Question 1

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is

Accepted Answer

A)  2 percent.
B)  zero percent.
C)  10 percent.
D)  22 percent.E) A) and C)
F) None of the above

Question 2

If the consumption schedule becomes steeper, then the saving schedule will become steeper also.

Accepted Answer

A) True 
 B)False

Question 3

When consumers decide to increase household debt, this action will

Accepted Answer

A)  shift the consumption schedule upward.
B)  shift the consumption schedule downward.
C)  increase the amount consumed along a stable consumption schedule.
D)  decrease the amount consumed along a stable consumption schedule.E) All of the above
F) None of the above

Question 4

Which of the following factors would decrease investment demand?

Accepted Answer

A)  a decrease in business taxes
B)  an increase in the cost of acquiring capital goods
C)  an increase in the rate of technological change
D)  a decrease in the stock of capital goods on handE) A) and B)
F) A) and C)

Question 5

In annual percentage terms, investment spending in the United States is

Accepted Answer

A)  less variable than real GDP.
B)  less variable than consumption spending.
C)  less variable than the price level.
D)  more variable than real GDP.Topic: The Interest-Rate-Investment RelationshipE) B) and C)
F) A) and B)

Question 6

During the Great Recession of 2007-2009, real interest rates

Accepted Answer

A)  declined to about zero, and investments increased sharply.
B)  declined to about zero, and investments also declined sharply.
C)  increased sharply, and investments declined significantly.
D)  increased sharply, and investments also rose significantly.E) None of the above
F) B) and C)

Question 7

Other things equal, if the real interest rate falls and business taxes rise,

Accepted Answer

A)  investment will rise until it is equal to saving.
B)  we will be uncertain as to the resulting change in investment.
C)  we can be certain that investment will rise.
D)  we can be certain that investment will fall.E) None of the above
F) B) and C)

Question 8

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when

Accepted Answer

A)  r falls.
B)  i is greater than r.
C)  r is greater than i.
D)  i rises.E) B) and C)
F) A) and D)

Question 9

The fraction, or percentage, of total income which is consumed is called the

Accepted Answer

A)  break-even income.
B)  consumption schedule.
C)  marginal propensity to consume.
D)  average propensity to consume.E) C) and D)
F) All of the above

Question 10

Which statement about the multiplier is correct?

Accepted Answer

A)  If a $20 billion increase in spending creates $20 billion of new income in the first round of the multiplier process and $15 billion in the second round, the multiplier in the economy is 5.
B)  If a $40 billion increase in spending creates $40 billion of new income in the first round of the multiplier process and $20 billion in the second round, the multiplier in the economy is 4.
C)  If a $60 billion increase in spending creates $60 billion of new income in the first round of the multiplier process and $50 billion in the second round, the multiplier in the economy is 5.
D)  If an $80 billion increase in spending creates $80 billion of new income in the first round of the multiplier process and $60 billion in the second round, the multiplier in the economy is 4.E) B) and D)
F) C) and D)

Question 11

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.If the real interest rate is 15 percent, what amount of investment will be undertaken?

Accepted Answer

A)  $15
B)  $30
C)  $45
D)  $60E) C) and D)
F) All of the above

Question 12

The simple multiplier 1/MPS

Accepted Answer

A)  understates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes.
B)  understates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.
C)  overstates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes.
D)  overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.E) C) and D)
F) A) and D)

Question 13

If there is a decrease in disposable income in an economy, then

Accepted Answer

A)  both the APC and the APS rise.
B)  the APC rises and the APS falls.
C)  the APC falls and the APS rises.
D)  both the APC and the APS fall.E) A) and B)
F) None of the above

Question 14

The marginal propensity to consume is the ratio of consumption to saving.

Accepted Answer

A) True 
 B)False

Question 15

The actual multiplier effect in the U.S.economy is less than the multiplier effect in the text examples because

Accepted Answer

A)  the real-world MPS is larger than the MPS in the examples.
B)  in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.
C)  the gap between the nominal interest rate and the real interest rate widens as the economy expands or contracts.
D)  the MPC in the United States is greater than 1.E) All of the above
F) B) and C)

Question 16

Assume the economy's consumption and saving schedules simultaneously shift downward.This must be the result of

Accepted Answer

A)  an increase in disposable income.
B)  an increase in household wealth.
C)  an increase in personal taxes.
D)  the expectation of a recession.E) A) and B)
F) A) and C)

Question 17

The investment demand curve will shift to the left as a result of

Accepted Answer

A)  an increase in the excess production capacity available in industry.
B)  a decrease in business taxes.
C)  increased business optimism with respect to future economic conditions.
D)  a decrease in labor costs.E) A) and B)
F) A) and C)

Question 18

The saving schedule shows the relationship of saving of households to the level of

Accepted Answer

A)  consumption.
B)  investment.
C)  disposable income.
D)  the average propensity to save.E) C) and D)
F) A) and D)

Question 19

An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round.The multiplier in the economy is

Accepted Answer

A)  2.
B)  3.
C)  4.
D)  5.E) A) and B)
F) B) and D)

Question 20

The Paradox of Thrift highlights the idea that

Accepted Answer

A)  saving more is good for the economy in the short run.
B)  saving more can be bad for the economy during a recession.
C)  in spending more, households will end up saving less.
D)  in spending more, workers may end up losing their jobs.E) C) and D)
F) B) and D)

Exam 30: Basic Macroeconomic Relationships

The marginal propensity to consume is the ratio of consumption to saving.

Correct Answer
verified

If the consumption schedule becomes steeper, then the saving schedule will become steeper also.

Correct Answer
verified

The simple multiplier 1/MPS

Correct Answer
verified

In annual percentage terms, investment spending in the United States is

Correct Answer
verified

The fraction, or percentage, of total income which is consumed is called the

Correct Answer
verified

The actual multiplier effect in the U.S.economy is less than the multiplier effect in the text examples because

Correct Answer
verified

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is

Correct Answer
verified

Which of the following factors would decrease investment demand?

Correct Answer
verified

Assume the economy's consumption and saving schedules simultaneously shift downward.This must be the result of

Correct Answer
verified

Other things equal, if the real interest rate falls and business taxes rise,

Correct Answer
verified

The investment demand curve will shift to the left as a result of

Correct Answer
verified

An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round.The multiplier in the economy is

Correct Answer
verified

If there is a decrease in disposable income in an economy, then

Correct Answer
verified

The saving schedule shows the relationship of saving of households to the level of

Correct Answer
verified

When consumers decide to increase household debt, this action will

Correct Answer
verified

Which statement about the multiplier is correct?

Correct Answer
verified

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when

Correct Answer
verified

Correct Answer
verified

The Paradox of Thrift highlights the idea that

Correct Answer
verified

During the Great Recession of 2007-2009, real interest rates

Correct Answer
verified

Exam 30: Basic Macroeconomic Relationships

The marginal propensity to consume is the ratio of consumption to saving.

Correct AnswerverifiedShow Answer

If the consumption schedule becomes steeper, then the saving schedule will become steeper also.

Correct AnswerverifiedShow Answer

The simple multiplier 1/MPS

Correct AnswerverifiedShow Answer

In annual percentage terms, investment spending in the United States is

Correct AnswerverifiedShow Answer

The fraction, or percentage, of total income which is consumed is called the

Correct AnswerverifiedShow Answer

The actual multiplier effect in the U.S.economy is less than the multiplier effect in the text examples because

Correct AnswerverifiedShow Answer

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is

Correct AnswerverifiedShow Answer

Which of the following factors would decrease investment demand?

Correct AnswerverifiedShow Answer

Assume the economy's consumption and saving schedules simultaneously shift downward.This must be the result of

Correct AnswerverifiedShow Answer

Other things equal, if the real interest rate falls and business taxes rise,

Correct AnswerverifiedShow Answer

The investment demand curve will shift to the left as a result of

Correct AnswerverifiedShow Answer

An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round.The multiplier in the economy is

Correct AnswerverifiedShow Answer

If there is a decrease in disposable income in an economy, then

Correct AnswerverifiedShow Answer

The saving schedule shows the relationship of saving of households to the level of

Correct AnswerverifiedShow Answer

When consumers decide to increase household debt, this action will

Correct AnswerverifiedShow Answer

Which statement about the multiplier is correct?

Correct AnswerverifiedShow Answer

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Paradox of Thrift highlights the idea that

Correct AnswerverifiedShow Answer

During the Great Recession of 2007-2009, real interest rates

Correct AnswerverifiedShow Answer

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