Question 1

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

Question 2

The APC can be defined as:

Accepted Answer

A)  change in consumption/change in income
B)  consumption/income
C)  change in income/change in consumption
D)  income/consumptionE) B) and C)
F) A) and C)

Question 3

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)  $2 billion.
D)  $6 billion.E) A) and C)
F) None of the above

Question 4

As disposable income goes up the:

Accepted Answer

A)  APC falls.
B)  APS falls.
C)  volume of consumption declines absolutely.
D)  volume of investment can be expected to diminish.E) B) and D)
F) B) and C)

Question 5

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

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.E) A) and B)
F) A) and C)

Question 7

If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round, income will eventually increase by:

Accepted Answer

A)  $2500 billion.
B)  $3000 billion.
C)  $4000 billion.
D)  $5000 billion.E) B) and C)
F) All of the above

Question 8

The multiplier effect indicates that:

Accepted Answer

A)  a decline in the interest rate will cause a proportionately larger increase in investment.
B)  a change in aggregate expenditures will change aggregate income by a larger amount.
C)  a change in aggregate expenditures will increase aggregate income by the same amount.
D)  a small increase in total income will generate a large change in aggregate expenditures.E) All of the above
F) B) and D)

Question 9

Refer to the above diagram.The break-even level of income is:

Accepted Answer

A)  zero.
B)  150
C)  60
D)  120E) B) and C)
F) A) and B)

Question 10

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 11

Which of the following is likely to be an effect of excess capacity on the investment demand curve of an economy?

Accepted Answer

A)  A leftward shift of the curve
B)  A rightward shift of the curve
C)  An upward movement along the curve
D)  A downward movement along the curveE) A) and B)
F) C) and D)

Question 12

Refer to the data below.The MPS is:

Accepted Answer

A)  7/10.
B)  3/10.
C)  2/5.
D)  3/5.E) None of the above
F) B) and C)

Question 13

The slope of the consumption schedule is equal to the marginal propensity to consume.

Accepted Answer

A) True 
 B)False

Question 14

Dissaving occurs where:

Accepted Answer

A)  income exceeds consumption.
B)  saving exceeds consumption.
C)  consumption exceeds income.
D)  saving exceeds income.E) A) and B)
F) C) and D)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The saving schedule is such that as aggregate income increases by a certain amount, saving:

Accepted Answer

A)  increases by the same amount as the increase in income.
B)  does not change.
C)  increases.
D)  decreases.E) A) and D)
F) B) and C)

Question 17

The following table illustrates the multiplier process in a private closed economy:  Refer to the above table.The marginal propensity to save is:

Accepted Answer

A)  .5.
B)  .25.
C)  .2.
D)  .1.E) A) and C)
F) B) and C)

Question 18

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.E) A) and B)
F) A) and C)

Question 19

The relationship between consumption and disposable income is such that:

Accepted Answer

A)  an inverse and stable relationship exists between consumption and income.
B)  a direct, but very volatile, relationship exists between consumption and income.
C)  a direct and quite stable relationship exists between consumption and income.
D)  the two are always equal.E) All of the above
F) A) and B)

Question 20

The following table illustrates the multiplier process in a private closed economy:  Refer to the above table.The marginal propensity to consume is:

Accepted Answer

A)  .5.
B)  .8.
C)  .75.
D)  .9.E) B) and C)
F) A) and B)

Exam 10: B: Basic Macroeconomic Relationships

Refer to the above diagram.The break-even level of income is:

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As disposable income goes up the:

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The following table illustrates the multiplier process in a private closed economy: Refer to the above table.The marginal propensity to consume is:

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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 APC can be defined as:

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Dissaving occurs where:

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Refer to the data below.The MPS is:

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

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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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The slope of the consumption schedule is equal to the marginal propensity to consume.

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If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round, income will eventually increase by:

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

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Which of the following is likely to be an effect of excess capacity on the investment demand curve of an economy?

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The multiplier effect indicates that:

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

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

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The relationship between consumption and disposable income is such that:

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The following table illustrates the multiplier process in a private closed economy: Refer to the above table.The marginal propensity to save is:

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The saving schedule is such that as aggregate income increases by a certain amount, saving:

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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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