Question 1

According to Keynes

Accepted Answer

A)  consumption is positively related to the interest rate. 
B)  consumption is directly related to income but saving is inversely related to income. 
C)  both consumption and saving are positively related to real disposable income. 
D)  consumption is directly related to income but saving has no relationship with income.

Question 2

Explain how the aggregate demand curve is related to the C + I + G + X curve.

Accepted Answer

The answer of Explain how the aggregate demand curve is...

Question 3

When the equilibrium price level adjusts to an increase in autonomous investment spending, the impact of the multiplier effect resulting from that spending increase

Accepted Answer

A)  will increase real GDP by an amount smaller than the multiplier effect would indicate. 
B)  will increase nominal GDP by an amount smaller than the multiplier effect would indicate. 
C)  will have no impact on the real GDP. 
D)  is only felt when there are changes in consumption.

Question 4

Which one of the following statements is TRUE?

Accepted Answer

A)  In the classical model, the supply of saving is determined by the rate of interest. 
B)  In the classical model, the supply of saving is determined by the level of income. 
C)  In the Keynesian model, the supply of saving is determined by the rate of interest. 
D)  In the Keynesian model, the supply of saving is determined by the level of investment.

Question 5

If the MPS is 1/3, a $200 increase in net exports will

Accepted Answer

A)  reduce real Gross Domestic Product (GDP) by $600. 
B)  reduce real Gross Domestic Product (GDP) by $300. 
C)  increase real Gross Domestic Product (GDP) by $300. 
D)  increase real Gross Domestic Product (GDP) by $600.

Question 6

When graphing the consumption function, what purpose is served by the 45-degree line?

Accepted Answer

A)  It identifies all the points at which saving and consumption spending are equal. 
B)  It identifies all the points at which real disposable income and planned real consumption spending are equal. 
C)  It identifies all the points at which real planned investment expenditure and real autonomous consumption spending are equal. 
D)  It identifies all the points where real dissaving and saving are equal.

Question 7

-Refer to the above figure. The figure represents the consumption function for a consumer. The distance between C and D represents

Accepted Answer

A)  the amount of autonomous consumption. 
B)  the amount of saving. 
C)  the amount of dissaving. 
D)  the point where saving equals zero.

Question 8

-Refer to the above figure. The figure represents the saving function for the consumer. Point A represents

Accepted Answer

A)  the amount of autonomous consumption. 
B)  a situation in which saving is positive. 
C)  a situation in which saving is negative. 
D)  the point at which saving equals zero.

Question 9

Suppose marginal propensity to consume (MPC) is 0.7 and there is a $100 increase in autonomous consumption. Given this information, real GDP will increase by

Accepted Answer

A)  $333. 
B)  $143. 
C)  $1,000. 
D)  $700.

Question 10

-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 marginal propensity to consume?

Accepted Answer

A)  0 
B)  0.3 
C)  0.7 
D)  1

Question 11

-The above figure shows a consumption function and a 45-degree line. Real consumption is a function of disposable income. Why is real GDP used here instead? What is measured along the vertical axis? What is measured by point B? Explain the significance of point A.

Accepted Answer

The answer of 
-The above figure shows a consumption function...

Question 12

Suppose that there is no government and no international trade. When C + I is less than the level of real GDP

Accepted Answer

A)  unplanned inventories decrease, and real GDP expands. 
B)  unplanned inventories increase, and real GDP contracts. 
C)  unplanned inventories equal zero, and there is no change in the level of real GDP. 
D)  real planned investment spending equals real planned saving.

Question 13

-Use the above table. Dissaving occurs up to a disposable income level of

Accepted Answer

A)  $0. 
B)  $50. 
C)  $100. 
D)  $150.

Question 14

Ignoring the government and foreign sectors, if planned investment spending is $50 billion, planned saving is $80 billion, and real Gross Domestic Product (GDP) is $130 billion, then unplanned inventories will

Accepted Answer

A)  decrease $30 billion. 
B)  increase $30 billion. 
C)  increase $80 billion. 
D)  not change.

Question 15

If the MPC is 0.75, the multiplier is equal to

Accepted Answer

A)  0.25. 
B)  0.75/0.25 = 3. 
C)  4. 
D)  5.

Question 16

The ratio of the change in consumption to the change in disposable income is the

Accepted Answer

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

Question 17

Which one of the following is TRUE?

Accepted Answer

A)  APS = 1 / MPS 
B)  APC = 1 - APS 
C)  MPS + APS = 1 
D)  APC * APS = 1

Question 18

Thinking as an economist would, which is TRUE of investment?

Accepted Answer

A)  It is the portion of disposable income that is not used for consumption or saving. 
B)  Investment represents spending on capital goods. 
C)  Investment is putting money into stocks and bonds. 
D)  Investment is a stock concept.

Question 19

-Refer to the above figure. The marginal propensity to consume and the marginal propensity to save

Accepted Answer

A)  are 0.90 and 0.10, respectively. 
B)  are 0.83 and 0.17, respectively. 
C)  are 0.75 and 0.25, respectively. 
D)  depend on the level of income.

Question 20

If the multiplier is 2, the marginal propensity to consume (MPC) must be

Accepted Answer

A)  0.25. 
B)  0.4. 
C)  0.5. 
D)  1.

Exam 12: Consumption, Real GDP, and the Multiplier