Question 1

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 incomeE) B) and C)
F) B) and D)

Question 2

Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the:

Accepted Answer

A)   Slope of the consumption schedule is .75
B)   Average propensity to consume is .75
C)   Marginal propensity to save is .20
D)   Marginal propensity to consume is .6E) All of the above
F) C) and D)

Question 3

The wealth effect will tend to decrease consumption and increase saving.

Accepted Answer

A) True 
 B)False

Question 4

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 .8
C)   Marginal propensity to consume is .2
D)   Average propensity to save is 0.2E) A) and B)
F) A) and C)

Question 5

As the consumption and saving schedules relate to real GDP, an increase in taxes will shift:

Accepted Answer

A)   Upward both the consumption and saving schedules
B)   Downward both the consumption and saving schedules
C)   The consumption schedule upward and the saving schedule downward
D)   The saving schedule upward and the consumption schedule downwardE) None of the above
F) A) and B)

Question 6

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 fallE) B) and C)
F) None of the above

Question 7

As disposable income decreases, consumption:

Accepted Answer

A)   And saving both increase
B)   And saving both decrease
C)   Increases and saving decreases
D)   Decreases and saving increasesE) None of the above
F) All of the above

Question 8

Answer the following question based on the table below which illustrates the multiplier process resulting from an autonomous increase in investment by $5.  Refer to the above table. The change in income in round two will be:

Accepted Answer

A)   $0.94
B)   $2.81
C)   $3.75
D)   $4.00E) A) and B)
F) A) and C)

Question 9

An increase in business taxes will tend to shift the investment-demand curve rightward.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

An increase in taxes will shift both the consumption schedule and the saving schedule down.

Accepted Answer

A) True 
 B)False

Question 12

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)   DecreaseE) A) and D)
F) A) and C)

Question 13

During the Great Recession of 2007-2009, the investment demand curve shifted:

Accepted Answer

A)   Left because of very low interest rates
B)   Right because of very low interest rates
C)   Left because of declines in expected returns
D)   Right because of reductions in tax ratesE) A) and B)
F) A) and C)

Question 14

The disposable income (DI)  and consumption (C)  schedules are for a private, closed economy. All figures are in billions of dollars.  Refer to the data above. If plotted on a graph, the slope of the consumption schedule would be:

Accepted Answer

A)   .6
B)   .7
C)   .8
D)   .9E) B) and C)
F) None of the above

Question 15

2 to ID3? A)  Greater inventories of capital goods B)  Higher business taxes on capital goods C)  A more rapid rate of technological progress D)  Lower expected rates of return on investment in capital goods" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID3?

Accepted Answer

A)   Greater inventories of capital goods
B)   Higher business taxes on capital goods
C)   A more rapid rate of technological progress
D)   Lower expected rates of return on investment in capital goodsE) All of the above
F) C) and D)

Question 16

If the slope of a linear consumption schedule increases in a private closed economy, then it can be concluded that the:

Accepted Answer

A)   MPS has increased
B)   MPC has increased
C)   Income has increased
D)   Income has decreasedE) None of the above
F) B) and C)

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Refer to the consumption schedule above. At income level 3, the amount of saving is represented by the line segment:

Accepted Answer

A)   FG
B)   FH
C)   FD
D)   GHE) A) and C)
F) A) and B)

Question 19

If disposable income decreases from $1800 to $1500 and MPC = 0.75, then saving will:

Accepted Answer

A)   Increase by $225
B)   Decrease by $225
C)   Increase by $75
D)   Decrease by $75E) C) and D)
F) None of the above

Question 20

2 then in figure (B)  there would be: A)  A shift from line B2 to B3 B)  A shift from line B2 to B1 C)  A movement down along line B2 D)  A movement up along line B2" class="answers-bank-image d-inline" rel="preload" > Refer to the above figures with consumption schedules in figure (A)  and saving schedules in figure (B) , which correspond to each other across different levels of disposable income. If, in figure (A) , consumption increases along line A2 then in figure (B)  there would be:

Accepted Answer

A)   A shift from line B2 to B3
B)   A shift from line B2 to B1
C)   A movement down along line B2
D)   A movement up along line B2E) B) and C)
F) B) and D)

Exam 10: Basic Macroeconomic Relationships

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

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If disposable income decreases from $1800 to $1500 and MPC = 0.75, then saving will:

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Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B) , which correspond to each other across different levels of disposable income. If, in figure (A) , consumption increases along line A2 then in figure (B) there would be:

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The disposable income (DI) and consumption (C) schedules are for a private, closed economy. All figures are in billions of dollars. Refer to the data above. If plotted on a graph, the slope of the consumption schedule would be:

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Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the:

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

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Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID3?

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

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Answer the following question based on the table below which illustrates the multiplier process resulting from an autonomous increase in investment by $5. Refer to the above table. The change in income in round two will be:

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As disposable income decreases, consumption:

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

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

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

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An increase in business taxes will tend to shift the investment-demand curve rightward.

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The wealth effect will tend to decrease consumption and increase saving.

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Refer to the consumption schedule above. At income level 3, the amount of saving is represented by the line segment:

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As the consumption and saving schedules relate to real GDP, an increase in taxes will shift:

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During the Great Recession of 2007-2009, the investment demand curve shifted:

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If the slope of a linear consumption schedule increases in a private closed economy, then it can be concluded that the:

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An increase in taxes will shift both the consumption schedule and the saving schedule down.

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Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B) , which correspond to each other across different levels of disposable income. If, in figure (A) , consumption increases along line A₂ then in figure (B) there would be:

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Refer to the graph above. Which of the following would shift the investment demand curve from ID₂ to ID₃?

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