Question 1

The amount of consumption in an economy correlates

Accepted Answer

A)  inversely with the level of disposable income.
B)  directly with the level of disposable income.
C)  directly with the level of saving.
D)  directly with the rate of interest.E) A) and D)
F) A) and C)

Question 2

If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to

Accepted Answer

A)  consume is 0.80.
B)  consume is 0.75.
C)  consume is 0.60.
D)  save is 0.30.E) B) and D)
F) B) and C)

Question 3

An increase in business taxes will tend to shift the investment-demand curve rightward.

Accepted Answer

A) True 
 B)False

Question 4

The slope of the consumption schedule between two points on the schedule is

Accepted Answer

A)  the ratio of the change in consumption to the change in disposable income between those two points.
B)  the ratio of the change in disposable income over the change in consumption between those two points.
C)  equivalent to one plus the marginal propensity to save.
D)  equivalent to the average propensity to consume.E) All of the above
F) B) and C)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

An increase in spending of $25 billion increases real GDP from $600 billion to $700 billion.The marginal propensity to consume must be

Accepted Answer

A)  0.25, and the multiplier is 4.
B)  0.50, and the multiplier is 2.
C)  0.75, and the multiplier is 4.
D)  0.80, and the multiplier is 5.E) B) and C)
F) B) and D)

Question 7

If the Hennige family's marginal propensity to consume is 0.70, then it will necessarily consume seven-tenths of its total income.

Accepted Answer

A) True 
 B)False

Question 8

Assume the MPC is 2/3.If investment spending increases by $2 billion, the level of GDP will increase by

Accepted Answer

A)  $3 billion.
B)  $2/3 billion.
C)  $6 billion.
D)  $2 billion.E) A) and B)
F) All of the above

Question 9

Art Buchwald's article in the Last Word section of the chapter, "Squaring the Economic Circle," is a humorous description of

Accepted Answer

A)  the multiplier effect.
B)  a recessionary gap.
C)  an inflationary gap.
D)  the marginal propensity to save.E) C) and D)
F) B) and D)

Question 10

Investment is not affected by current profits; it is affected by expected future profits only.

Accepted Answer

A) True 
 B)False

Question 11

A decline in the real interest rate will shift the investment demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 12

(Last Word)  Art Buchwald's article "Squaring the Economic Circle" is a humorous description of

Accepted Answer

A)  a negative GDP gap.
B)  a positive GDP gap.
C)  the marginal propensity to save.
D)  the multiplier.E) A) and D)
F) A) and C)

Question 13

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase

Accepted Answer

A)  GDP by $120 billion.
B)  GDP by $20 billion.
C)  saving by $25 billion.
D)  consumption by $80 billion.E) A) and B)
F) A) and C)

Question 14

In a private closed economy, national income is $4.5 trillion and saving equals $6.4 billion.Based on these data, the marginal propensity to consume

Accepted Answer

A)  decreases as income increases.
B)  is greater than the marginal propensity to save.
C)  is less than the average propensity to consume.
D)  cannot be calculated from the data given.E) B) and C)
F) C) and D)

Question 15

The most important determinant of consumption and saving is the

Accepted Answer

A)  level of bank credit.
B)  level of income.
C)  interest rate.
D)  price level.E) C) and D)
F) B) and D)

Question 16

Which of the following factors does not help explain the instability of investment?

Accepted Answer

A)  Business expectations can quickly change for unpredictable reasons.
B)  Innovations in the economy occur quite irregularly.
C)  Profits of firms are highly variable from one period to the next.
D)  Purchases of capital goods are usually nondiscretionary and cannot be postponed.E) B) and C)
F) C) and D)

Question 17

Which factor explains the variability of investment?

Accepted Answer

A)  the regularity of innovation
B)  the durability of capital goods
C)  the constancy of expectations
D)  the constancy of profitsE) B) and C)
F) C) and D)

Question 18

The MPC can be defined as the

Accepted Answer

A)  change in consumption divided by the change in income.
B)  change in income divided by the change in consumption.
C)  ratio of income to saving.
D)  ratio of saving to consumption.E) All of the above
F) C) and D)

Question 19

The average propensity to save is equal to the percentage of total income that is saved.

Accepted Answer

A) True 
 B)False

Question 20

The most important determinant of consumer spending is

Accepted Answer

A)  the level of household borrowing.
B)  consumer expectations.
C)  the stock of wealth.
D)  the level of income.E) C) and D)
F) None of the above

Exam 30: Basic Macroeconomic Relationships

The amount of consumption in an economy correlates

Correct AnswerverifiedShow Answer

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase

Correct AnswerverifiedShow Answer

If the Hennige family's marginal propensity to consume is 0.70, then it will necessarily consume seven-tenths of its total income.

Correct AnswerverifiedShow Answer

In a private closed economy, national income is $4.5 trillion and saving equals $6.4 billion.Based on these data, the marginal propensity to consume

Correct AnswerverifiedShow Answer

The average propensity to save is equal to the percentage of total income that is saved.

Correct AnswerverifiedShow Answer

The slope of the consumption schedule between two points on the schedule is

Correct AnswerverifiedShow Answer

Investment is not affected by current profits; it is affected by expected future profits only.

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The most important determinant of consumer spending is

Correct AnswerverifiedShow Answer

(Last Word) Art Buchwald's article "Squaring the Economic Circle" is a humorous description of

Correct AnswerverifiedShow Answer

Which of the following factors does not help explain the instability of investment?

Correct AnswerverifiedShow Answer

The most important determinant of consumption and saving is the

Correct AnswerverifiedShow Answer

Art Buchwald's article in the Last Word section of the chapter, "Squaring the Economic Circle," is a humorous description of

Correct AnswerverifiedShow Answer

An increase in business taxes will tend to shift the investment-demand curve rightward.

Correct AnswerverifiedShow Answer

An increase in spending of $25 billion increases real GDP from $600 billion to $700 billion.The marginal propensity to consume must be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to

Correct AnswerverifiedShow Answer

Assume the MPC is 2/3.If investment spending increases by $2 billion, the level of GDP will increase by

Correct AnswerverifiedShow Answer

A decline in the real interest rate will shift the investment demand curve to the right.

Correct AnswerverifiedShow Answer

Which factor explains the variability of investment?

Correct AnswerverifiedShow Answer

The MPC can be defined as the

Correct AnswerverifiedShow Answer

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