Question 1

-Use the above table. The MPS is

Accepted Answer

A)  0.91. 
B)  0.80. 
C)  0.20. 
D)  0.09. 
A)  0.91. 
B)  0.80. 
C)  0.20. 
D)  0.09.

Question 2

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 3

If the marginal propensity to save (MPS) increased from 0.3 to 0.4, this would cause the multiplier effect to

Accepted Answer

A)  decrease. 
B)  increase. 
C)  stay the same. 
D)  None of the above is correct. 
A)  decrease. 
B)  increase. 
C)  stay the same. 
D)  None of the above is correct.

Question 4

Whenever total planned expenditures differ from real GDP

Accepted Answer

A)  unplanned inventories will remain unchanged. 
B)  unplanned inventories will change. 
C)  government spending will adjust. 
D)  tax revenues will move the economy back to equilibrium. 
A)  unplanned inventories will remain unchanged. 
B)  unplanned inventories will change. 
C)  government spending will adjust. 
D)  tax revenues will move the economy back to equilibrium.

Question 5

If business people become more pessimistic about the future, we would expect that

Accepted Answer

A)  the investment curve would shift inward to the left. 
B)  the saving function would shift up. 
C)  the consumption function would shift up. 
D)  investment spending would increase. 
A)  the investment curve would shift inward to the left. 
B)  the saving function would shift up. 
C)  the consumption function would shift up. 
D)  investment spending would increase.

Question 6

Suppose that the marginal propensity to save (MPS) equals 0.4. The value of the multiplier would be

Accepted Answer

A)  0.25. 
B)  0.4. 
C)  2.5. 
D)  4. 
A)  0.25. 
B)  0.4. 
C)  2.5. 
D)  4.

Question 7

According to Keynes, the primary determinant of Amy's saving is

Accepted Answer

A)  the nominal interest rate. 
B)  the real interest rate. 
C)  the level of Amy's consumption spending. 
D)  the level of Amy's real current income. 
A)  the nominal interest rate. 
B)  the real interest rate. 
C)  the level of Amy's consumption spending. 
D)  the level of Amy's real current income.

Question 8

Which of the following changes will shift the consumption function upward?

Accepted Answer

A)  an increase in wealth 
B)  a decrease in wealth 
C)  a decrease real disposable income 
D)  an increase in real disposable income 
A)  an increase in wealth 
B)  a decrease in wealth 
C)  a decrease real disposable income 
D)  an increase in real disposable income

Question 9

With reference to the consumption function, the 45-degree line represents

Accepted Answer

A)  the planned savings function. 
B)  all points at which planned real saving is equal to real disposable income. 
C)  all points at which planned real saving is equal to planned real consumption spending. 
D)  all points at which real disposable income is equal to real consumption spending. 
A)  the planned savings function. 
B)  all points at which planned real saving is equal to real disposable income. 
C)  all points at which planned real saving is equal to planned real consumption spending. 
D)  all points at which real disposable income is equal to real consumption spending.

Question 10

Suppose real disposable income increases by $500. Given this information, we know that

Accepted Answer

A)  consumption will generally increase by exactly $500. 
B)  consumption will generally increase by less than $500. 
C)  consumption will generally increase by more than $500. 
D)  saving will generally increase by exactly $500. 
A)  consumption will generally increase by exactly $500. 
B)  consumption will generally increase by less than $500. 
C)  consumption will generally increase by more than $500. 
D)  saving will generally increase by exactly $500.

Question 11

How does an increase in the price level affect the position of the C + I + G + X curve and in turn the equilibrium level of real GDP?

Accepted Answer

A)  The C + I + G + X curve shifts down, thereby reducing the equilibrium level of real GDP. 
B)  The C + I + G + X curve shifts down, thereby increasing the equilibrium level of real GDP. 
C)  The C + I + G + X curve shifts up, thereby reducing the equilibrium level of real GDP. 
D)  The C + I + G + X curve shifts up, thereby increasing the equilibrium level of real GDP. 
A)  The C + I + G + X curve shifts down, thereby reducing the equilibrium level of real GDP. 
B)  The C + I + G + X curve shifts down, thereby increasing the equilibrium level of real GDP. 
C)  The C + I + G + X curve shifts up, thereby reducing the equilibrium level of real GDP. 
D)  The C + I + G + X curve shifts up, thereby increasing the equilibrium level of real GDP.

Question 12

A decrease in autonomous consumption means that

Accepted Answer

A)  the consumption function shifts up. 
B)  the consumption function shifts down. 
C)  the consumption function becomes steeper. 
D)  the consumption function becomes less steep. 
A)  the consumption function shifts up. 
B)  the consumption function shifts down. 
C)  the consumption function becomes steeper. 
D)  the consumption function becomes less steep.

Question 13

Note: Amounts in billions.
-Refer to the above table. Which variables in the table are NOT autonomous?

Accepted Answer

A)  taxes, government spending, and saving 
B)  planned investment, net exports, and government spending 
C)  planned consumption and planned saving 
D)  planned saving only 
A)  taxes, government spending, and saving 
B)  planned investment, net exports, and government spending 
C)  planned consumption and planned saving 
D)  planned saving only

Question 14

If your real disposable income goes up by $200 per week, and your real consumption spending goes up by $160 per week, you have a marginal propensity to consume of

Accepted Answer

A)  0.2. 
B)  0.8. 
C)  1.2. 
D)  1.0. 
A)  0.2. 
B)  0.8. 
C)  1.2. 
D)  1.0.

Question 15

In the Keynesian model with government and the foreign sector added, what are the components of spending? Which of these components are autonomous and which are NOT? How is the equilibrium found? When the economy is NOT at an equilibrium, what adjustments are made?

Accepted Answer

There are four components to spending-co

Question 16

All of the following would cause the investment function relating investment to the interest rate to shift EXCEPT

Accepted Answer

A)  a change in the real interest rate. 
B)  a change in producer expectations of future profit. 
C)  a change in planned capital goods expenditure. 
D)  a change in productive technology. 
A)  a change in the real interest rate. 
B)  a change in producer expectations of future profit. 
C)  a change in planned capital goods expenditure. 
D)  a change in productive technology.

Question 17

If the MPC equals 0.75, then

Accepted Answer

A)  for every $100 increase in consumption, real Gross Domestic Product (GDP) increases by $75. 
B)  consumption is always more than real Gross Domestic Product (GDP). 
C)  for every $100 increase in real Gross Domestic Product (GDP), saving increases by $75. 
D)  for every $100 increase in real Gross Domestic Product (GDP), saving increases by $25. 
A)  for every $100 increase in consumption, real Gross Domestic Product (GDP) increases by $75. 
B)  consumption is always more than real Gross Domestic Product (GDP). 
C)  for every $100 increase in real Gross Domestic Product (GDP), saving increases by $75. 
D)  for every $100 increase in real Gross Domestic Product (GDP), saving increases by $25.

Question 18

When the investment is graphed as a function of real GDP

Accepted Answer

A)  it graphs as a vertical straight line. 
B)  it graphs as a 45-degree line starting at the indicated level of investment. 
C)  it graphs as a negatively sloped line indicating the inverse relationship between interest rates and investment. 
D)  it graphs as a horizontal straight line at the level of investment. 
A)  it graphs as a vertical straight line. 
B)  it graphs as a 45-degree line starting at the indicated level of investment. 
C)  it graphs as a negatively sloped line indicating the inverse relationship between interest rates and investment. 
D)  it graphs as a horizontal straight line at the level of investment.

Question 19

-Refer to the above figure. Autonomous consumption is

Accepted Answer

A)  only at point A. 
B)  to the left of point B. 
C)  only at point B. 
D)  to the right of point B. 
A)  only at point A. 
B)  to the left of point B. 
C)  only at point B. 
D)  to the right of point B.

Question 20

Which of the following is TRUE?

Accepted Answer

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

Exam 12: Consumption, Real GDP, and the Multiplier

-Use the above table. The MPS is

The equation is the

If the marginal propensity to save (MPS) increased from 0.3 to 0.4, this would cause the multiplier effect to

Whenever total planned expenditures differ from real GDP

If business people become more pessimistic about the future, we would expect that

Suppose that the marginal propensity to save (MPS) equals 0.4. The value of the multiplier would be

According to Keynes, the primary determinant of Amy's saving is

Which of the following changes will shift the consumption function upward?

With reference to the consumption function, the 45-degree line represents

Suppose real disposable income increases by $500. Given this information, we know that

How does an increase in the price level affect the position of the C + I + G + X curve and in turn the equilibrium level of real GDP?

A decrease in autonomous consumption means that

Note: Amounts in billions. -Refer to the above table. Which variables in the table are NOT autonomous?

If your real disposable income goes up by $200 per week, and your real consumption spending goes up by $160 per week, you have a marginal propensity to consume of

In the Keynesian model with government and the foreign sector added, what are the components of spending? Which of these components are autonomous and which are NOT? How is the equilibrium found? When the economy is NOT at an equilibrium, what adjustments are made?

All of the following would cause the investment function relating investment to the interest rate to shift EXCEPT

If the MPC equals 0.75, then

When the investment is graphed as a function of real GDP

-Refer to the above figure. Autonomous consumption is

Which of the following is TRUE?

The Nature of Economics

Scarcity and the World of Trade-Offs

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The Macroeconomy: Unemployment, Inflation, and Deflation

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