Question 1

The average propensity to consume can be defined as income divided by consumption.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the above diagram.The equation for the saving schedule is:

Accepted Answer

A)  S = .6Y.
B)  Y = 60 + .6S.
C)  S = 60 + .4Y.
D)  S = -60 + .4Y.E) A) and C)
F) A) and B)

Question 3

If the MPC is .70 and gross investment increases by $3 billion, the equilibrium GDP will:

Accepted Answer

A)  increase by about $10 billion.
B)  increase by $2.10 billion.
C)  decrease by $4.29 billion.
D)  increase by $4.29 billion.E) All of the above
F) A) and D)

Question 4

Which one of the following will cause a movement up along an economy's saving schedule?

Accepted Answer

A)  an increase in household debt outstanding
B)  an increase in disposable income
C)  an increase in stock prices
D)  an increase in interest ratesE) None of the above
F) C) and D)

Question 5

The equation C = 35 + .75Y, where C is consumption and Y is disposable income, tells us that:

Accepted Answer

A)  households will consume three-fourths of whatever level of disposable income they receive.
B)  households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.
C)  there is an inverse relationship between disposable income and consumption.
D)  households will save $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.E) All of the above
F) A) and B)

Question 6

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.E) A) and B)
F) None of the above

Question 7

Holly's break-even level of income is $10,000 and her MPC is 0.75.If her actual disposable income is $16,000, her level of:

Accepted Answer

A)  consumption spending will be $14,500.
B)  consumption spending will be $4,500.
C)  consumption spending will be $13,000.
D)  saving will be $2,500.E) None of the above
F) A) and B)

Question 8

The MPC can be defined as the fraction of a:

Accepted Answer

A)  change in income which is not spent.
B)  change in income which is spent.
C)  given total income which is not consumed.
D)  given total income which is consumed.E) A) and B)
F) A) and C)

Question 9

The greater is the marginal propensity to consume:

Accepted Answer

A)  the smaller is the marginal propensity to save.
B)  the higher is the interest rate.
C)  the lower is the average propensity to consume.
D)  the lower is the price level.E) A) and D)
F) B) and C)

Question 10

The simple multiplier may be calculated as:

Accepted Answer

A)  1/(MPS + MP
C)  .
B)  1/(1 - MP
C)  .
C)  MPC/MPS.
D)  1 - MPC = MPS.E) None of the above
F) C) and D)

Question 11

1 + MPS = MPC.

Accepted Answer

A) True 
 B)False

Question 12

If Ben's MPC is .80, this means that he will:

Accepted Answer

A)  spend eight-tenths of any increase in his disposable income.
B)  spend eight-tenths of any level of disposable income.
C)  break even when his disposable income is $8,000.
D)  save eight-tenths of any level of disposable income.E) A) and D)
F) B) and C)

Question 13

The multiplier effect means that:

Accepted Answer

A)  consumption is typically several times as large as saving.
B)  a small change in consumption demand can cause a much larger increase in investment.
C)  a small decline in the MPC can cause equilibrium GDP to rise by several times that amount.
D)  a small increase in investment can cause national income to change by a larger amount.E) C) and D)
F) None of the above

Question 14

Technological progress will:

Accepted Answer

A)  shift the investment schedule downward and increase the level of employment.
B)  shift the investment schedule downward and decrease the level of employment.
C)  increase unplanned investment in inventories.
D)  shift the investment schedule upward and increase the equilibrium level of GDP.E) A) and B)
F) A) and C)

Question 15

The investment-demand curve will shift to the right as a result of:

Accepted Answer

A)  an increase in the excess productive capacity available in industry.
B)  an increase in business taxes.
C)  technological progress.
D)  an increase in the acquisition and maintenance cost of capital goods.E) B) and D)
F) A) and B)

Question 16

1 - MPC = MPS.

Accepted Answer

A) True 
 B)False

Question 17

The real interest rate is:

Accepted Answer

A)  the percentage increase in money that the lender receives on a loan.
B)  the nominal rate less the rate of inflation.
C)  also called the after-tax interest rate.
D)  usually higher than the nominal interest rate.E) None of the above
F) C) and D)

Question 18

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then other things equal:

Accepted Answer

A)  investment will take place until i and r are equal.
B)  investment will take place until r exceeds i by the greatest amount.
C)  r will rise as more investment is undertaken.
D)  i will rise as more investment is undertaken.E) A) and B)
F) A) and C)

Question 19

Firms make planned changes to their inventories:

Accepted Answer

A)  if they are expecting either faster or slower sales.
B)  if they are expecting a faster sale.
C)  if they are expecting a slower sale.
D)  if they are expecting a decrease in labor costs.E) C) and D)
F) B) and C)

Question 20

The greater the MPC, the greater the multiplier.

Accepted Answer

A) True 
 B)False

Exam 10: Part B: Basic Macroeconomic Relationships

Holly's break-even level of income is $10,000 and her MPC is 0.75.If her actual disposable income is $16,000, her level of:

Correct AnswerverifiedShow Answer

The equation C = 35 + .75Y, where C is consumption and Y is disposable income, tells us that:

Correct AnswerverifiedShow Answer

Refer to the above diagram.The equation for the saving schedule is:

Correct AnswerverifiedShow Answer

If the MPC is .70 and gross investment increases by $3 billion, the equilibrium GDP will:

Correct AnswerverifiedShow Answer

Which one of the following will cause a movement up along an economy's saving schedule?

Correct AnswerverifiedShow Answer

The MPC can be defined as the fraction of a:

Correct AnswerverifiedShow Answer

The simple multiplier may be calculated as:

Correct AnswerverifiedShow Answer

If Ben's MPC is .80, this means that he will:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

1 + MPS = MPC.

Correct AnswerverifiedShow Answer

The investment-demand curve will shift to the right as a result of:

Correct AnswerverifiedShow Answer

Technological progress will:

Correct AnswerverifiedShow Answer

1 - MPC = MPS.

Correct AnswerverifiedShow Answer

Firms make planned changes to their inventories:

Correct AnswerverifiedShow Answer

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then other things equal:

Correct AnswerverifiedShow Answer

The multiplier effect means that:

Correct AnswerverifiedShow Answer

The greater is the marginal propensity to consume:

Correct AnswerverifiedShow Answer

The real interest rate is:

Correct AnswerverifiedShow Answer

The average propensity to consume can be defined as income divided by consumption.

Correct AnswerverifiedShow Answer

The greater the MPC, the greater the multiplier.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified