Question 1

If Smith's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100,it may be concluded that her marginal propensity to:

Accepted Answer

A)   save is three-fifths.
B)   consume is one-half.
C)   consume is three-fifths.
D)   consume is one-sixth.E) A) and C)
F) B) and C)

Question 2

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) C) and D)
F) B) and C)

Question 3

Suppose the economy's saving schedule shifts from S1 to S 2 as shown in the below diagram.We can say that its: 1 to S 2 as shown in the below diagram.We can say that its:   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." class="answers-bank-image d-inline" rel="preload" >

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.E) A) and D)
F) All of the above

Question 4

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) B) and C)

Question 5

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) None of the above
F) All of the above

Question 6

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

Accepted Answer

A)   zero.
B)   150
C)   60
D)   120E) B) and C)
F) A) and C)

Question 7

If the MPC is .8 and the disposable income is $200,then

Accepted Answer

A)   consumption and saving cannot be determined from the information given.
B)   saving will be $20.
C)   personal consumption expenditures will be $80.
D)   saving will be $40.E) C) and D)
F) B) and C)

Question 8

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

Accepted Answer

A)   2
B)   4
C)   5
D)   10E) None of the above
F) B) and C)

Question 9

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) All of the above
F) B) and D)

Question 10

The consumption schedule shows:

Accepted Answer

A)   a direct relationship between aggregate consumption and accumulated wealth.
B)   a direct relationship between aggregate consumption and aggregate income.
C)   an inverse relationship between aggregate consumption and accumulated financial wealth.
D)   an inverse relationship between aggregate consumption and aggregate income.E) B) and C)
F) A) and D)

Question 11

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

Accepted Answer

A)   an increase in the excess productive capacity available in industry.
B)   a decrease in business taxes.
C)   increased business optimism with respect to future economic conditions.
D)   a decrease in labor costs.E) C) and D)
F) A) and D)

Question 12

Assume the economy's consumption and saving schedules simultaneously shift downward.This must be the result of:

Accepted Answer

A)   an increase in disposable income.
B)   an increase in household wealth.
C)   the expectation of a recession.
D)   an increase in personal taxesE) B) and C)
F) A) and D)

Question 13

The wealth effect will tend to decrease consumption and increase saving.

Accepted Answer

A) True 
 B)False

Question 14

With an MPS of .4,the MPC will be:

Accepted Answer

A)   1.0 minus .4.
B)   .4 minus 1.0.
C)   the reciprocal of the MPS.
D)   .4.E) A) and B)
F) All of the above

Question 15

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

Accepted Answer

A)   AE/0E.
B)   CB/AB.
C)   CF/CD.
D)   CD/CF.E) C) and D)
F) A) and B)

Question 16

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.E) B) and C)
F) All of the above

Question 17

The simple multiplier is:

Accepted Answer

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

Question 18

Which of the following is the primary explanation for most of the fluctuations in output and employment over the course of the business cycle?

Accepted Answer

A)   changes in net exports
B)   changes in the marginal propensity to consume
C)   abrupt changes in stock market prices
D)   changes in investment expendituresE) A) and B)
F) B) and D)

Question 19

If the inflation rate is 10 percent and the real interest rate is 12 percent,the nominal interest rate is:

Accepted Answer

A)   2 percent.
B)   zero percent.
C)   10 percent.
D)   22 percent.E) C) and D)
F) All of the above

Question 20

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

Accepted Answer

A)   .5.
B)   .8.
C)   .75.
D)   .9.E) B) and C)
F) A) and D)

Exam 10: Basic Macroeconomic Relationships

The wealth effect will tend to decrease consumption and increase saving.

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

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

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

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

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With an MPS of .4,the MPC will be:

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

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

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The practical significance of the multiplier is that it:

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

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If Smith's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100,it may be concluded that her marginal propensity to:

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The simple multiplier is:

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

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Assume the economy's consumption and saving schedules simultaneously shift downward.This must be the result of:

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If the MPC is .8 and the disposable income is $200,then

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If the inflation rate is 10 percent and the real interest rate is 12 percent,the nominal interest rate is:

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Which of the following is the primary explanation for most of the fluctuations in output and employment over the course of the business cycle?

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

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The consumption schedule shows:

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

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