Question 1

-In the above table, the average propensity to save when disposable income is $5,000 is

Accepted Answer

A)   0.2.
B)   0.1.
C)   0.0.
D)   -0.1.

Question 2

The average propensity to consume is

Accepted Answer

A)   real consumption/real disposable income.
B)   real saving/real disposable income.
C)   change in real consumption/change in real disposable income.
D)   change in real saving/change in real disposable income.

Question 3

When the economy is operating at the equilibrium level of GDP, we know that

Accepted Answer

A)   total planned real consumption expenditures equal real GDP.
B)   planned real investment spending equals real net exports of zero.
C)   total planned real expenditures equal real GDP.
D)   real net exports equal inventory changes.

Question 4

Suppose autonomous consumption is $1 trillion, investment spending is $1.5 trillion, and the marginal propensity to consume is 0.75. Show the graph for the C + I curve. What is the equilibrium level of real GDP? Explain its meaning.

Accepted Answer

In the below figure, the C curve has a v...

Question 5

The marginal propensity to consume (MPC)

Accepted Answer

A)   shows how much real disposable income changes when consumption falls.
B)   is greater than 1 only if the marginal propensity to save is greater than 1.
C)   shows how much of an extra dollar of real disposable income is spent.
D)   shows the percentage of real disposable income consumed at each level of income.

Question 6

If the marginal propensity to consume (MPC)  is 0.8 and there is a desire to increase real GDP by $400 billion, then

Accepted Answer

A)   an increase in autonomous real consumption spending of $100 billion will generate this change.
B)   a decrease in autonomous real saving of $400 billion will generate this change.
C)   an increase in planned real investment spending of $100 billion will generate this change.
D)   an increase in real autonomous spending of $80 billion will generate this change.

Question 7

Spending on new goods and services out of a household's current income is

Accepted Answer

A)   consumption.
B)   saving.
C)   savings.
D)   investment.

Question 8

The multiplier tells us the relationship between

Accepted Answer

A)   the interest rate and the level of investment expenditure.
B)   the exchange rate and the level of exports.
C)   the exchange rate and the level of imports.
D)   a change in autonomous spending and the resulting change in equilibrium real GDP.

Question 9

-Refer to the above figure. The figure represents the saving function for the consumer. Point C represents

Accepted Answer

A)   the amount of autonomous consumption.
B)   a situation in which saving is positive.
C)   a situation in which saving is negative.
D)   the point at which saving equals zero.

Question 10

Which of the following is considered investment?

Accepted Answer

A)   Maina purchases a new van for commuting to and from work.
B)   Jane purchases a new truck for commuting to and from school.
C)   Johnny buys a new car for his wife as an anniversary gift.
D)   James purchases a new car to replace an old car in his food delivery business.

Question 11

-Refer to the above figure. Line ACE is called

Accepted Answer

A)   the saving function.
B)   the savings function.
C)   the 45-degree line.
D)   the consumption function.

Question 12

Your real disposable income is your real income after you have paid

Accepted Answer

A)   rent and food expenses.
B)   taxes less subsidies.
C)   depreciation expenses.
D)   consumption expenses.

Question 13

Which of the following theories predicts that current consumption increases when a person expects an increase in future income?

Accepted Answer

A)   the life-cycle theory of consumption
B)   the permanent income hypothesis
C)   the Keynesian theory of consumption
D)   all of the above

Question 14

Suppose the marginal propensity to consume (MPC)  is 0.8 and there is a $1,000 increase in autonomous consumption. Given this information, real GDP will increase by

Accepted Answer

A)   $1,600.
B)   $2,000.
C)   $2,500.
D)   $5,000.

Question 15

The ownership of stock of assets is

Accepted Answer

A)   debt.
B)   wealth.
C)   capital investment.
D)   capital consumption.

Question 16

-In the above table, saving equals zero when real disposable income equals

Accepted Answer

A)   $0.
B)   $200.
C)   $300.
D)   $500.

Question 17

The marginal propensity to consume (MPC)  is

Accepted Answer

A)   the rate at which real consumption spending changes over time.
B)   the percentage of real disposable income saved.
C)   the percentage of real disposable income consumed.
D)   the percentage of an additional dollar of real disposable income that will go toward additional real consumption spending.

Question 18

The marginal propensity to consume (MPC)  can best be defined as that fraction of

Accepted Answer

A)   real disposable income that is consumed.
B)   real disposable income that is not consumed.
C)   a change in real disposable income that is spent.
D)   a change in real disposable income that is saved.

Question 19

-In the above figure, the equilibrium level of planned saving plus net taxes is

Accepted Answer

A)   $1.0 trillion.
B)   $2.0 trillion.
C)   $3.0 trillion.
D)   $4.0 trillion.

Question 20

If the multiplier is 50, then the marginal propensity to consume (MPC)  is

Accepted Answer

A)   0.98.
B)   0.05.
C)   0.5.
D)   9.

Exam 12: Consumption, Real GDP, and the Multiplier

When the economy is operating at the equilibrium level of GDP, we know that

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-In the above table, saving equals zero when real disposable income equals

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The marginal propensity to consume (MPC) is

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Which of the following theories predicts that current consumption increases when a person expects an increase in future income?

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The multiplier tells us the relationship between

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Suppose autonomous consumption is $1 trillion, investment spending is $1.5 trillion, and the marginal propensity to consume is 0.75. Show the graph for the C + I curve. What is the equilibrium level of real GDP? Explain its meaning.

Correct AnswerverifiedIn the below figure, the C curve has a v...View AnswerShow Answer

The ownership of stock of assets is

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Your real disposable income is your real income after you have paid

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Which of the following is considered investment?

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-In the above table, the average propensity to save when disposable income is $5,000 is

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If the marginal propensity to consume (MPC) is 0.8 and there is a desire to increase real GDP by $400 billion, then

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-Refer to the above figure. Line ACE is called

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The average propensity to consume is

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Spending on new goods and services out of a household's current income is

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If the multiplier is 50, then the marginal propensity to consume (MPC) is

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-In the above figure, the equilibrium level of planned saving plus net taxes is

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The marginal propensity to consume (MPC) can best be defined as that fraction of

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-Refer to the above figure. The figure represents the saving function for the consumer. Point C represents

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The marginal propensity to consume (MPC)

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Suppose the marginal propensity to consume (MPC) is 0.8 and there is a $1,000 increase in autonomous consumption. Given this information, real GDP will increase by

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In the below figure, the C curve has a v...
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