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Exam 10: Part B: Basic Macroeconomic Relationships

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Question 81

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Assume that a machine, which has a useful life of only one year, costs $2,000.Also, assume that the difference between the estimated operating costs, which includes power and taxes, and the additional revenue from the output of this machine is expected to be $2,300.If the firm finds that it can borrow funds at an interest rate of 10 percent per annum, the firm should:

A) not purchase the machine because the expected rate of return exceeds the cost of borrowing.
B) purchase the machine because the expected rate of return exceeds the cost of borrowing.
C) not purchase the machine because the cost of borrowing exceeds the expected rate of return.
D) purchase the machine because the cost of borrowing exceeds the expected rate of return.

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

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Question 82

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One can determine the amount of consumption at any level of total income by:

A) multiplying total income by the slope of the consumption schedule.
B) multiplying total income by the APC.
C) subtracting the MPS from total income.
D) multiplying total income by the MPC.

E) A) and C)
F) A) and D)

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Question 83

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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 consume:

The saving schedule is drawn on the assumption that as income increases:

Which of the following is likely to be an effect of an increase in planned inventory on the investment demand curve of an economy?

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:

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.At an income level of $400 billion, the average propensity to save in economy (2) is:

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:

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is:

Refer to the above diagram.The marginal propensity to consume is:

Which of the following countries had the lowest gross investment expenditure as a percentage of GDP in 2014, as per Image 10.2 Global Perspective?

The increase in income which results from an increase in investment spending would be greater the:

In view of your answer to the previous question, if the real interest rate is 15 percent in this economy, the aggregate amount of investment will be:

The following table illustrates the multiplier process in a private closed economy: Refer to the above table.The total change in consumption resulting from the initial change in investment will be:

Assume that for the entire business sector of the economy there is $0 worth of investment projects which will yield an expected rate of return of 25 percent or more.But there are $15 worth of investments which will yield an expected rate of return of 20-25 percent; another $15 with an expected rate of return of 15-20 percent; and similarly an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range.Refer to the above information.If the real interest rate is 5 percent, what amount of investment will be undertaken?

The consumption schedule shows:

Refer to the above data.The marginal propensity to consume is:

Dissaving occurs where:

With an MPS of .4, the MPC will be:

When we draw an investment demand curve we hold constant all of the following except: