Question 1

An increase in disposable income

Accepted Answer

A)  increases consumption because it shifts the consumption schedule upward.
B)  decreases consumption because it shifts the consumption schedule downward.
C)  increases consumption by moving upward along a given consumption schedule.
D)  decreases consumption by moving downward along a given consumption schedule.E) B) and D)
F) A) and B)

Question 2

The slope of the consumption schedule is measured by the MPC.

Accepted Answer

A) True 
 B)False

Question 3

The consumption schedule shows the relationship of household consumption to the level of

Accepted Answer

A)  saving
B)  investment.
C)  disposable income.
D)  the marginal propensity to consume.E) B) and C)
F) A) and B)

Question 4

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

Accepted Answer

A)  an increase in the excess production capacity available in industry.
B)  an increase in business taxes.
C)  technological progress.
D)  an increase in the acquisition and maintenance cost of capital goods.E) A) and D)
F) A) and C)

Question 5

A change in the amount saved due to a change in income is represented by a

Accepted Answer

A)  shift of the entire saving schedule.
B)  movement along the saving schedule.
C)  change in the marginal propensity to save.
D)  change in the marginal propensity to consume.E) A) and D)
F) C) and D)

Question 6

1 + MPS = MPC.

Accepted Answer

A) True 
 B)False

Question 7

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 relatively stable relationship exists between consumption and income.
D)  the two are usually equal.E) A) and D)
F) B) and D)

Question 8

In a closed private economy, income is $50 billion and consumption is $40 billion.When income rises by 10 percent, consumption rises by 9 percent.The MPS over the relevant income range is

Accepted Answer

A)  0.11 and the multiplier is 9.09.
B)  0.28 and the multiplier is 3.57.
C)  0.62 and the multiplier is 1.61.
D)  0.72 and the multiplier is 3.57.E) A) and B)
F) A) and D)

Question 9

If households see the value of their financial assets increase significantly, then the saving schedule will shift upward.

Accepted Answer

A) True 
 B)False

Question 10

The value of the multiplier is likely to fall if there is a fall in

Accepted Answer

A)  consumption.
B)  income.
C)  total spending.
D)  the marginal propensity to consume.E) All of the above
F) A) and B)

Question 11

If a $100 billion increase in consumption spending creates $100 billion of new income in the first round of the multiplier process and $75 billion in the second round, the multiplier in the economy is 4.

Accepted Answer

A) True 
 B)False

Question 12

If the real interest rate increases,

Accepted Answer

A)  the investment demand curve will shift to the right.
B)  the investment demand curve will shift to the left.
C)  there will be a movement upward along the investment demand curve.
D)  there will be a movement downward along the investment demand curve.E) A) and D)
F) A) and C)

Question 13

A decline in disposable income

Accepted Answer

A)  increases consumption by moving upward along a specific consumption schedule.
B)  decreases consumption because it shifts the consumption schedule downward.
C)  decreases consumption by moving downward along a specific consumption schedule.
D)  increases consumption because it shifts the consumption schedule upward.E) B) and C)
F) A) and D)

Question 14

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

Accepted Answer

A)  saving will decline absolutely and as a percentage of income.
B)  saving will increase absolutely but remain constant as a percentage of income.
C)  saving will increase absolutely but decline as a percentage of income.
D)  saving will increase absolutely and as a percentage of income.E) A) and D)
F) B) and C)

Question 15

A change in interest rates would shift the consumption schedule and the saving schedule ; a change in taxes would shift these two schedules _.

Accepted Answer

A)  in the same direction; also in the same direction
B)  in the same direction; in opposite directions
C)  in opposite directions; also in opposite directions
D)  in opposite directions; in the same directionE) A) and B)
F) B) and C)

Question 16

The multiplier effect means that

Accepted Answer

A)  consumption is typically several times as large as saving.
B)  a change in consumption can cause a larger increase in investment.
C)  an increase in investment can cause GDP to change by a larger amount.
D)  a decline in the MPC can cause GDP to rise by several times that amount.E) None of the above
F) A) and C)

Question 17

The economic performance in the Great Recession of 2007-2009 clearly illustrated the relationship that if interest rates fall, then investment spending will increase.

Accepted Answer

A) True 
 B)False

Question 18

Economists widely agree that the value of the real-world multiplier is 2.5.

Accepted Answer

A) True 
 B)False

Question 19

Assume that MPS is 0.4.If spending increases by $8 billion, then real GDP will increase by

Accepted Answer

A)  $8 billion.
B)  $13.3 billion.
C)  $15 billion.
D)  $20 billion.E) A) and B)
F) B) and D)

Question 20

(Consider This)  During the Great Recession of 2007-2009, both real interest rates and investment spending declined.This suggests that

Accepted Answer

A)  the investment demand curve was positively sloped during this period.
B)  purchases of capital from abroad increased, and these were not reflected in investment spending figures for that period.
C)  firms were optimistic about future sales.
D)  the investment demand curve shifted inward.Topic: Shifts of the Investment Demand Curve Topic: The Interest-Rate-Investment RelationshipE) None of the above
F) All of the above

Exam 30: Basic Macroeconomic Relationships

(Consider This) During the Great Recession of 2007-2009, both real interest rates and investment spending declined.This suggests that

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If households see the value of their financial assets increase significantly, then the saving schedule will shift upward.

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Economists widely agree that the value of the real-world multiplier is 2.5.

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The multiplier effect means that

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If a $100 billion increase in consumption spending creates $100 billion of new income in the first round of the multiplier process and $75 billion in the second round, the multiplier in the economy is 4.

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

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

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1 + MPS = MPC.

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A change in the amount saved due to a change in income is represented by a

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In a closed private economy, income is $50 billion and consumption is $40 billion.When income rises by 10 percent, consumption rises by 9 percent.The MPS over the relevant income range is

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Assume that MPS is 0.4.If spending increases by $8 billion, then real GDP will increase by

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A change in interest rates would shift the consumption schedule and the saving schedule ; a change in taxes would shift these two schedules _.

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The consumption schedule shows the relationship of household consumption to the level of

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If the real interest rate increases,

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A decline in disposable income

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The relationship between consumption and disposable income is such that

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The economic performance in the Great Recession of 2007-2009 clearly illustrated the relationship that if interest rates fall, then investment spending will increase.

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The slope of the consumption schedule is measured by the MPC.

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The value of the multiplier is likely to fall if there is a fall in

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An increase in disposable income

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