Question 1

The simple multiplier:

Accepted Answer

A)   occurs only in response to a change in the level of investment spending.
B)   can be found by taking the reciprocal of the MPS.
C)   occurs only when intended investment increases as GDP increases.
D)   is measured by the slope of the saving schedule.E) A) and B)
F) A) and C)

Question 2

For all levels of income to the left of the intersection of the 45-degree line and the consumption schedule,the APC is:

Accepted Answer

A)   greater than 100 percent.
B)   less than the APS.
C)   equal to the MPC.
D)   equal to 100 percent.E) None of the above
F) A) and D)

Question 3

The simple 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) B) and D)
F) A) and B)

Question 4

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

Question 5

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

Question 6

A business firm will purchase additional capital goods if the real rate of interest it must pay is less than the expected rate of return from the investment.

Accepted Answer

A) True 
 B)False  True

Question 7

The APC can be defined as:

Accepted Answer

A)   change in consumption/change in income
B)   consumption/income
C)   change in income/change in consumption
D)   income/consumptionE) A) and B)
F) A) and C)

Question 8

The ________ of the late 1990s was an example of the wealth effect,while _______ of 2008 was an example of the reverse wealth effect.

Accepted Answer

A)   declining stock values;skyrocketing market prices.
B)   skyrocketing stock values;plunging market prices.
C)   declining market prices;plunging market prices.
D)   tech bust;real estate boom.E) A) and B)
F) A) and C)

Question 9

The saving schedule is such that as aggregate income increases by a certain amount,saving:

Accepted Answer

A)   increases by the same amount as the increase in income.
B)   does not change.
C)   increases.
D)   decreases.E) All of the above
F) B) and C)

Question 10

As aggregate income increases,the APC:

Accepted Answer

A)   and APS will both increase.
B)   will decrease,but the APS will increase.
C)   will increase,but the APS will decrease.
D)   and APS will both decrease.E) C) and D)
F) All of the above

Question 11

In contrast to the investment schedule,the consumption schedule is:

Accepted Answer

A)   relatively stable.
B)   relatively unstable.
C)   downward sloping.
D)   horizontal.E) B) and C)
F) A) and B) A

Question 12

Assume the MPC is 2/3.If investment spending increases by $2 billion,the level of GDP will increase by:

Accepted Answer

A)   $3 billion.
B)   $2/3 billion.
C)   $2 billion.
D)   $6 billion.E) None of the above
F) A) and D)

Question 13

Given the consumption schedule,it is possible to graph the relevant saving schedule by:

Accepted Answer

A)   subtracting the MPC from "one" at each level of income.
B)   subtracting investment from consumption at each level of GDP.
C)   plotting the horizontal differences between the consumption schedule and the 45-degree line.
D)   plotting the vertical differences between the consumption schedule and the 45-degree line.E) None of the above
F) C) and D)

Question 14

Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y,where C is consumption and Y is gross domestic product.The multiplier for this economy:

Accepted Answer

A)   is 3.
B)   is 4.
C)   is 5.
D)   cannot be determined from the information given.E) All of the above
F) B) and C)

Question 15

-The above figure shows the saving schedules for economies 1,2,3,and 4.Which economy has the largest multiplier?

Accepted Answer

A)   1
B)   2
C)   3
D)   4E) All of the above
F) None of the above D

Question 16

If for some reason households become increasingly thrifty,we could show this by:

Accepted Answer

A)   a downshift of the saving schedule.
B)   an upshift of the consumption schedule.
C)   an upshift of the saving schedule.
D)   an increase in the equilibrium GDP.E) C) and D)
F) A) and C)

Question 17

As disposable income increases,consumption:

Accepted Answer

A)   and saving both increase.
B)   and saving both decrease.
C)   decreases and saving increases.
D)   increases and saving decreases.E) A) and B)
F) A) and D)

Question 18

Which one of the following will cause a movement down along an economy's consumption schedule?

Accepted Answer

A)   an increase in stock prices
B)   a decrease in stock prices
C)   an increase in consumer indebtedness
D)   a decrease in disposable incomeE) A) and B)
F) All of the above

Question 19

Firms make planned changes to their inventories:

Accepted Answer

A)   if they are expecting either faster or slower sales.
B)   if they are expecting a faster sale.
C)   if they are expecting a slower sale.
D)   if they are expecting a decrease in labor costs.E) None of the above
F) All of the above

Question 20

The use of 1/MPS formula as the size of the multiplier in the economy,overstates the actual size of it because:

Accepted Answer

A)   saving is not the only fraction of the domestic income which is not spent.
B)   saving is the only fraction of the domestic income which is not spent.
C)   imports and taxes create new income in the economy.
D)   imports and not taxes creates new income in the economy.E) A) and B)
F) C) and D)

Exam 10: Basic Macroeconomic Relationships

The simple multiplier:

Correct AnswerverifiedShow Answer

For all levels of income to the left of the intersection of the 45-degree line and the consumption schedule,the APC is:

Correct AnswerverifiedShow Answer

The simple multiplier is defined as:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A business firm will purchase additional capital goods if the real rate of interest it must pay is less than the expected rate of return from the investment.

Correct AnswerverifiedTrue

The APC can be defined as:

Correct AnswerverifiedShow Answer

The ________ of the late 1990s was an example of the wealth effect,while _______ of 2008 was an example of the reverse wealth effect.

Correct AnswerverifiedShow Answer

The saving schedule is such that as aggregate income increases by a certain amount,saving:

Correct AnswerverifiedShow Answer

As aggregate income increases,the APC:

Correct AnswerverifiedShow Answer

In contrast to the investment schedule,the consumption schedule is:

Correct AnswerverifiedA

Assume the MPC is 2/3.If investment spending increases by $2 billion,the level of GDP will increase by:

Correct AnswerverifiedShow Answer

Given the consumption schedule,it is possible to graph the relevant saving schedule by:

Correct AnswerverifiedShow Answer

Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y,where C is consumption and Y is gross domestic product.The multiplier for this economy:

Correct AnswerverifiedShow Answer

-The above figure shows the saving schedules for economies 1,2,3,and 4.Which economy has the largest multiplier?

Correct AnswerverifiedD

If for some reason households become increasingly thrifty,we could show this by:

Correct AnswerverifiedShow Answer

As disposable income increases,consumption:

Correct AnswerverifiedShow Answer

Which one of the following will cause a movement down along an economy's consumption schedule?

Correct AnswerverifiedShow Answer

Firms make planned changes to their inventories:

Correct AnswerverifiedShow Answer

The use of 1/MPS formula as the size of the multiplier in the economy,overstates the actual size of it because:

Correct AnswerverifiedShow Answer

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True

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The __ of the late 1990s was an example of the wealth effect,while _ of 2008 was an example of the reverse wealth effect.

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A

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D

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