Question 1

Disposable Income (Yd)  Consumption (C) $0$40100100200160300220400280\begin{array} { | c | c | } \hline 	ext { Disposable Income } \left( Y _ { d } ight)  & 	ext { Consumption } ( C )  \\hline \$ 0 & \$ 40 \\hline 100 & 100 \\hline 200 & 160 \\hline 300 & 220 \\hline 400 & 280 \\hline\end{array} Disposable Income (Yd​) $0100200300400​ Consumption (C) $40100160220280​​  (Advanced analysis)  Which of the following equations represents the saving schedule implicit in the given data?

Accepted Answer

A)   S = C ? Yd.
B)   S = 40 + 0.4Yd.
C)   S = 40 + 0.6Yd.
D)   S = ?40 + 0.4Yd. E) A) and B)
F) C) and D)

Question 2

(Advanced analysis)  If the equation C = 20 + 0.6Y, where C is consumption and Y is disposable income, were graphed,

Accepted Answer

A)   the vertical intercept would be +0.6 and the slope would be +20.
B)   it would reveal an inverse relationship between consumption and disposable income.
C)   the vertical intercept would be negative, but consumption would increase as disposable income rises.
D)   the vertical intercept would be +20 and the slope would be +0.6.E) A) and B)
F) A) and C)

Question 3

If the MPC is 0.8 and disposable income is $200, then

Accepted Answer

A)   consumption and saving cannot be determined from the information given.
B)   saving will be $20.
C)   personal consumption expenditures must be $160.
D)   saving will be $40.E) A) and D)
F) A) and C)

Question 4

With a marginal propensity to save of 0.4, the marginal propensity to consume will be

Accepted Answer

A)   1.0 minus 0.4.
B)   0.4 minus 1.0.
C)   the reciprocal of the MPS.
D)   0.4.E) A) and D)
F) A) and B)

Question 5

The purchase of capital goods, like ____ consumer goods, can be postponed; it tends to contribute to _____ in investment spending.

Accepted Answer

A)   nondurable; instability
B)   nondurable; stability
C)   durable; instability
D)   durable; stabilityE) A) and D)
F) A) and C)

Question 6

If the MPS is only half as large as the MPC, the multiplier is

Accepted Answer

A)   2.
B)   3.
C)   4.
D)   5.E) None of the above
F) A) and C)

Question 7

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 8

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The
Expected rate of return on this tool is

Accepted Answer

A)   80 percent.
B)   8 percent.
C)   2 percent.
D)   20 percent.E) A) and C)
F) None of the above

Question 9

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 C)

Question 10

An MPC value of less than 1.0 indicates that as income increases,

Accepted Answer

A)   consumption also increases, and by more than the increase in income.
B)   consumption also increases, and at the same rate as the increase in income.
C)   consumption will go in the opposite direction and decrease.
D)   consumption also increases, though not as much as income.E) A) and B)
F) A) and C)

Question 11

The consumption schedule shows

Accepted Answer

A)   that the MPC increases in proportion to GDP.
B)   that households consume more when interest rates are low.
C)   that consumption depends primarily on the level of business investment.
D)   the amounts households intend to consume at various possible levels of aggregate income.E) B) and D)
F) C) and D)

Question 12

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

Question 13

A $1 billion increase in investment will cause a

Accepted Answer

A)   (1/MPS)  billion increase in GDP.
B)   (MPS)  billion increase in GDP.
C)   (1 − MP
C)   billion increase in GDP.
D)   (MPC − MPS)  billion increase in GDP.E) C) and D)
F) A) and D)

Question 14

Refer to the given diagram. The marginal propensity to consume is

Accepted Answer

A)   0.2.
B)   0.8.
C)   0.4.
D)   0.3.E) A) and B)
F) B) and C)

Question 15

(Advanced analysis)  If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when
Disposable income is

Accepted Answer

A)   $80.
B)   $100.
C)   $120.
D)   $160.E) None of the above
F) A) and B)

Question 16

(Advanced analysis)  The equation C = 35 + 0.75Y, where C is consumption and Y is disposable income, shows that

Accepted Answer

A)   households will consume three-fourths of whatever level of disposable income they receive.
B)   households will consume $35 if their disposable income is zero and will consume three- fourths of any increase in disposable income they receive.
C)   there is an inverse relationship between disposable income and consumption.
D)   households will save $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.E) All of the above
F) B) and D)

Question 17

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) None of the above
F) A) and D)

Question 18

The APC is calculated as

Accepted Answer

A)   change in consumption/change in income.
B)   consumption/income.
C)   change in income/change in consumption.
D)   income/consumption.E) A) and C)
F) None of the above

Question 19

If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by

Accepted Answer

A)   $6 billion.
B)   $9 billion.
C)   $54 billion.
D)   $56 billion.E) A) and B)
F) A) and C)

Question 20

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

Exam 10: Basic Macroeconomic Relationships

(Advanced analysis) If the equation C = 20 + 0.6Y, where C is consumption and Y is disposable income, were graphed,

Correct Answer
verified

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The Expected rate of return on this tool is

Correct Answer
verified

With a marginal propensity to save of 0.4, the marginal propensity to consume will be

Correct Answer
verified

The multiplier effect means that

Correct Answer
verified

Correct Answer
verified

If the MPS is only half as large as the MPC, the multiplier is

Correct Answer
verified

The consumption schedule shows

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

(Advanced analysis) The equation C = 35 + 0.75Y, where C is consumption and Y is disposable income, shows that

Correct Answer
verified

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

Correct Answer
verified

If the MPC is 0.8 and disposable income is $200, then

Correct Answer
verified

The APC is calculated as

Correct Answer
verified

An MPC value of less than 1.0 indicates that as income increases,

Correct Answer
verified

Refer to the given diagram. The marginal propensity to consume is

Correct Answer
verified

A $1 billion increase in investment will cause a

Correct Answer
verified

If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by

Correct Answer
verified

(Advanced analysis) If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when Disposable income is

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The purchase of capital goods, like consumer goods, can be postponed; it tends to contribute to _ in investment spending.

Correct Answer
verified

Exam 10: Basic Macroeconomic Relationships

(Advanced analysis) If the equation C = 20 + 0.6Y, where C is consumption and Y is disposable income, were graphed,

Correct AnswerverifiedShow Answer

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The Expected rate of return on this tool is

Correct AnswerverifiedShow Answer

With a marginal propensity to save of 0.4, the marginal propensity to consume will be

Correct AnswerverifiedShow Answer

The multiplier effect means that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the MPS is only half as large as the MPC, the multiplier is

Correct AnswerverifiedShow Answer

The consumption schedule shows

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

(Advanced analysis) The equation C = 35 + 0.75Y, where C is consumption and Y is disposable income, shows that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the MPC is 0.8 and disposable income is $200, then

Correct AnswerverifiedShow Answer

The APC is calculated as

Correct AnswerverifiedShow Answer

An MPC value of less than 1.0 indicates that as income increases,

Correct AnswerverifiedShow Answer

Refer to the given diagram. The marginal propensity to consume is

Correct AnswerverifiedShow Answer

A $1 billion increase in investment will cause a

Correct AnswerverifiedShow Answer

If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by

Correct AnswerverifiedShow Answer

(Advanced analysis) If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when Disposable income is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The purchase of capital goods, like ____ consumer goods, can be postponed; it tends to contribute to _____ in investment spending.

Correct AnswerverifiedShow Answer

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The purchase of capital goods, like consumer goods, can be postponed; it tends to contribute to _ in investment spending.

Correct Answer
verified