Question 1

A high rate of inflation is likely to cause a:

Accepted Answer

A)  high nominal interest rate. 
B)  low nominal interest rate. 
C)  low rate of growth of nominal GDP. 
D)  decrease in nominal wages. 
A)  high nominal interest rate. 
B)  low nominal interest rate. 
C)  low rate of growth of nominal GDP. 
D)  decrease in nominal wages.

Question 2

Assume there are no prospective investment projects (I) which will yield an expected rate of return (r) of 25 percent or more, but that there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. The investment-demand curve for this economy is:

Accepted Answer

A)  Column A 
B)  Column B 
C)  Column C 
D)  Column D 
A)  Column A 
B)  Column B 
C)  Column C 
D)  Column D

Question 3

If for some reason households become increasingly thrifty, we could show this by:

Accepted Answer

A)  a downshift of the saving schedule. 
B)  an upshift of the consumption schedule. 
C)  an upshift of the saving schedule. 
D)  an increase in the equilibrium GDP. 
A)  a downshift of the saving schedule. 
B)  an upshift of the consumption schedule. 
C)  an upshift of the saving schedule. 
D)  an increase in the equilibrium GDP.

Question 4

-Refer to the above data. At the $200 level of disposable income:

Accepted Answer

A)  the marginal propensity to save is 21/2 percent. 
B)  dissaving is $5. 
C)  the average propensity to save is .20. 
D)  the average propensity to consume is .80. 
A)  the marginal propensity to save is 21/2 percent. 
B)  dissaving is $5. 
C)  the average propensity to save is .20. 
D)  the average propensity to consume is .80.

Question 5

The investment-demand curve suggests:

Accepted Answer

A)  that the amount invested will not be affected by changes in the real interest rate. 
B)  an inverse relationship between the real rate of interest and the level of investment spending. 
C)  that an increase in business taxes will tend to stimulate investment spending. 
D)  a direct relationship between the real rate of interest and the level of investment spending. 
A)  that the amount invested will not be affected by changes in the real interest rate. 
B)  an inverse relationship between the real rate of interest and the level of investment spending. 
C)  that an increase in business taxes will tend to stimulate investment spending. 
D)  a direct relationship between the real rate of interest and the level of investment spending.

Question 6

The investment-demand curve will shift to the left:

Accepted Answer

A)  if firms plan to increase their inventories. 
B)  if firms plan to decrease their inventories. 
C)  if firms expect an increase in their sales. 
D)  if firms expect no change in their sales. 
A)  if firms plan to increase their inventories. 
B)  if firms plan to decrease their inventories. 
C)  if firms expect an increase in their sales. 
D)  if firms expect no change in their sales.

Question 7

Which of the following is correct?

Accepted Answer

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

Question 8

-Refer to the above data. The marginal propensity to consume is:

Accepted Answer

A)  .25 
B)  .75. 
C)  .20. 
D)  .80. 
A)  .25 
B)  .75. 
C)  .20. 
D)  .80.

Question 9

The reverse wealth effect will cause the consumption schedule to:

Accepted Answer

A)  shift upward. 
B)  shift downward. 
C)  not change at all. 
D)  shift in the same direction as would occur with the wealth effect. 
A)  shift upward. 
B)  shift downward. 
C)  not change at all. 
D)  shift in the same direction as would occur with the wealth effect.

Question 10

If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed:

Accepted Answer

A)  the vertical intercept would be +.6 and the slope would be +20. 
B)  it would reveal an inverse relationship between consumption and disposable income. 
C)  the vertical intercept would be negative, but consumption would increase as disposable income rises. 
D)  the vertical intercept would be +20 and the slope would be +.6. 
A)  the vertical intercept would be +.6 and the slope would be +20. 
B)  it would reveal an inverse relationship between consumption and disposable income. 
C)  the vertical intercept would be negative, but consumption would increase as disposable income rises. 
D)  the vertical intercept would be +20 and the slope would be +.6.

Question 11

If the Brown family's marginal propensity to consume is 0.70, then it will consume seven-tenths of its total income.

Accepted Answer

A) True 
 B)False

Question 12

Assume that for the entire business sector of the economy there is $0 worth of investment projects which will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments which will yield an expected rate of return of 20-25 percent; another $15 with an expected rate of return of 15-20 percent; and similarly an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range.
-Refer to the above information. The expected rate of return curve:

Accepted Answer

A)  shows a direct relationship between the interest rate and investment. 
B)  is also the investment-demand curve. 
C)  is indeterminant. 
D)  cannot be calculated without knowing the level of saving. 
A)  shows a direct relationship between the interest rate and investment. 
B)  is also the investment-demand curve. 
C)  is indeterminant. 
D)  cannot be calculated without knowing the level of saving.

Question 13

Suppose the economy's saving schedule shifts from S1 to S 2 as shown in the below diagram. We can say that its:

Accepted Answer

A)  MPC has increased. 
B)  MPS has increased. 
C)  APS has increased at all levels of disposable income. 
D)  APS has decreased at all levels of disposable income. 
A)  MPC has increased. 
B)  MPS has increased. 
C)  APS has increased at all levels of disposable income. 
D)  APS has decreased at all levels of disposable income.

Question 14

If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round, income will eventually increase by:

Accepted Answer

A)  $2500 billion. 
B)  $3000 billion. 
C)  $4000 billion. 
D)  $5000 billion. 
A)  $2500 billion. 
B)  $3000 billion. 
C)  $4000 billion. 
D)  $5000 billion.

Question 15

An upward shift of the saving schedule suggests:

Accepted Answer

A)  nothing with respect to changes in the APC and APS. 
B)  that the APC and APS have both decreased at each GDP level. 
C)  that the APC and APS have both increased at each GDP level. 
D)  that the APC has decreased and the APS has increased at each GDP level. 
A)  nothing with respect to changes in the APC and APS. 
B)  that the APC and APS have both decreased at each GDP level. 
C)  that the APC and APS have both increased at each GDP level. 
D)  that the APC has decreased and the APS has increased at each GDP level.

Question 16

Which of the following is correct?

Accepted Answer

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

Question 17

In contrast to the investment schedule, the consumption schedule is:

Accepted Answer

A)  relatively stable. 
B)  relatively unstable. 
C)  downward sloping. 
D)  horizontal. 
A)  relatively stable. 
B)  relatively unstable. 
C)  downward sloping. 
D)  horizontal.

Question 18

-Refer to the consumption schedules shown in the above diagram for economies 1, 2, 3, and 4. Other things equal, which economy embodies the greatest degree of macroeconomic stability?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 19

The 45-degree line on a chart relating consumption and income shows:

Accepted Answer

A)  all points where the MPC is constant. 
B)  all points at which saving and income are equal. 
C)  all the points at which consumption and income are equal. 
D)  the amounts households will plan to save at each possible level of income. 
A)  all points where the MPC is constant. 
B)  all points at which saving and income are equal. 
C)  all the points at which consumption and income are equal. 
D)  the amounts households will plan to save at each possible level of income.

Question 20

If the MPC is .6, the simple multiplier will be:

Accepted Answer

A)  4.0. 
B)  6.0. 
C)  2.5. 
D)  1.67. 
A)  4.0. 
B)  6.0. 
C)  2.5. 
D)  1.67.

A high rate of inflation is likely to cause a:

If for some reason households become increasingly thrifty, we could show this by:

-Refer to the above data. At the $200 level of disposable income:

The investment-demand curve suggests:

The investment-demand curve will shift to the left:

Which of the following is correct?

-Refer to the above data. The marginal propensity to consume is:

The reverse wealth effect will cause the consumption schedule to:

If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed:

If the Brown family's marginal propensity to consume is 0.70, then it will consume seven-tenths of its total income.

Suppose the economy's saving schedule shifts from S₁ to S ₂ as shown in the below diagram. We can say that its:

If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round, income will eventually increase by:

An upward shift of the saving schedule suggests:

Which of the following is correct?

In contrast to the investment schedule, the consumption schedule is:

-Refer to the consumption schedules shown in the above diagram for economies 1, 2, 3, and 4. Other things equal, which economy embodies the greatest degree of macroeconomic stability?

The 45-degree line on a chart relating consumption and income shows:

If the MPC is .6, the simple multiplier will be:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Introduction to Macroeconomics

Measuring the Economys Output

Economic Growth

Business Cycles, Unemployment, and Inflation

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, Surpluses, and Debt

Money, Banking, and Money Creation

Interest Rates and Monetary Policy

Financial Economics

Long-Run Macroeconomic Adjustments

International Trade

Exchange Rates and the Balance of Payments

Filters

Exam 8: Basic Macroeconomic Relationships

A high rate of inflation is likely to cause a:

If for some reason households become increasingly thrifty, we could show this by:

-Refer to the above data. At the $200 level of disposable income:

The investment-demand curve suggests:

The investment-demand curve will shift to the left:

Which of the following is correct?

-Refer to the above data. The marginal propensity to consume is:

The reverse wealth effect will cause the consumption schedule to:

If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed:

If the Brown family's marginal propensity to consume is 0.70, then it will consume seven-tenths of its total income.

Suppose the economy's saving schedule shifts from S1 to S 2 as shown in the below diagram. We can say that its:

If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round, income will eventually increase by:

An upward shift of the saving schedule suggests:

Which of the following is correct?

In contrast to the investment schedule, the consumption schedule is:

-Refer to the consumption schedules shown in the above diagram for economies 1, 2, 3, and 4. Other things equal, which economy embodies the greatest degree of macroeconomic stability?

The 45-degree line on a chart relating consumption and income shows:

If the MPC is .6, the simple multiplier will be:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Introduction to Macroeconomics

Measuring the Economys Output

Economic Growth

Business Cycles, Unemployment, and Inflation

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, Surpluses, and Debt

Money, Banking, and Money Creation

Interest Rates and Monetary Policy

Financial Economics

Long-Run Macroeconomic Adjustments

International Trade

Exchange Rates and the Balance of Payments

Filters

Suppose the economy's saving schedule shifts from S₁ to S ₂ as shown in the below diagram. We can say that its: