Question 1

The saving schedule shown in the diagram below would shift downward if, all else equal:

Accepted Answer

A)   the average propensity to save increased at each income level.
B)   the marginal propensity to save rose at each income level.
C)   consumer wealth rose rapidly because of a significant increase in stock market prices.
D)   the real interest rate increased.

Question 2

If the marginal propensity to save is 0.2 in a private closed 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.

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 save:

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.

Question 4

-The above table reflects a(n) :

Accepted Answer

A)   interest rate schedule.
B)   demand-for-money schedule.
C)   investment-demand schedule.
D)   profit schedule.

Question 5

Other things equal, if the real interest rate falls and business taxes rise:

Accepted Answer

A)   investment will rise until it is equal to saving.
B)   we will be uncertain as to the resulting change in investment.
C)   we can be certain that investment will rise.
D)   we can be certain that investment will fall.

Question 6

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:

Accepted Answer

A)   80 percent.
B)   8 percent.
C)   2 percent.
D)   20 percent.

Question 7

A business firm will purchase additional capital goods if the real rate of interest it must pay is less than the expected rate of return from the investment.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following will not tend to shift the consumption schedule upward?

Accepted Answer

A)   a currently small stock of durable goods in the possession of consumers
B)   the expectation of a future decline in the consumer price index
C)   a currently low level of household debt.
D)   the expectation of future shortages of essential consumer goods.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

The slope of the consumption schedule is measured by the MPC.

Accepted Answer

A) True 
 B)False

Question 11

-The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the highest marginal propensity to consume?

Accepted Answer

A)   1
B)   2
C)   3
D)   4

Question 12

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

Accepted Answer

A)   CD/0D.
B)   0B/0A.
C)   0D/0D.
D)   CD/BD.

Question 13

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

Accepted Answer

A)   18 percent.
B)   24 percent.
C)   12 percent.
D)   6 percent.

Question 14

The APC 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)   specific level of total income which is not consumed.
D)   specific level of total income which is consumed.

Question 15

Suppose an economy's consumption schedule shifts from C1 to C 2 as shown in the diagram below. We can say that its: 1 to C 2 as shown in the diagram below. We can say that its:   A)  MPC has increased but its APC at each income level is unchanged. B)  APC at each income level is increased but its MPC is unchanged. C)  MPC and APC at each income level have both increased. D)  MPC and APC at each income level have both decreased." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   MPC has increased but its APC at each income level is unchanged.
B)   APC at each income level is increased but its MPC is unchanged.
C)   MPC and APC at each income level have both increased.
D)   MPC and APC at each income level have both decreased.

Question 16

If the marginal propensity to consume is 0.9 in a private closed economy, a $20 billion decline in investment spending will decrease:

Accepted Answer

A)   GDP by $20 billion.
B)   GDP by $100 billion.
C)   saving by $20 billion.
D)   consumption by $200 billion.

Question 17

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.

Question 18

Suppose a family's consumption exceeds its disposable income. This means that its:

Accepted Answer

A)   MPC is greater than 1.
B)   MPS is negative.
C)   APC is greater than 1.
D)   APS is positive.

Question 19

The multiplier:

Accepted Answer

A)   varies directly with the slope of the investment-demand schedule.
B)   is unrelated to the slope of the saving schedule.
C)   will be greater, the smaller the slope of the saving schedule.
D)   will be greater, the steeper the slope of the saving schedule.

Question 20

The consumption schedule is drawn on the assumption that as disposable income increases consumption will:

Accepted Answer

A)   be unaffected.
B)   increase absolutely, but remain constant as a percentage of income.
C)   increase absolutely, but decline as a percentage of income.
D)   increase absolutely and as a percentage of income.

Exam 8: Basic Macroeconomic Relationships

Other things equal, if the real interest rate falls and business taxes rise:

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

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-The above table reflects a(n) :

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If the marginal propensity to consume is 0.9 in a private closed economy, a $20 billion decline in investment spending will decrease:

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The saving schedule shown in the diagram below would shift downward if, all else equal:

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-The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the highest marginal propensity to consume?

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

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Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:

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Which of the following will not tend to shift the consumption schedule upward?

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Suppose an economy's consumption schedule shifts from C1 to C 2 as shown in the diagram below. We can say that its:

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The APC can be defined as the fraction of a:

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The slope of the consumption schedule is measured by the MPC.

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The consumption schedule is drawn on the assumption that as disposable income increases consumption will:

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A business firm will purchase additional capital goods if the real rate of interest it must pay is less than the expected rate of return from the investment.

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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 save:

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

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The multiplier:

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Suppose a family's consumption exceeds its disposable income. This means that its:

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If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

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

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Suppose an economy's consumption schedule shifts from C₁ to C ₂ as shown in the diagram below. We can say that its:

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