Question 1

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 spending will change aggregate income by a larger amount.
C)  a change in spending will increase aggregate income by the same amount.
D)  an increase in total income will generate a larger change in aggregate expenditures.E) All of the above
F) B) and C)

Question 2

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

Accepted Answer

A)  4.
B)  5.
C)  3.33.
D)  2.5.E) None of the above
F) B) and D)

Question 3

The multiplier is equal to the reciprocal of the MPC.

Accepted Answer

A) True 
 B)False

Question 4

The so-called Paradox of Thrift that became quite obvious in the Great Recession of 2007-2009 does not refer to which of the following?

Accepted Answer

A)  Saving may be virtuous for the individual, but it could be bad for the economy as a whole.
B)  Consumers becoming thriftier may help long-term growth but, ironically, reduces current output.
C)  In trying to spend less now, consumers will end up spending more later on.
D)  As individuals try to save more, the whole group may end up saving less as total income declines.E) B) and D)
F) A) and C)

Question 5

The lower the marginal propensity to consume, the larger is the multiplier.

Accepted Answer

A) True 
 B)False

Question 6

If businesses feel more optimistic about the state of the economy, then this change is likely to

Accepted Answer

A)  cause a movement up the investment demand curve.
B)  cause a movement down the investment demand curve.
C)  shift the investment demand curve to the left.
D)  shift the investment demand curve to the right.E) B) and C)
F) None of the above

Question 7

Other things equal, a decrease in the real interest rate will

Accepted Answer

A)  shift the investment demand curve to the right.
B)  shift the investment demand curve to the left.
C)  move the economy upward along its existing investment demand curve.
D)  move the economy downward along its existing investment demand curve.E) None of the above
F) A) and B)

Question 8

Which of the following would shift the consumption schedule downward?

Accepted Answer

A)  a decrease in real interest rates
B)  an increase in the value of financial assets
C)  an increase in the probability of a recession
D)  a decrease in disposable incomeE) A) and D)
F) B) and D)

Question 9

If business taxes are reduced and the real interest rate increases,

Accepted Answer

A)  consumption and saving will necessarily increase.
B)  the level of investment spending might either increase or decrease.
C)  the level of investment spending will necessarily increase.
D)  the level of investment spending will necessarily decrease.E) B) and C)
F) None of the above

Question 10

If DI is $275 billion and the APC is 0.8, we can conclude that saving is $55 billion.

Accepted Answer

A) True 
 B)False

Question 11

Assume a machine that has a useful life of only one year costs $2,000.Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300.The expected rate of return on this machine is

Accepted Answer

A)  7.5 percent.
B)  10 percent.
C)  15 percent.
D)  20 percent.E) A) and D)
F) A) and C)

Question 12

The real interest rate is

Accepted Answer

A)  the percentage increase in money that the lender receives on a loan.
B)  the percentage increase in purchasing power that the lender receives on a loan.
C)  also called the after-tax interest rate.
D)  usually higher than the nominal interest rate.E) C) and D)
F) B) and D)

Question 13

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.E) None of the above
F) A) and B)

Question 14

Assume that for the entire business sector of a private closed economy, there are $0 worth of investment projects that will yield an expected rate of return of 25 percent or more.But there are $15 worth of investments that will yield an expected rate of return of 20-25 percent, another $15 with an expected rate of return of 15-20 percent, and an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range.The expected rate of return curve

Accepted Answer

A)  shows a direct relationship between the interest rate and investment.
B)  is also the investment demand curve.
C)  is indeterminate.
D)  implies a direct (positive)  relationship between the interest rate and the level of GDP.E) All of the above
F) A) and B)

Question 15

Given the expected rate of return on all possible investment opportunities in the economy, a(n)

Accepted Answer

A)  increase in the real rate of interest will tend to increase the level of investment.
B)  decrease in the real rate of interest will tend to increase the level of investment.
C)  decrease in the real rate of interest will tend to decrease the level of investment.
D)  change in the real interest rate will have no impact on the level of investment.E) B) and D)
F) B) and C)

Question 16

As the consumption and saving schedules relate to real GDP, an increase in taxes will shift

Accepted Answer

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

Question 17

In an economy, for every $1,600 decrease in income, spending falls by $1,200.It can be concluded that the

Accepted Answer

A)  slope of the saving schedule is 1.33.
B)  slope of the saving schedule is 0.75.
C)  marginal propensity to consume is 1.33.
D)  marginal propensity to save is 0.25.Accessibility: Keyboard NavigationE) B) and D)
F) B) and C)

Question 18

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to

Accepted Answer

A)  save is three-fifths.
B)  consume is one-half.
C)  consume is three-fifths.
D)  consume is two-fifths.E) A) and B)
F) A) and C)

Question 19

As disposable income decreases, consumption

Accepted Answer

A)  and saving both increase.
B)  and saving both decrease.
C)  increases and saving decreases.
D)  decreases and saving increases.E) A) and D)
F) None of the above

Question 20

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 − MPSE) A) and B)
F) C) and D)

Exam 30: Basic Macroeconomic Relationships

The so-called Paradox of Thrift that became quite obvious in the Great Recession of 2007-2009 does not refer to which of the following?

Correct Answer
verified

If DI is $275 billion and the APC is 0.8, we can conclude that saving is $55 billion.

Correct Answer
verified

As the consumption and saving schedules relate to real GDP, an increase in taxes will shift

Correct Answer
verified

Correct Answer
verified

Which of the following would shift the consumption schedule downward?

Correct Answer
verified

The multiplier is equal to the reciprocal of the MPC.

Correct Answer
verified

If business taxes are reduced and the real interest rate increases,

Correct Answer
verified

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

Correct Answer
verified

The real interest rate is

Correct Answer
verified

As disposable income decreases, consumption

Correct Answer
verified

Assume a machine that has a useful life of only one year costs $2,000.Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300.The expected rate of return on this machine is

Correct Answer
verified

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to

Correct Answer
verified

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

Correct Answer
verified

The lower the marginal propensity to consume, the larger is the multiplier.

Correct Answer
verified

Given the expected rate of return on all possible investment opportunities in the economy, a(n)

Correct Answer
verified

The multiplier effect indicates that

Correct Answer
verified

If businesses feel more optimistic about the state of the economy, then this change is likely to

Correct Answer
verified

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

Correct Answer
verified

In an economy, for every $1,600 decrease in income, spending falls by $1,200.It can be concluded that the

Correct Answer
verified

Other things equal, a decrease in the real interest rate will

Correct Answer
verified

Exam 30: Basic Macroeconomic Relationships

The so-called Paradox of Thrift that became quite obvious in the Great Recession of 2007-2009 does not refer to which of the following?

Correct AnswerverifiedShow Answer

If DI is $275 billion and the APC is 0.8, we can conclude that saving is $55 billion.

Correct AnswerverifiedShow Answer

As the consumption and saving schedules relate to real GDP, an increase in taxes will shift

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following would shift the consumption schedule downward?

Correct AnswerverifiedShow Answer

The multiplier is equal to the reciprocal of the MPC.

Correct AnswerverifiedShow Answer

If business taxes are reduced and the real interest rate increases,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The real interest rate is

Correct AnswerverifiedShow Answer

As disposable income decreases, consumption

Correct AnswerverifiedShow Answer

Assume a machine that has a useful life of only one year costs $2,000.Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300.The expected rate of return on this machine is

Correct AnswerverifiedShow Answer

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The lower the marginal propensity to consume, the larger is the multiplier.

Correct AnswerverifiedShow Answer

Given the expected rate of return on all possible investment opportunities in the economy, a(n)

Correct AnswerverifiedShow Answer

The multiplier effect indicates that

Correct AnswerverifiedShow Answer

If businesses feel more optimistic about the state of the economy, then this change is likely to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In an economy, for every $1,600 decrease in income, spending falls by $1,200.It can be concluded that the

Correct AnswerverifiedShow Answer

Other things equal, a decrease in the real interest rate will

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified