Question 1

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

Question 2

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

Question 3

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

Question 4

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

Question 5

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) A) and C)
F) None of the above

Question 6

1 + MPS = MPC.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

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) C) and D)
F) None of the above

Question 9

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

Question 10

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

Question 11

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) B) and D)
F) A) and B)

Question 12

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) None of the above
F) B) and D)

Question 13

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

Question 14

1 - MPC = MPS.

Accepted Answer

A) True 
 B)False

Question 15

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) All of the above

Question 16

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) C) and D)

Question 17

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

Question 18

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

Accepted Answer

A) True 
 B)False

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) None of the above
F) C) and D)

Question 20

The greater the MPC, the greater the multiplier.

Accepted Answer

A) True 
 B)False

Exam 10: Part B: Basic Macroeconomic Relationships

The real interest rate is:

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1 + MPS = MPC.

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The greater the MPC, the greater the multiplier.

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

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

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Technological progress will:

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The simple multiplier may be calculated as:

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

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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:

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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:

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1 - MPC = MPS.

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The greater is the marginal propensity to consume:

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

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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 multiplier effect means that:

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Firms make planned changes to their inventories:

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

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

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The MPC can be defined as the fraction of a:

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

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