Question 1

Autonomous consumption

Accepted Answer

A)  is measured by the slope of the consumption function. 
B)  is the reciprocal of consumption. 
C)  is equal to the minimum savings. 
D)  is measured by the intercept of the consumption function and the Y-axis. 
A)  is measured by the slope of the consumption function. 
B)  is the reciprocal of consumption. 
C)  is equal to the minimum savings. 
D)  is measured by the intercept of the consumption function and the Y-axis.

Question 2

-In the above figure, what is the equilibrium level of real consumption spending?

Accepted Answer

A)  $0.0 trillion 
B)  $1.0 trillion 
C)  $2.0 trillion 
D)  $3.0 trillion 
A)  $0.0 trillion 
B)  $1.0 trillion 
C)  $2.0 trillion 
D)  $3.0 trillion

Question 3

If the marginal propensity to consume (MPC) is 0.9, the multiplier will be

Accepted Answer

A)  0.1. 
B)  9. 
C)  90. 
D)  10. 
A)  0.1. 
B)  9. 
C)  90. 
D)  10.

Question 4

Which one of the following statements is TRUE?

Accepted Answer

A)  Over the years, real consumption spending has been more volatile than real investment spending. 
B)  Over the years, real investment spending has been more volatile than real consumption spending. 
C)  Domestic real investment in the United States was highest during the Great Depression. 
D)  In the Keynesian model, changes in the volume of real investment spending are fully explained by changes in the real interest rate. 
A)  Over the years, real consumption spending has been more volatile than real investment spending. 
B)  Over the years, real investment spending has been more volatile than real consumption spending. 
C)  Domestic real investment in the United States was highest during the Great Depression. 
D)  In the Keynesian model, changes in the volume of real investment spending are fully explained by changes in the real interest rate.

Question 5

-In the above table, the marginal propensity to consume when disposable income changes from $7,000 to $8,000 is

Accepted Answer

A)  0.8. 
B)  0.75. 
C)  0.6. 
D)  0.5. 
A)  0.8. 
B)  0.75. 
C)  0.6. 
D)  0.5.

Question 6

If the marginal propensity to consume (MPC) is 0.85, the multiplier is

Accepted Answer

A)  6.67. 
B)  5. 
C)  8.5. 
D)  15. 
A)  6.67. 
B)  5. 
C)  8.5. 
D)  15.

Question 7

The smaller the marginal propensity to consume

Accepted Answer

A)  the smaller the marginal propensity to save is. 
B)  the smaller the multiplier is. 
C)  the large the multiplier is. 
D)  the smaller autonomous consumption is. 
A)  the smaller the marginal propensity to save is. 
B)  the smaller the multiplier is. 
C)  the large the multiplier is. 
D)  the smaller autonomous consumption is.

Question 8

Which of the following is negative for the "typical" consumer at some level of real disposable income?

Accepted Answer

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

Question 9

Suppose the economy is initially at equilibrium, in which total planned real expenditures equals real GDP. Which of the following will occur if there is an increase in autonomous investment?

Accepted Answer

A)  Inventories will increase immediately and production of goods and services will decrease until real GDP catches up with total planned real expenditures. 
B)  Inventories will decrease immediately and production of goods and services will increase until real GDP catches up with total planned real expenditures. 
C)  Both inventories and production of goods and services will increase. 
D)  Inventories will not change and production of goods and services will not change either. 
A)  Inventories will increase immediately and production of goods and services will decrease until real GDP catches up with total planned real expenditures. 
B)  Inventories will decrease immediately and production of goods and services will increase until real GDP catches up with total planned real expenditures. 
C)  Both inventories and production of goods and services will increase. 
D)  Inventories will not change and production of goods and services will not change either.

Question 10

The multiplier equals

Accepted Answer

A)  consumption/real disposable income. 
B)  change in consumption/change in real disposable income. 
C)  1/MPC. 
D)  1/(1 - MP
C) . 
A)  consumption/real disposable income. 
B)  change in consumption/change in real disposable income. 
C)  1/MPC. 
D)  1/(1 - MP
C) .

Question 11

-Refer to the above figure. Line ABC is called

Accepted Answer

A)  the 45-degree line. 
B)  the consumption function. 
C)  the saving function. 
D)  aggregate supply. 
A)  the 45-degree line. 
B)  the consumption function. 
C)  the saving function. 
D)  aggregate supply.

Question 12

Supposed actual investment is greater than planned investment at the current level of output in a given year. Given this information, we know that

Accepted Answer

A)  GDP will tend to increase over time. 
B)  firms' stock of inventories must have increased unexpectedly in that year. 
C)  saving must be less than planned investment in that year. 
D)  saving must be equal to planned investment in that year. 
A)  GDP will tend to increase over time. 
B)  firms' stock of inventories must have increased unexpectedly in that year. 
C)  saving must be less than planned investment in that year. 
D)  saving must be equal to planned investment in that year.

Question 13

-Refer to the above figure. If real Gross Domestic Product (GDP) is $2 trillion, then

Accepted Answer

A)  the level of total planned expenditures is less than real GDP. 
B)  the level of total planned expenditures equals real GDP. 
C)  the level of total planned expenditures is greater than real GDP. 
D)  the level of total planned expenditures equals zero. 
A)  the level of total planned expenditures is less than real GDP. 
B)  the level of total planned expenditures equals real GDP. 
C)  the level of total planned expenditures is greater than real GDP. 
D)  the level of total planned expenditures equals zero.

Question 14

According to the above figure, at an income level of Y1,

Accepted Answer

A)  the economy saves an amount equal to BD. 
B)  the marginal propensity to save is falling. 
C)  the average propensity to save is greater than one. 
D)  the economy dissaves an amount equal to BD. 
A)  the economy saves an amount equal to BD. 
B)  the marginal propensity to save is falling. 
C)  the average propensity to save is greater than one. 
D)  the economy dissaves an amount equal to BD.

Question 15

The break-even point refers to

Accepted Answer

A)  a zero amount of autonomous consumption. 
B)  the point at which planned real consumption equals real disposable income. 
C)  the maximum amount of dissaving a person can experience. 
D)  a point at which planned real consumption is greater than real disposable income. 
A)  a zero amount of autonomous consumption. 
B)  the point at which planned real consumption equals real disposable income. 
C)  the maximum amount of dissaving a person can experience. 
D)  a point at which planned real consumption is greater than real disposable income.

Question 16

Which of the following is correct?

Accepted Answer

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

Question 17

-Refer to the above figure. Dissaving occurs,

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 18

Suppose that the marginal propensity to consume (MPC) is .8 and there is an increase in investment spending of $100,000. As a result, equilibrium real Gross Domestic Product (GDP) would increase by

Accepted Answer

A)  $20,000. 
B)  $100,000. 
C)  $500,000. 
D)  $800,000. 
A)  $20,000. 
B)  $100,000. 
C)  $500,000. 
D)  $800,000.

Question 19

A decrease in interest rates will

Accepted Answer

A)  shift the investment function relating planned investment to the interest rate to the right. 
B)  shift the investment function relating planned investment to the interest rate to the left. 
C)  be a movement along the investment function relating planned investment to the interest rate. 
D)  have no impact on the investment function relating planned investment to the interest rate. 
A)  shift the investment function relating planned investment to the interest rate to the right. 
B)  shift the investment function relating planned investment to the interest rate to the left. 
C)  be a movement along the investment function relating planned investment to the interest rate. 
D)  have no impact on the investment function relating planned investment to the interest rate.

Question 20

Fixed investment is

Accepted Answer

A)  when a firm adds to its inventories of goods. 
B)  when a firm accumulates profits. 
C)  dissavings. 
D)  an expenditure by firms on new machines that are expected to produce income in the future. 
A)  when a firm adds to its inventories of goods. 
B)  when a firm accumulates profits. 
C)  dissavings. 
D)  an expenditure by firms on new machines that are expected to produce income in the future.

Exam 12: Consumption, Real GDP, and the Multiplier

Autonomous consumption

-In the above figure, what is the equilibrium level of real consumption spending?

If the marginal propensity to consume (MPC) is 0.9, the multiplier will be

Which one of the following statements is TRUE?

-In the above table, the marginal propensity to consume when disposable income changes from $7,000 to $8,000 is

If the marginal propensity to consume (MPC) is 0.85, the multiplier is

The smaller the marginal propensity to consume

Which of the following is negative for the "typical" consumer at some level of real disposable income?

Suppose the economy is initially at equilibrium, in which total planned real expenditures equals real GDP. Which of the following will occur if there is an increase in autonomous investment?

The multiplier equals

-Refer to the above figure. Line ABC is called

Supposed actual investment is greater than planned investment at the current level of output in a given year. Given this information, we know that

-Refer to the above figure. If real Gross Domestic Product (GDP) is $2 trillion, then

According to the above figure, at an income level of Y1,

The break-even point refers to

Which of the following is correct?

-Refer to the above figure. Dissaving occurs,

Suppose that the marginal propensity to consume (MPC) is .8 and there is an increase in investment spending of $100,000. As a result, equilibrium real Gross Domestic Product (GDP) would increase by

A decrease in interest rates will

Fixed investment is

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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