Question 1

If the slope of a linear consumption schedule increases in a private closed economy, then it can be concluded that the

Accepted Answer

A)  MPS has increased.
B)  MPC has increased.
C)  income has increased.
D)  income has decreased.E) C) and D)
F) B) and C)

Question 2

Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the

Accepted Answer

A)  slope of the consumption schedule is 0.75.
B)  average propensity to consume is 0.75.
C)  marginal propensity to save is 0.20.
D)  marginal propensity to consume is 0.6.E) C) and D)
F) A) and D)

Question 3

Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,000 before it needs to be upgraded to a new version.The revenue generated by this software is expected to be $250,000.The expected rate of return from this new computer software is

Accepted Answer

A)  11 percent.
B)  20 percent.
C)  25 percent.
D)  80 percent.E) None of the above
F) A) and D)

Question 4

Assume there are no prospective investment projects (I)  that will yield an expected rate of return (r)  of 25 percent or more, but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on.If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be

Accepted Answer

A)  $25 billion.
B)  $20 billion.
C)  $15 billion.
D)  $10 billion.E) B) and D)
F) B) and C)

Question 5

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

Question 6

If for some reason households become increasingly thrifty, we could show this by

Accepted Answer

A)  a downshift of the saving schedule.
B)  an upward shift of the consumption schedule.
C)  an upward shift of the saving schedule.
D)  a movement down along a stable consumption function.E) All of the above
F) A) and B)

Question 7

The multiplier can be calculated by dividing

Accepted Answer

A)  the initial change in spending by the change in real GDP.
B)  the change in real GDP by the initial change in spending.
C)  one by one minus the marginal propensity to save.
D)  one by one minus the marginal propensity to invest.E) A) and B)
F) A) and C)

Question 8

The multiplier shows the relationship between changes in a component of spending, say, investment, and the consequent changes in real income and output.

Accepted Answer

A) True 
 B)False

Question 9

If disposable income is $350 billion and the average propensity to consume is 0.80, then personal saving is $70 billion.

Accepted Answer

A) True 
 B)False

Question 10

When the marginal propensity to consume is less than 1, the

Accepted Answer

A)  average propensity to consume is greater than 1.
B)  average propensity to save is greater than 1.
C)  marginal propensity to save is negative.
D)  marginal propensity to save is positive.E) A) and B)
F) All of the above

Question 11

The multiplier value is the reciprocal of the marginal propensity to consume.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  the expected rate of return on the investment.
B)  business taxes.
C)  the interest rate.
D)  the present stock of capital goods.E) B) and C)
F) A) and D)

Question 13

Art Buchwald's article, "Squaring the Economic Circle," is a humorous description of what would happen to total income if

Accepted Answer

A)  prices of products started falling significantly.
B)  people bought consumer goods instead of investment goods.
C)  consumers bought imported goods instead of domestic products.
D)  people and firms stopped buying from one another.E) A) and B)
F) B) and D)

Question 14

If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively,

Accepted Answer

A)  0.8 and 5.0.
B)  0.4 and 2.5.
C)  0.4 and 1.67.
D)  0.2 and 1.25.E) A) and D)
F) All of the above

Question 15

If 100 percent of any change in income is spent, the multiplier will be

Accepted Answer

A)  equal to the MPC.
B)  1.
C)  zero.
D)  infinitely large.E) C) and D)
F) None of the above

Question 16

The change in real GDP resulting from an initial change in spending can be calculated by

Accepted Answer

A)  dividing the multiplier by the initial change in spending.
B)  dividing the initial change in spending by the multiplier.
C)  multiplying the multiplier by the initial change in spending.
D)  adding the initial change in spending to the multiplier.E) A) and B)
F) A) and C)

Question 17

The multiplier is

Accepted Answer

A)  1/MPC.
B)  1/(1 + MPC.
C)  1/MPS.
D)  1/(1 − MPS) .E) A) and B)
F) All of the above

Question 18

The multiplier effect magnifies the effect of a decrease in spending, resulting in a bigger decrease in real GDP.

Accepted Answer

A) True 
 B)False

Question 19

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

Question 20

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)  more investment will be forthcoming when i exceeds r.
B)  less investment will be forthcoming when r rises.
C)  r will fall as more investment is undertaken.
D)  r will exceed i at all possible levels of investment.E) A) and B)
F) A) and C)

Exam 30: Basic Macroeconomic Relationships

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,

Correct Answer
verified

Correct Answer
verified

The change in real GDP resulting from an initial change in spending can be calculated by

Correct Answer
verified

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

Correct Answer
verified

The multiplier value is the reciprocal of the marginal propensity to consume.

Correct Answer
verified

Correct Answer
verified

Personal saving is equal to

Correct Answer
verified

Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the

Correct Answer
verified

When the marginal propensity to consume is less than 1, the

Correct Answer
verified

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

Correct Answer
verified

If for some reason households become increasingly thrifty, we could show this by

Correct Answer
verified

If disposable income is $350 billion and the average propensity to consume is 0.80, then personal saving is $70 billion.

Correct Answer
verified

The multiplier shows the relationship between changes in a component of spending, say, investment, and the consequent changes in real income and output.

Correct Answer
verified

The multiplier is

Correct Answer
verified

If 100 percent of any change in income is spent, the multiplier will be

Correct Answer
verified

If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively,

Correct Answer
verified

The multiplier effect magnifies the effect of a decrease in spending, resulting in a bigger decrease in real GDP.

Correct Answer
verified

The multiplier can be calculated by dividing

Correct Answer
verified

If the slope of a linear consumption schedule increases in a private closed economy, then it can be concluded that the

Correct Answer
verified

Art Buchwald's article, "Squaring the Economic Circle," is a humorous description of what would happen to total income if

Correct Answer
verified

Exam 30: Basic Macroeconomic Relationships

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,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The change in real GDP resulting from an initial change in spending can be calculated by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The multiplier value is the reciprocal of the marginal propensity to consume.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Personal saving is equal to

Correct AnswerverifiedShow Answer

Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the

Correct AnswerverifiedShow Answer

When the marginal propensity to consume is less than 1, the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If for some reason households become increasingly thrifty, we could show this by

Correct AnswerverifiedShow Answer

If disposable income is $350 billion and the average propensity to consume is 0.80, then personal saving is $70 billion.

Correct AnswerverifiedShow Answer

The multiplier shows the relationship between changes in a component of spending, say, investment, and the consequent changes in real income and output.

Correct AnswerverifiedShow Answer

The multiplier is

Correct AnswerverifiedShow Answer

If 100 percent of any change in income is spent, the multiplier will be

Correct AnswerverifiedShow Answer

If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively,

Correct AnswerverifiedShow Answer

The multiplier effect magnifies the effect of a decrease in spending, resulting in a bigger decrease in real GDP.

Correct AnswerverifiedShow Answer

The multiplier can be calculated by dividing

Correct AnswerverifiedShow Answer

If the slope of a linear consumption schedule increases in a private closed economy, then it can be concluded that the

Correct AnswerverifiedShow Answer

Art Buchwald's article, "Squaring the Economic Circle," is a humorous description of what would happen to total income if

Correct AnswerverifiedShow Answer

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