Question 1

1 − MPC = MPS.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  $2,500 billion.
B)  $3,000 billion.
C)  $4,000 billion.
D)  $5,000 billion.E) A) and D)
F) A) and C)

Question 3

The multiplier is defined as

Accepted Answer

A)  1 − MPS.
B)  change in GDP × initial change in spending.
C)  change in GDP/initial change in spending.
D)  change in GDP − initial change in spending.E) All of the above
F) B) and D)

Question 4

If consumption increases while income remains the same, the average propensity to consume will

Accepted Answer

A)  increase and then decrease.
B)  remain constant.
C)  increase.
D)  decrease.E) B) and D)
F) B) and C)

Question 5

A high rate of inflation is likely to cause a

Accepted Answer

A)  high nominal interest rate.
B)  low nominal interest rate.
C)  low rate of growth of nominal GDP.
D)  decrease in nominal wages.E) None of the above
F) A) and D)

Question 6

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

Accepted Answer

A)  the availability of excess production capacity.
B)  an increase in business taxes.
C)  businesses becoming more optimistic about future business conditions.
D)  an increase in the real interest rate.E) A) and B)
F) B) and D)

Question 7

One factor that shifts the consumption schedule is household wealth.Households build wealth by

Accepted Answer

A)  spending their current incomes.
B)  spending out of their future incomes.
C)  spending their incomes as they earn them.
D)  not spending all their current incomes.E) None of the above
F) All of the above

Question 8

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 5 percent, what amount of investment will be undertaken?

Accepted Answer

A)  $15
B)  $30
C)  $45
D)  $60E) C) and D)
F) A) and D)

Question 9

Other things equal, a 10 percent decrease in corporate income taxes will

Accepted Answer

A)  decrease the market price of real capital goods.
B)  have no effect on the location of the investment demand curve.
C)  shift the investment demand curve to the right.
D)  shift the investment demand curve to the left.E) A) and B)
F) None of the above

Question 10

If the MPC is 0.9 and investment spending increases by $20 billion, real GDP will increase by $200 billion.

Accepted Answer

A) True 
 B)False

Question 11

The relationship between the MPS and the MPC is such that

Accepted Answer

A)  MPC − MPS = 1.
B)  MPS/MPC = 1.
C)  1 − MPC = MPS.
D)  MPC − 1 = MPS.E) B) and D)
F) None of the above

Question 12

If a family's MPC is 0.7, it means that the family is

Accepted Answer

A)  operating at the break-even point.
B)  spending seven-tenths of any increment to its income.
C)  necessarily dissaving.
D)  spending 70 percent of its disposable income.E) None of the above
F) A) and B)

Question 13

Which of the following statements about consuming in excess of one's disposable income is not true?

Accepted Answer

A)  It is possible, and it's called dissaving.
B)  In this case, the values of both saving and the APS are negative.
C)  (APC + APS)  will be less than 1 in this situation.
D)  The value of APC will be greater than 1 in this case.E) A) and B)
F) A) and C)

Question 14

In an economy, for every $10 million increase in disposable income, saving increases by $2 million.It can be concluded that the

Accepted Answer

A)  slope of the saving schedule is 2.
B)  slope of the consumption schedule is 0.8.
C)  marginal propensity to consume is 0.2.
D)  average propensity to save is 0.2.E) None of the above
F) A) and C)

Question 15

The variability of business profits

Accepted Answer

A)  helps explain the instability of investments over time.
B)  does not affect investment spending, which depends on expected profits, not current profits.
C)  explains why the durability of capital goods is variable.
D)  causes the variations in consumption spending over time.E) A) and B)
F) B) and C)

Question 16

The Great Recession of 2007-2009 caused a basic change in consumer behavior, shifting the saving schedule up.

Accepted Answer

A) True 
 B)False

Question 17

One can determine the amount of any level of total income that is consumed by

Accepted Answer

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) C) and D)
F) A) and B)

Question 18

A firm invests in a new machine that costs $2,000 a year but which is expected to produce an increase in total revenue of $2,200 a year.The current real rate of interest is 8 percent.The firm should

Accepted Answer

A)  undertake the investment because the expected rate of return of 12 percent is greater than the real rate of interest.
B)  undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest.
C)  undertake the investment because the expected rate of return of 9 percent is greater than the real rate of interest.
D)  not undertake the investment, because the expected rate of return of 7 percent is less than the real rate of interest.E) All of the above
F) B) and C)

Question 19

The nominal rate of interest is 8.5 percent, and the real rate is 5 percent.The expected rate of return on an investment is 8 percent.The firm should

Accepted Answer

A)  not undertake the investment, because the expected rate of return of 8 percent is less than the nominal interest rate.
B)  not undertake the investment, because the expected rate of return of 8 percent is less than the nominal plus the real interest rate.
C)  undertake the investment because the expected rate of return of 8 percent is greater than the difference between the nominal and real interest rates.
D)  undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest.E) All of the above
F) C) 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)  investment will take place until i and r are equal.
B)  investment will take place until r exceeds i by the greatest amount.
C)  r will rise as more investment is undertaken.
D)  i will fall as more investment is undertaken.E) A) and D)
F) C) and D)

Exam 30: Basic Macroeconomic Relationships

Which of the following statements about consuming in excess of one's disposable income is not true?

Correct Answer
verified

Other things equal, a 10 percent decrease in corporate income taxes will

Correct Answer
verified

The nominal rate of interest is 8.5 percent, and the real rate is 5 percent.The expected rate of return on an investment is 8 percent.The firm should

Correct Answer
verified

A high rate of inflation is likely to cause a

Correct Answer
verified

One can determine the amount of any level of total income that is consumed by

Correct Answer
verified

In an economy, for every $10 million increase in disposable income, saving increases by $2 million.It can be concluded that the

Correct Answer
verified

If the MPC is 0.9 and investment spending increases by $20 billion, real GDP will increase by $200 billion.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

If a family's MPC is 0.7, it means that the family is

Correct Answer
verified

The variability of business profits

Correct Answer
verified

The multiplier is defined as

Correct Answer
verified

A firm invests in a new machine that costs $2,000 a year but which is expected to produce an increase in total revenue of $2,200 a year.The current real rate of interest is 8 percent.The firm should

Correct Answer
verified

If consumption increases while income remains the same, the average propensity to consume will

Correct Answer
verified

One factor that shifts the consumption schedule is household wealth.Households build wealth by

Correct Answer
verified

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

The relationship between the MPS and the MPC is such that

Correct Answer
verified

1 − MPC = MPS.

Correct Answer
verified

The Great Recession of 2007-2009 caused a basic change in consumer behavior, shifting the saving schedule up.

Correct Answer
verified

Exam 30: Basic Macroeconomic Relationships

Which of the following statements about consuming in excess of one's disposable income is not true?

Correct AnswerverifiedShow Answer

Other things equal, a 10 percent decrease in corporate income taxes will

Correct AnswerverifiedShow Answer

The nominal rate of interest is 8.5 percent, and the real rate is 5 percent.The expected rate of return on an investment is 8 percent.The firm should

Correct AnswerverifiedShow Answer

A high rate of inflation is likely to cause a

Correct AnswerverifiedShow Answer

One can determine the amount of any level of total income that is consumed by

Correct AnswerverifiedShow Answer

In an economy, for every $10 million increase in disposable income, saving increases by $2 million.It can be concluded that the

Correct AnswerverifiedShow Answer

If the MPC is 0.9 and investment spending increases by $20 billion, real GDP will increase by $200 billion.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a family's MPC is 0.7, it means that the family is

Correct AnswerverifiedShow Answer

The variability of business profits

Correct AnswerverifiedShow Answer

The multiplier is defined as

Correct AnswerverifiedShow Answer

A firm invests in a new machine that costs $2,000 a year but which is expected to produce an increase in total revenue of $2,200 a year.The current real rate of interest is 8 percent.The firm should

Correct AnswerverifiedShow Answer

If consumption increases while income remains the same, the average propensity to consume will

Correct AnswerverifiedShow Answer

One factor that shifts the consumption schedule is household wealth.Households build wealth by

Correct AnswerverifiedShow Answer

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

The relationship between the MPS and the MPC is such that

Correct AnswerverifiedShow Answer

1 − MPC = MPS.

Correct AnswerverifiedShow Answer

The Great Recession of 2007-2009 caused a basic change in consumer behavior, shifting the saving schedule up.

Correct AnswerverifiedShow Answer

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