Question 1

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) A) and B)
F) A) and C)

Question 2

If the marginal propensity to consume is .9, then the marginal propensity to save must be:

Accepted Answer

A)   1.
B)   .1.
C)   1.1.
D)   .9.E) A) and C)
F) A) and B)

Question 3

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. The marginal propensity to consume in economy (1) :

Accepted Answer

A)   is .5.
B)   is .3.
C)   is .8.
D)   is .7.E) All of the above
F) A) and B)

Question 4

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 D)
F) A) and B)

Question 5

For all levels of income to the left of the intersection of the 45-degree line and the consumption schedule, the APC is:

Accepted Answer

A)   greater than 100 percent.
B)   less than the APS.
C)   equal to the MPC.
D)   equal to 100 percent.E) A) and D)
F) B) and C)

Question 6

If the consumption schedule is linear, then the:

Accepted Answer

A)   saving schedule will also be linear.
B)   MPS will decline as income rises.
C)   MPC will decline as income rises.
D)   APC will be constant at all levels of income.E) None of the above
F) B) and D)

Question 7

Assume the saving schedule for a private closed economy is S = -20 + 0.2Y, where S is saving and Y is gross domestic product. The multiplier for this economy:

Accepted Answer

A)   is 3.
B)   is 4.
C)   is 5.
D)   cannot be determined from the information given.E) All of the above
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)   10.E) A) and C)
F) All of the above

Question 9

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 B)

Question 10

As disposable income increases, consumption:

Accepted Answer

A)   and saving both increase.
B)   and saving both decrease.
C)   decreases and saving increases.
D)   increases and saving decreases.E) A) and C)
F) C) and D)

Question 11

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)   $80.E) B) and D)
F) A) and B)

Question 12

The relationship between the real interest rate and investment is shown by the:

Accepted Answer

A)   investment-demand schedule.
B)   consumption of fixed capital schedule.
C)   saving schedule.
D)   aggregate supply curve.E) C) and D)
F) None of the above

Question 13

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

Accepted Answer

A)   $100.
B)   $20.
C)   $80.
D)   $200.E) A) and C)
F) C) and D)

Question 14

-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 D)
F) B) and D)

Question 15

The size of the simple multiplier is equal to the:

Accepted Answer

A)   slope of the consumption schedule.
B)   reciprocal of the slope of the consumption schedule.
C)   slope of the saving schedule.
D)   reciprocal of the slope of the saving schedule.E) None of the above
F) B) and C)

Question 16

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

Question 17

When we draw an investment demand curve we hold constant all of the following except:

Accepted Answer

A)   the expected rate of return from the investment.
B)   the interest rate.
C)   business taxes.
D)   the present stock of capital goods.E) A) and B)
F) A) and C)

Question 18

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

Accepted Answer

A)   the availability of excess productive capacity.
B)   an increase in business taxes.
C)   businesses becoming more optimistic with respect to future business conditions.
D)   an increase in the real interest rate.E) A) and D)
F) None of the above

Question 19

-The above schedule indicates that if the real interest rate is 8 percent, then:

Accepted Answer

A)   we cannot tell what volume of investment will be profitable.
B)   $30 billion will be both saved and invested.
C)   $30 billion of investment will be undertaken.
D)   $60 billion of investment will be undertaken.E) A) and D)
F) A) and C)

Question 20

The consumption schedule relates:

Accepted Answer

A)   consumption to the level of disposable income.
B)   saving to the level of disposable income.
C)   disposable income to domestic income.
D)   consumption to saving.E) B) and C)
F) B) and D)

Exam 8: Basic Macroeconomic Relationships

When we draw an investment demand curve we hold constant all of the following except:

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-The above schedule indicates that if the real interest rate is 8 percent, then:

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The consumption schedule relates:

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If the marginal propensity to consume is .9, then the marginal propensity to save must be:

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For all levels of income to the left of the intersection of the 45-degree line and the consumption schedule, the APC is:

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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 size of the simple multiplier is equal to the:

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The average propensity to consume indicates the:

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

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

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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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If the consumption schedule is linear, then the:

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

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

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The relationship between the real interest rate and investment is shown by the:

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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. The marginal propensity to consume in economy (1) :

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

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As disposable income increases, consumption:

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Assume the saving schedule for a private closed economy is S = -20 + 0.2Y, where S is saving and Y is gross domestic product. The multiplier for this economy:

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