Question 1

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the ﬁrst round of the multiplier process and by $75 billion in the second round, income will eventually decline
By

Accepted Answer

A)   $200 billion.
B)   $300 billion.
C)   $400 billion.
D)   $500 billion.

Question 2

Refer to the consumption schedule shown in the graph. At income level 1, the amount of saving is

Accepted Answer

A)   positive.
B)   negative.
C)   zero.
D)   not measurable.

Question 3

If a $50 billion decrease in investment spending causes income to decline by $50 billion in the ﬁrst round of the multiplier process and by $25 in the second round, the multiplier in the economy is

Accepted Answer

A)   2.
B)   3.33.
C)   5.
D)   10.

Question 4

If the consumption schedule is a straight line, it can be concluded that the

Accepted Answer

A)   APC is necessarily constant.
B)   MPC is zero.
C)   MPC is constant at various levels of income.
D)   APC is equal to the MPC.

Question 5

Personal saving is equal to

Accepted Answer

A)   disposable income plus consumption.
B)   consumption minus disposable income.
C)   disposable income minus consumption.
D)   consumption divided by disposable income.

Question 6

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

Accepted Answer

A)   an increase in the excess production 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.

Question 7

With an MPS of 0.3, the MPC will be

Accepted Answer

A)   1 − 0.3.
B)   0.3 − 1.
C)   1/0.3.
D)   0.3.

Question 8

In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the

Accepted Answer

A)   Keynes effect.
B)   interest-rate effect.
C)   wealth effect.
D)   multiplier effect.

Question 9

Disposable Income  Consumption $300$310350340400370450400500430\begin{array} { | c | c | } \hline 	ext { Disposable Income } & 	ext { Consumption } \\hline \$ 300 & \$ 310 \\hline 350 & 340 \\hline 400 & 370 \\hline 450 & 400 \\hline 500 & 430 \\hline\end{array} Disposable Income $300350400450500​ Consumption $310340370400430​​  The table shows a consumption schedule. The marginal propensity to consume is

Accepted Answer

A)   0.80.
B)   0.75.
C)   0.60.
D)   0.40.

Question 10

(Last Word)  Art Buchwald's article "Squaring the Economic Circle" humorously describes how

Accepted Answer

A)   a person's decision not to buy an automobile eventually reduces many people's incomes, including that of the person making the original decision.
B)   a price increase on a single product eventually leads to rapid inﬂation.
C)   an increase in imports eventually leads to a greater increase in exports.
D)   a government tax rate increase eventually results in the government collecting less tax revenue than before the tax rate hike.

Question 11

The MPC can be deﬁned as that fraction of a

Accepted Answer

A)   change in income that is not spent.
B)   change in income that is spent.
C)   given total income that is not consumed.
D)   given total income that is consumed.

Question 12

Refer to the given consumption schedules. DI signiﬁes disposable income and C represents consumption expenditures. All ﬁgures are in billions of dollars. 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 13

If the real interest rate in the economy is i and the expected rate of return on 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 fall as more investment is undertaken.

Question 14

The investment demand curve portrays an inverse (negative)  relationship between

Accepted Answer

A)   investment and real GDP.
B)   the real interest rate and investment.
C)   the nominal interest rate and investment.
D)   the price level and investment.

Question 15

The multiplier is equal to the reciprocal of the MPC.

Accepted Answer

A) True 
 B)False

Question 16

If consumption increases while income remains the same, the average propensity to consume will

Accepted Answer

A)   increase and then decrease.
B)   remain constant.
C)   increase.
D)   decrease.

Question 17

When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift

Accepted Answer

A)   both the consumption and saving schedules downward.
B)   both the consumption and saving schedules upward.
C)   the consumption schedule upward and the saving schedule downward.
D)   the consumption schedule downward and the saving schedule upward.

Question 18

What is the slope of the consumption schedule or consumption line for a given economy?

Accepted Answer

A)   APC
B)   APS
C)   1 − MPC
D)   1 − MPS

Question 19

Refer to the given consumption schedules. DI signiﬁes disposable income and C represents consumption expenditures. All ﬁgures are in billions of dollars. The marginal propensity to consume in
Economy (1)  is

Accepted Answer

A)   0.5.
B)   0.3.
C)   0.8.
D)   0.7.

Question 20

The size of the 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.

Exam 10: Basic Macroeconomic Relationships

(Last Word) Art Buchwald's article "Squaring the Economic Circle" humorously describes how

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The investment demand curve portrays an inverse (negative) relationship between

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If consumption increases while income remains the same, the average propensity to consume will

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What is the slope of the consumption schedule or consumption line for a given economy?

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With an MPS of 0.3, the MPC will be

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If a $50 billion decrease in investment spending causes income to decline by $50 billion in the ﬁrst round of the multiplier process and by $25 in the second round, the multiplier in the economy is

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If the consumption schedule is a straight line, it can be concluded that the

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Personal saving is equal to

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The MPC can be deﬁned as that fraction of a

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The multiplier is equal to the reciprocal of the MPC.

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If a $100 billion decrease in investment spending causes income to decline by $100 billion in the ﬁrst round of the multiplier process and by $75 billion in the second round, income will eventually decline By

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Refer to the given consumption schedules. DI signiﬁes disposable income and C represents consumption expenditures. All ﬁgures are in billions of dollars. The marginal propensity to consume in Economy (1) is

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The size of the multiplier is equal to the

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

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If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then, other things equal,

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Refer to the given consumption schedules. DI signiﬁes disposable income and C represents consumption expenditures. All ﬁgures are in billions of dollars. The marginal propensity to save

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Refer to the consumption schedule shown in the graph. At income level 1, the amount of saving is

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When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift

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In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the

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