Question 1

The greater the MPC, the greater the multiplier.

Accepted Answer

A) True 
 B)False

Question 2

A specific investment will be undertaken if the expected rate of returns, r, exceeds the interest rate, i.

Accepted Answer

A) True 
 B)False

Question 3

The use of 1/MPS formula as the size of the multiplier in the economy, overstates the actual size of it because:

Accepted Answer

A)  saving is not the only fraction of the domestic income which is not spent. 
B)  saving is the only fraction of the domestic income which is not spent. 
C)  imports and taxes create new income in the economy. 
D)  imports and not taxes creates new income in the economy. 
A)  saving is not the only fraction of the domestic income which is not spent. 
B)  saving is the only fraction of the domestic income which is not spent. 
C)  imports and taxes create new income in the economy. 
D)  imports and not taxes creates new income in the economy.

Question 4

Suppose that the level of GDP increased by $100 billion in an economy where the marginal propensity to consume is 0.5. The initial change in spending must have been:

Accepted Answer

A)  $100 billion. 
B)  $50 billion. 
C)  $500 billion. 
D)  $5 billion. 
A)  $100 billion. 
B)  $50 billion. 
C)  $500 billion. 
D)  $5 billion.

Question 5

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:

Accepted Answer

A)  will not shift. 
B)  may shift either upward or downward. 
C)  will shift downward. 
D)  will also shift upward. 
A)  will not shift. 
B)  may shift either upward or downward. 
C)  will shift downward. 
D)  will also shift upward.

Question 6

If the firm in the previous question finds it can borrow funds at an interest rate of 10 percent the firm should:

Accepted Answer

A)  not purchase the machine because the expected rate of return exceeds the interest rate. 
B)  purchase the machine because the expected rate of return exceeds the interest rate. 
C)  not purchase the machine because the interest rate exceeds the expected rate of return. 
D)  purchase the machine because the interest rate exceeds the expected rate of return. 
A)  not purchase the machine because the expected rate of return exceeds the interest rate. 
B)  purchase the machine because the expected rate of return exceeds the interest rate. 
C)  not purchase the machine because the interest rate exceeds the expected rate of return. 
D)  purchase the machine because the interest rate exceeds the expected rate of return.

Question 7

The saving schedule is such that as aggregate income increases by a certain amount, saving:

Accepted Answer

A)  increases by the same amount as the increase in income. 
B)  does not change. 
C)  increases. 
D)  decreases. 
A)  increases by the same amount as the increase in income. 
B)  does not change. 
C)  increases. 
D)  decreases.

Question 8

-Refer to the above diagram. The break-even level of income is:

Accepted Answer

A)  zero. 
B)  $150. 
C)  $60. 
D)  $120. 
A)  zero. 
B)  $150. 
C)  $60. 
D)  $120.

Question 9

-Refer to the above data. The slope of the saving schedule is:

Accepted Answer

A)  .80. 
B)  .10. 
C)  .20. 
D)  .15. 
A)  .80. 
B)  .10. 
C)  .20. 
D)  .15.

Question 10

The practical significance of the multiplier is that it:

Accepted Answer

A)  brings about an equality of planned investment and saving. 
B)  magnifies relatively small initial changes in spending into larger changes in GDP. 
C)  keeps inflation within tolerable limits. 
D)  helps to stabilize the economy. 
A)  brings about an equality of planned investment and saving. 
B)  magnifies relatively small initial changes in spending into larger changes in GDP. 
C)  keeps inflation within tolerable limits. 
D)  helps to stabilize the economy.

Question 11

If the saving schedule is a straight line, the:

Accepted Answer

A)  MPS must be constant. 
B)  APS must be constant. 
C)  APC must be constant. 
D)  MPC must be rising. 
A)  MPS must be constant. 
B)  APS must be constant. 
C)  APC must be constant. 
D)  MPC must be rising.

Question 12

One can determine the amount of consumption at any level of total income by:

Accepted Answer

A)  multiplying total income by the slope of the consumption schedule. 
B)  multiplying total income by the APC. 
C)  subtracting the MPS from total income. 
D)  multiplying total income by the MPC. 
A)  multiplying total income by the slope of the consumption schedule. 
B)  multiplying total income by the APC. 
C)  subtracting the MPS from total income. 
D)  multiplying total income by the MPC.

Question 13

-Refer to the above diagram. The MPC and APC are both constant as income increases for:

Accepted Answer

A)  none of the consumption schedules shown. 
B)  C3 only. 
C)  C3 and C4 only. 
D)  C1 and C2 only. 
A)  none of the consumption schedules shown. 
B)  C3 only. 
C)  C3 and C4 only. 
D)  C1 and C2 only.

Question 14

The following table illustrates the multiplier process in a private closed economy:
  
-Refer to the above table. The marginal propensity to save is:

Accepted Answer

A)  .5. 
B)  .25. 
C)  .2. 
D)  .1. 
A)  .5. 
B)  .25. 
C)  .2. 
D)  .1.

Question 15

A decline in disposable income:

Accepted Answer

A)  increases consumption by moving upward along a specific consumption schedule. 
B)  decreases consumption because it shifts the consumption schedule downward. 
C)  decreases consumption by moving downward along a specific consumption schedule. 
D)  increases consumption because it shifts the consumption schedule upward. 
A)  increases consumption by moving upward along a specific consumption schedule. 
B)  decreases consumption because it shifts the consumption schedule downward. 
C)  decreases consumption by moving downward along a specific consumption schedule. 
D)  increases consumption because it shifts the consumption schedule upward.

Question 16

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. If the real interest rate is 15 percent, what amount of investment will be undertaken?

Accepted Answer

A)  $15 
B)  $30 
C)  $45 
D)  $60 
A)  $15 
B)  $30 
C)  $45 
D)  $60

Question 17

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round, income will eventually decline by:

Accepted Answer

A)  $400 billion. 
B)  $300 billion. 
C)  $200 billion. 
D)  $500 billion. 
A)  $400 billion. 
B)  $300 billion. 
C)  $200 billion. 
D)  $500 billion.

Question 18

-Refer to the above diagram. At disposable income level D, the average propensity to save is equal to:

Accepted Answer

A)  CD/BD. 
B)  CD/OD. 
C)  OD/CD. 
D)  OA/OB. 
A)  CD/BD. 
B)  CD/OD. 
C)  OD/CD. 
D)  OA/OB.

Question 19

The business investment is not based on the expected returns.

Accepted Answer

A) True 
 B)False

Question 20

If the MPS is 1, the multiplier will be 1.

Accepted Answer

A) True 
 B)False

The greater the MPC, the greater the multiplier.

A specific investment will be undertaken if the expected rate of returns, r, exceeds the interest rate, i.

The use of 1/MPS formula as the size of the multiplier in the economy, overstates the actual size of it because:

Suppose that the level of GDP increased by $100 billion in an economy where the marginal propensity to consume is 0.5. The initial change in spending must have been:

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:

If the firm in the previous question finds it can borrow funds at an interest rate of 10 percent the firm should:

The saving schedule is such that as aggregate income increases by a certain amount, saving:

-Refer to the above diagram. The break-even level of income is:

-Refer to the above data. The slope of the saving schedule is:

The practical significance of the multiplier is that it:

If the saving schedule is a straight line, the:

One can determine the amount of consumption at any level of total income by:

-Refer to the above diagram. The MPC and APC are both constant as income increases for:

The following table illustrates the multiplier process in a private closed economy: -Refer to the above table. The marginal propensity to save is:

A decline in disposable income:

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round, income will eventually decline by:

-Refer to the above diagram. At disposable income level D, the average propensity to save is equal to:

The business investment is not based on the expected returns.

If the MPS is 1, the multiplier will be 1.

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

The greater the MPC, the greater the multiplier.

A specific investment will be undertaken if the expected rate of returns, r, exceeds the interest rate, i.

The use of 1/MPS formula as the size of the multiplier in the economy, overstates the actual size of it because:

Suppose that the level of GDP increased by $100 billion in an economy where the marginal propensity to consume is 0.5. The initial change in spending must have been:

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:

If the firm in the previous question finds it can borrow funds at an interest rate of 10 percent the firm should:

The saving schedule is such that as aggregate income increases by a certain amount, saving:

-Refer to the above diagram. The break-even level of income is:

-Refer to the above data. The slope of the saving schedule is:

The practical significance of the multiplier is that it:

If the saving schedule is a straight line, the:

One can determine the amount of consumption at any level of total income by:

-Refer to the above diagram. The MPC and APC are both constant as income increases for:

The following table illustrates the multiplier process in a private closed economy: -Refer to the above table. The marginal propensity to save is:

A decline in disposable income:

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round, income will eventually decline by:

-Refer to the above diagram. At disposable income level D, the average propensity to save is equal to:

The business investment is not based on the expected returns.

If the MPS is 1, the multiplier will be 1.

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