Question 1

If autonomous investment increases by $100 million and the marginal propensity to consume (MPC) is 0.75, then

Accepted Answer

A)  real Gross Domestic Product (GDP) will rise by $400 million. 
B)  real Gross Domestic Product (GDP) will rise by $100 million. 
C)  real Gross Domestic Product (GDP) will rise by $200 million. 
D)  real Gross Domestic Product (GDP) will fall by $200 million. 
A)  real Gross Domestic Product (GDP) will rise by $400 million. 
B)  real Gross Domestic Product (GDP) will rise by $100 million. 
C)  real Gross Domestic Product (GDP) will rise by $200 million. 
D)  real Gross Domestic Product (GDP) will fall by $200 million.

Question 2

-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 equal when real disposable income equals $1400?

Accepted Answer

A)  0.09 
B)  0.7 
C)  0.91 
D)  1.1 
A)  0.09 
B)  0.7 
C)  0.91 
D)  1.1

Question 3

-Refer to the above figure. The equilibrium level of real GDP occurs

Accepted Answer

A)  at point A. 
B)  to the right of point A. 
C)  to the left of point A. 
D)  at the undetermined point on the graph depending upon the level of investment. 
A)  at point A. 
B)  to the right of point A. 
C)  to the left of point A. 
D)  at the undetermined point on the graph depending upon the level of investment.

Question 4

-Refer to the above figure. If the MPC is unchanged and level of autonomous consumption increases, what occurs?

Accepted Answer

A)  Line EBD will shift up. 
B)  Line ABC will drop down. 
C)  Line ABC shifts up. 
D)  Line EBD rotates and becomes steeper. 
A)  Line EBD will shift up. 
B)  Line ABC will drop down. 
C)  Line ABC shifts up. 
D)  Line EBD rotates and becomes steeper.

Question 5

The part of consumption that is independent of disposable income is called

Accepted Answer

A)  automatic consumption. 
B)  fixed consumption. 
C)  personal consumption. 
D)  autonomous consumption. 
A)  automatic consumption. 
B)  fixed consumption. 
C)  personal consumption. 
D)  autonomous consumption.

Question 6

-According to the above table, as the level of real disposable income decreases

Accepted Answer

A)  the marginal propensity to save increases. 
B)  the APC increases. 
C)  the marginal propensity to consume decreases. 
D)  the APS decreases. 
A)  the marginal propensity to save increases. 
B)  the APC increases. 
C)  the marginal propensity to consume decreases. 
D)  the APS decreases.

Question 7

The planned investment function shows that

Accepted Answer

A)  real gross investment falls as real NNP increases. 
B)  a negative relationship exists between the level of planned investment and the interest rate. 
C)  a positive relationship exists between planned consumption and planned investment. 
D)  at higher levels of planned saving, planned investment increases. 
A)  real gross investment falls as real NNP increases. 
B)  a negative relationship exists between the level of planned investment and the interest rate. 
C)  a positive relationship exists between planned consumption and planned investment. 
D)  at higher levels of planned saving, planned investment increases.

Question 8

-In the above table, the marginal propensity to save is

Accepted Answer

A)  0.8. 
B)  0.6. 
C)  0.2. 
D)  0.4. 
A)  0.8. 
B)  0.6. 
C)  0.2. 
D)  0.4.

Question 9

Autonomous consumption is

Accepted Answer

A)  consumption spending that is earned rather than transferred from the government. 
B)  consumption spending that does not depend on the level of income. 
C)  the amount spent on consumption when saving equals zero. 
D)  consumption spending when the marginal propensity to consume is 1. 
A)  consumption spending that is earned rather than transferred from the government. 
B)  consumption spending that does not depend on the level of income. 
C)  the amount spent on consumption when saving equals zero. 
D)  consumption spending when the marginal propensity to consume is 1.

Question 10

How does a reduction 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 11

The average propensity to consume is

Accepted Answer

A)  real consumption expenditures divided by real disposable income. 
B)  real disposable income divided by real consumption expenditures. 
C)  real consumption expenditures divided by real saving. 
D)  real saving divided by real consumption expenditures. 
A)  real consumption expenditures divided by real disposable income. 
B)  real disposable income divided by real consumption expenditures. 
C)  real consumption expenditures divided by real saving. 
D)  real saving divided by real consumption expenditures.

Question 12

If firms' unplanned inventories are increasing, then in a closed, private economy

Accepted Answer

A)  the level of real national income will rise. 
B)  the level of real national income will not change in the foreseeable future. 
C)  actual consumption is greater than planned consumption. 
D)  consumers are saving more than businesses anticipated. 
A)  the level of real national income will rise. 
B)  the level of real national income will not change in the foreseeable future. 
C)  actual consumption is greater than planned consumption. 
D)  consumers are saving more than businesses anticipated.

Question 13

Changes in real planned investment spending have

Accepted Answer

A)  a direct relationship to changes in interest rates. 
B)  an inverse relationship to changes in the interest rate. 
C)  no identifiable relationship to changes in the interest rate. 
D)  a direct relationship to changes in the level of household savings. 
A)  a direct relationship to changes in interest rates. 
B)  an inverse relationship to changes in the interest rate. 
C)  no identifiable relationship to changes in the interest rate. 
D)  a direct relationship to changes in the level of household savings.

Question 14

Which of the following would NOT be considered a consumption good?

Accepted Answer

A)  a new sweater 
B)  a tool used to make coffee in a restaurant 
C)  a jar of peanut butter 
D)  a can of soda 
A)  a new sweater 
B)  a tool used to make coffee in a restaurant 
C)  a jar of peanut butter 
D)  a can of soda

Question 15

The average propensity to consume (APC) equals

Accepted Answer

A)  real disposable income divided by consumption expenditures. 
B)  consumption expenditures divided by real disposable income. 
C)  the change in consumption expenditures divided by the change in real disposable income. 
D)  the change in real disposable income divided by the change in consumption expenditures. 
A)  real disposable income divided by consumption expenditures. 
B)  consumption expenditures divided by real disposable income. 
C)  the change in consumption expenditures divided by the change in real disposable income. 
D)  the change in real disposable income divided by the change in consumption expenditures.

Question 16

If real disposable income increases, the average propensity to save will

Accepted Answer

A)  initially increase, and then decrease. 
B)  remain constant. 
C)  increase. 
D)  decrease. 
A)  initially increase, and then decrease. 
B)  remain constant. 
C)  increase. 
D)  decrease.

Question 17

-Use the above table. The MPC 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 18

Which of the following will NOT lead to a shift in the investment function?

Accepted Answer

A)  A firm is more certain about its future profitability. 
B)  A new discovery leads to a technological advancement. 
C)  The government just lowered business taxes. 
D)  The cost of borrowing funds has decreased. 
A)  A firm is more certain about its future profitability. 
B)  A new discovery leads to a technological advancement. 
C)  The government just lowered business taxes. 
D)  The cost of borrowing funds has decreased.

Question 19

Which of the following is a TRUE statement?

Accepted Answer

A)  The C + I + G + X curve has no relationship to the aggregate demand curve other than some of the variables that affect one curve also affect the other. 
B)  The C + I + G + X curve is used to derive the aggregate demand curve, but the C + I + G + X curve is drawn for one price level while price levels vary along the aggregate demand curve. 
C)  The C + I + G + X curve is used to derive the aggregate demand curve, but the aggregate demand curve is drawn for one price level. 
D)  Both the C + I + G + X curve and the aggregate demand curve are drawn for one price level. 
A)  The C + I + G + X curve has no relationship to the aggregate demand curve other than some of the variables that affect one curve also affect the other. 
B)  The C + I + G + X curve is used to derive the aggregate demand curve, but the C + I + G + X curve is drawn for one price level while price levels vary along the aggregate demand curve. 
C)  The C + I + G + X curve is used to derive the aggregate demand curve, but the aggregate demand curve is drawn for one price level. 
D)  Both the C + I + G + X curve and the aggregate demand curve are drawn for one price level.

Question 20

Note: Amounts in billions.
-Refer to the above table. When real GDP equals $15 billion

Accepted Answer

A)  government expenditures will increase. 
B)  the economy is in equilibrium. 
C)  unplanned inventories will increase. 
D)  unplanned inventories will decrease. 
A)  government expenditures will increase. 
B)  the economy is in equilibrium. 
C)  unplanned inventories will increase. 
D)  unplanned inventories will decrease.

Exam 12: Consumption, Real GDP, and the Multiplier

If autonomous investment increases by $100 million and the marginal propensity to consume (MPC) is 0.75, then

-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 equal when real disposable income equals $1400?

-Refer to the above figure. The equilibrium level of real GDP occurs

-Refer to the above figure. If the MPC is unchanged and level of autonomous consumption increases, what occurs?

The part of consumption that is independent of disposable income is called

-According to the above table, as the level of real disposable income decreases

The planned investment function shows that

-In the above table, the marginal propensity to save is

Autonomous consumption is

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

The average propensity to consume is

If firms' unplanned inventories are increasing, then in a closed, private economy

Changes in real planned investment spending have

Which of the following would NOT be considered a consumption good?

The average propensity to consume (APC) equals

If real disposable income increases, the average propensity to save will

-Use the above table. The MPC is

Which of the following will NOT lead to a shift in the investment function?

Which of the following is a TRUE statement?

Note: Amounts in billions. -Refer to the above table. When real GDP equals $15 billion

The Nature of Economics

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