Question 1

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round,income will eventually decline by:

Accepted Answer

A)   $200 billion.
B)   $300 billion.
C)   $400 billion.
D)   $500 billion.

Question 2

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars.  Refer to the given data.At an income level of $40 billion,the average propensity to consume:

Accepted Answer

A)   is highest in economy (1) .
B)   is highest in economy (2) .
C)   is highest in economy (3) .
D)   cannot be determined from the data given.

Question 3

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

Accepted Answer

A)   subtracting the MPC from 1 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.

Question 4

The numerical value of the multiplier will be smaller the:

Accepted Answer

A)   larger the average propensity to consume.
B)   larger the slope of the saving schedule.
C)   larger the slope of the consumption schedule.
D)   smaller the slope of the saving schedule.

Question 5

Which of the following is correct?

Accepted Answer

A)   APC + APS = 1.
B)   APC + MPS = 1.
C)   APS + MPC = 1.
D)   APS + MPS = 1.

Question 6

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)   $6 billion.
D)   $2 billion.

Question 7

If the MPC is .9 and investment spending increases by $20 billion,real GDP will increase by $200 billion.

Accepted Answer

A) True 
 B)False

Question 8

Assume a machine that has a useful life of only one year costs $2,000.Assume,also,that net of such operating costs as power,taxes,and so forth,the additional revenue from the output of this machine is expected to be $2,300.If the firm finds it can borrow funds at an interest rate of 10 percent,the firm should:

Accepted Answer

A)   not purchase the machine because the expected rate of return exceeds the interest rate.
B)   not purchase the machine because the interest rate exceeds the expected rate of return.
C)   purchase the machine because the expected rate of return exceeds the interest rate.
D)   purchase the machine because the interest rate exceeds the expected rate of return.

Question 9

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.

Question 10

Given the expected rate of return on all possible investment opportunities in the economy:

Accepted Answer

A)   an increase in the real rate of interest will reduce the level of investment.
B)   a decrease in the real rate of interest will reduce the level of investment.
C)   a change in the real interest rate will have no impact on the level of investment.
D)   an increase in the real interest rate will increase the level of investment.

Question 11

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars.  Refer to the given data.At an income level of $400 billion,the average propensity to save in economy (2) is:

Accepted Answer

A)   .9125.
B)   .0725.
C)   .0875.
D)   .9305.

Question 12

The most important determinant of consumption and saving is the:

Accepted Answer

A)   level of bank credit.
B)   level of income.
C)   interest rate.
D)   price level.

Question 13

The multiplier can be calculated as:

Accepted Answer

A)   1/(MPS + MP
C)  .
B)   MPC/MPS.
C)   1/(1 - MP
C)  .
D)   1 - MPC = MPS.

Question 14

A decline in the real interest rate will shift the investment demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 15

The immediate determinants of investment spending are the:

Accepted Answer

A)   expected rate of return on capital goods and the real interest rate.
B)   level of saving and the real interest rate.
C)   marginal propensity to consume and the real interest rate.
D)   interest rate and the expected price level.

Question 16

Investment spending in the United States tends to be unstable because:

Accepted Answer

A)   expected profits are highly variable.
B)   capital goods are durable.
C)   innovation occurs at an irregular pace.
D)   all of these contribute to the instability.

Question 17

If the nominal interest rate is 18 percent and the real interest rate is 6 percent,the inflation rate is:

Accepted Answer

A)   18 percent.
B)   24 percent.
C)   12 percent.
D)   6 percent.

Question 18

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars.  Refer to the given data.The marginal propensity to consume in economy (1) is:

Accepted Answer

A)   .5.
B)   .3.
C)   .8.
D)   .7.

Question 19

In annual percentage terms,investment spending in the United States is:

Accepted Answer

A)   less variable than real GDP.
B)   less variable than consumption spending.
C)   less variable than the price level.
D)   more variable than real GDP.

Question 20

(Advanced analysis) Answer the question on the basis of the following data:   Disposable Income (Yd)  Consumption (C)  $0$40100100200160300220400280\begin{array} { c c } 	ext { Disposable Income } \left( \mathrm { Y } _ { \mathrm { d } } ight)  & 	ext { Consumption (C)  } \\$ 0 & \$ 40 \100 & 100 \200 & 160 \300 & 220 \400 & 280\end{array} Disposable Income (Yd​) $0100200300400​ Consumption (C)  $40100160220280​  Which of the following equations correctly represents the given data?

Accepted Answer

A)   Yd = 40 + .6C.
B)   C = 60 + .4Yd.
C)   C = 40 + .6Yd.
D)   C = .6Yd.

Exam 29: Basic Macroeconomic Relationships

If the MPC is .9 and investment spending increases by $20 billion,real GDP will increase by $200 billion.

Correct Answer
verified

Which of the following is correct?

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

Correct Answer
verified

Given the expected rate of return on all possible investment opportunities in the economy:

Correct Answer
verified

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the given data.At an income level of $40 billion,the average propensity to consume:

Correct Answer
verified

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the given data.At an income level of $400 billion,the average propensity to save in economy (2) is:

Correct Answer
verified

The numerical value of the multiplier will be smaller the:

Correct Answer
verified

Correct Answer
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If the nominal interest rate is 18 percent and the real interest rate is 6 percent,the inflation rate is:

Correct Answer
verified

The immediate determinants of investment spending are the:

Correct Answer
verified

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

Correct Answer
verified

In annual percentage terms,investment spending in the United States is:

Correct Answer
verified

The most important determinant of consumption and saving is the:

Correct Answer
verified

Investment spending in the United States tends to be unstable because:

Correct Answer
verified

A decline in the real interest rate will shift the investment demand curve to the right.

Correct Answer
verified

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round,income will eventually decline by:

Correct Answer
verified

Correct Answer
verified

The APC is calculated as:

Correct Answer
verified

The multiplier can be calculated as:

Correct Answer
verified

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the given data.The marginal propensity to consume in economy (1) is:

Correct Answer
verified

Exam 29: Basic Macroeconomic Relationships

If the MPC is .9 and investment spending increases by $20 billion,real GDP will increase by $200 billion.

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Given the expected rate of return on all possible investment opportunities in the economy:

Correct AnswerverifiedShow Answer

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the given data.At an income level of $40 billion,the average propensity to consume:

Correct AnswerverifiedShow Answer

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the given data.At an income level of $400 billion,the average propensity to save in economy (2) is:

Correct AnswerverifiedShow Answer

The numerical value of the multiplier will be smaller the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the nominal interest rate is 18 percent and the real interest rate is 6 percent,the inflation rate is:

Correct AnswerverifiedShow Answer

The immediate determinants of investment spending are the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In annual percentage terms,investment spending in the United States is:

Correct AnswerverifiedShow Answer

The most important determinant of consumption and saving is the:

Correct AnswerverifiedShow Answer

Investment spending in the United States tends to be unstable because:

Correct AnswerverifiedShow Answer

A decline in the real interest rate will shift the investment demand curve to the right.

Correct AnswerverifiedShow Answer

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round,income will eventually decline by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The APC is calculated as:

Correct AnswerverifiedShow Answer

The multiplier can be calculated as:

Correct AnswerverifiedShow Answer

Answer the question on the basis of the following consumption schedules.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the given data.The marginal propensity to consume in economy (1) is:

Correct AnswerverifiedShow Answer

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