Question 1

The ________ of the late 1990s was an example of the wealth effect, while _______ of 2008 was an example of the reverse wealth effect.

Accepted Answer

A)  declining stock values; skyrocketing market prices.
B)  skyrocketing stock values; plunging market prices.
C)  declining market prices; plunging market prices.
D)  tech bust; real estate boom.E) A) and B)
F) A) and C)

Question 2

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

Accepted Answer

A)  .80.
B)  .75.
C)  .20.
D)  .25.E) A) and B)
F) A) and D)

Question 3

Given the expected rate of return on all possible investment opportunities in the economy:

Accepted Answer

A)  an increase in the real rate of interest will reduce the level of investment.
B)  a decrease in the real rate of interest will reduce the level of investment.
C)  a change in the real interest rate will have no impact upon the level of investment.
D)  an increase in the real interest rate will increase the level of investment.E) A) and B)
F) A) and C)

Question 4

Which of the following is correct?

Accepted Answer

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

Question 5

Refer to the above diagram.The average propensity to consume:

Accepted Answer

A)  is greater than 1 at all levels of disposable income above $100.
B)  is greater than 1 at all levels of disposable income below $100.
C)  is equal to the average propensity to save.
D)  cannot be determined from the information given.E) A) and B)
F) B) and D)

Question 6

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.E) A) and B)
F) B) and C)

Question 7

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.E) A) and B)
F) A) and C)

Question 8

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)  4E) All of the above
F) None of the above

Question 9

Assume a machine which has a useful life of only one year costs $2,000.Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300.The expected rate of return on this machine is:

Accepted Answer

A)  7.5 percent.
B)  10 percent.
C)  15 percent.
D)  20 percent.E) B) and D)
F) None of the above

Question 10

The average propensity to consume indicates the:

Accepted Answer

A)  amount by which income exceeds consumption.
B)  relationship between a change in saving and the consequent change in consumption.
C)  percentage of total income which will be consumed.
D)  percentage of a change in income which will be consumed.E) B) and C)
F) C) and D)

Question 11

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) A) and D)
F) A) and C)

Question 12

The following table illustrates the multiplier process in a private closed economy:  Refer to the above table.The total change in consumption resulting from the initial change in investment will be:

Accepted Answer

A)  $100
B)  $96
C)  $180
D)  $80E) All of the above
F) None of the above

Question 13

Refer to the consumption schedules shown in the above diagram for economies 1, 2, 3, and 4.The MPC is greatest in economy:

Accepted Answer

A)  1
B)  2
C)  3
D)  4E) All of the above
F) A) and B)

Question 14

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

Accepted Answer

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

Question 15

Refer to the above diagram.At disposable income level D, consumption:

Accepted Answer

A)  is equal to CD.
B)  is equal to OD minus CD.
C)  is equal to CD/OD.
D)  is equal to CD plus BD.E) A) and B)
F) B) and D)

Question 16

If the MPC is constant at various levels of income, then the APC must also be constant at all of these income levels.

Accepted Answer

A) True 
 B)False

Question 17

If business taxes are reduced and the real interest rate increases:

Accepted Answer

A)  consumption and saving will necessarily increase.
B)  the level of investment spending might either increase or decrease.
C)  the level of investment spending will necessarily increase.
D)  the level of investment spending will necessarily decrease.E) None of the above
F) A) and B)

Question 18

The most important determinant of consumer spending is:

Accepted Answer

A)  the level of household debt.
B)  consumer expectations.
C)  the stock of wealth.
D)  the level of disposable income.E) B) and C)
F) B) and D)

Question 19

Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars.  Refer to the above data.At an income level of $40 billion, the average propensity to consume:

Accepted Answer

A)  is highest in economy (1) .
B)  is highest in economy (2) .
C)  is highest in economy (3) .
D)  cannot be determined from the data given.E) B) and D)
F) B) and C)

Question 20

Refer to the above diagram.At income level F the volume of saving is:

Accepted Answer

A)  BD.
B)  AB.
C)  CF - BF.
D)  DC.E) None of the above
F) A) and C)

Exam 10: B: Basic Macroeconomic Relationships

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

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Assume a machine which has a useful life of only one year costs $2,000.Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300.The expected rate of return on this machine is:

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Refer to the above diagram.At disposable income level D, consumption:

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Refer to the above diagram.The average propensity to consume:

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Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the above data.At an income level of $40 billion, the average propensity to consume:

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Refer to the consumption schedules shown in the above diagram for economies 1, 2, 3, and 4.The MPC is greatest in economy:

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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:

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Which of the following is correct?

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The multiplier effect means that:

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If business taxes are reduced and the real interest rate increases:

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The most important determinant of consumer spending is:

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The average propensity to consume indicates the:

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Refer to the above diagram.At income level F the volume of saving is:

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The following table illustrates the multiplier process in a private closed economy: Refer to the above table.The total change in consumption resulting from the initial change in investment will be:

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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?

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Given the expected rate of return on all possible investment opportunities in the economy:

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

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If the MPC is constant at various levels of income, then the APC must also be constant at all of these income levels.

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The ________ of the late 1990s was an example of the wealth effect, while _______ of 2008 was an example of the reverse wealth effect.

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

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The __ of the late 1990s was an example of the wealth effect, while _ of 2008 was an example of the reverse wealth effect.

Correct Answer
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