase in real GDP. 
B)  a more than proportional decrease in real GDP. 
C)  a less than proportional decrease in real GDP. 
D)  a proportional decrease in real GDP.

Question 12

When a family's income is low and it is spending more on consumption than it is receiving in income

Accepted Answer

A)  the APC must be increasing. 
B)  the APC must be equal to the ratio of planned consumption expenditure to total saving. 
C)  the MPC must be zero. 
D)  some segment of the consumption function curve lies above the 45-degree line, indicating dissaving. 
A)  the APC must be increasing. 
B)  the APC must be equal to the ratio of planned consumption expenditure to total saving. 
C)  the MPC must be zero. 
D)  some segment of the consumption function curve lies above the 45-degree line, indicating dissaving.

Question 13

If disposable income = $200 billion and the APC = 0.8, then saving

Accepted Answer

A)  is $40 billion. 
B)  is $160 billion. 
C)  is $280 billion. 
D)  cannot be determined. 
A)  is $40 billion. 
B)  is $160 billion. 
C)  is $280 billion. 
D)  cannot be determined.

Question 14

If the marginal propensity to consume (MPC) increases, then

Accepted Answer

A)  the marginal propensity to save (MPS) increases. 
B)  the multiplier increases. 
C)  the multiplier decreases. 
D)  MPC + MPS is less than 1. 
A)  the marginal propensity to save (MPS) increases. 
B)  the multiplier increases. 
C)  the multiplier decreases. 
D)  MPC + MPS is less than 1.

Question 15

When disposable income equals consumption expenditures, then

Accepted Answer

A)  saving is zero. 
B)  saving is greater than income. 
C)  both saving and savings are zero. 
D)  we can't tell what saving is without more information. 
A)  saving is zero. 
B)  saving is greater than income. 
C)  both saving and savings are zero. 
D)  we can't tell what saving is without more information.

Question 16

If the marginal propensity to save (MPS) is 0.1, the spending multiplier will be

Accepted Answer

A)  10. 
B)  1.1. 
C)  0.9. 
D)  0.1. 
A)  10. 
B)  1.1. 
C)  0.9. 
D)  0.1.

Question 17

The investment schedule is downward sloping and the saving schedule is upward sloping with respect to the interest rate. Suppose the equilibrium real investment per year at the market rate of interest is $1 trillion. How is this represented when real national income per year is on the horizontal axis? How is this incorporated into the consumption-function graph?

Accepted Answer

Investment spending is a function of the

Question 18

-In the above figure, the equilibrium level of real GDP per year is

Accepted Answer

A)  $1.0 trillion. 
B)  $2.0 trillion. 
C)  $3.0 trillion. 
D)  $4.0 trillion. 
A)  $1.0 trillion. 
B)  $2.0 trillion. 
C)  $3.0 trillion. 
D)  $4.0 trillion.

Question 19

If businesses expect the economic activity to expand

Accepted Answer

A)  the planned investment function relating investment to the interest rate will shift to the left. 
B)  the planned investment function relating investment to the interest rate will remain unchanged, but will move downward along the curve. 
C)  the planned investment function relating investment to the interest rate will steepen. 
D)  the planned investment function relating investment to the interest rate will shift to the right. 
A)  the planned investment function relating investment to the interest rate will shift to the left. 
B)  the planned investment function relating investment to the interest rate will remain unchanged, but will move downward along the curve. 
C)  the planned investment function relating investment to the interest rate will steepen. 
D)  the planned investment function relating investment to the interest rate will shift to the right.

Question 20

Total planned expenditures in a closed economy are equal to

Accepted Answer

A)  consumption + investment + government expenditures. 
B)  consumption + savings + transfers + investment. 
C)  saving + investment + government expenditures. 
D)  investment + saving + transfers. 
A)  consumption + investment + government expenditures. 
B)  consumption + savings + transfers + investment. 
C)  saving + investment + government expenditures. 
D)  investment + saving + transfers.

Exam 12: Consumption, Real GDP, and the Multiplier

The size of the multiplier depends on

What would happen to the planned investment function if business taxes were decreased?

At the point at which the consumption function intersects the 45 degree reference line

Another way of stating that investment is independent of real disposable income is to say that it is

-In the above figure, when disposable income is greater than 600

The difference between savings and saving

The consumption function shows the relationship

Spending by businesses on things such as machines and buildings which can be used to produce goods and services in the future is

The equation is the

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to save when real disposable income equals $400?

A permanent reduction in planned real investment spending leads to

When a family's income is low and it is spending more on consumption than it is receiving in income

If disposable income = $200 billion and the APC = 0.8, then saving

If the marginal propensity to consume (MPC) increases, then

When disposable income equals consumption expenditures, then

If the marginal propensity to save (MPS) is 0.1, the spending multiplier will be

-In the above figure, the equilibrium level of real GDP per year is

If businesses expect the economic activity to expand

Total planned expenditures in a closed economy are equal to

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

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Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

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Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

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Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

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Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

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Environmental Economics

Comparative Advantage and the Open Economy

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