As disposable income increases, consumption |
and savings both increase |
The relationship between consumption and disposable income is such that |
a direct and relatively stable relationship exist between consumption and income |
If the MPC is .8 and disposable income is 200$ then |
consumption and savings can not be determined from this information |
The MPC for an economy is |
the slope of the consumption schedule or line |
in contrast to investment, consumption is |
relatively stable |
which of the following will cause a movement down along an economies consumption schedule. |
a decrease in disposable income |
at the point where the consumption schedule intersects the 45 degree line |
The APC is 1.00 |
Teesas break even income is 10,000 and her MPC is .75. If her actual income is 16,000 her level of |
consumption spending will be 14500 |
If trents MPC is .80 this means that he will |
spend eight tenths of any increase in his disposable income |
Suppose a familys consumption exeeds its disposable income. This means that |
APC is greater than 1 |
one can determine the amount of any level of total income that is consumed by |
multiplying total income by the APC |
Which of the following is correct |
MPC+MPS=APC+APS |
Dissaving means |
The households are spending more than their current incomes |
Dissaving occurs when |
consumption exeeds income |
Which of the following relations is not correct |
MPS=MPC+1 |
The savings schedule is drawn on the assumption that as income increases |
Savings will increase absolutely and as a percentage of income |
At the point where the consumption schedule intersects the 45 degree line |
Savings is 0 |
the saving schedule is such that as aggregate income increases by a certain amount, saving |
increases, but by a smaller amount |
If the consumption schedule is linear, then the |
Savings schedule will also be linear |
GIven the consumption schedule, it is possible to graph the relevant savings schedule by |
Plotting the vertical differences between the consumption schedule and the 45 degree line |
the marginal propensity to consume is .9 then the marginal propensity to save must be |
.1 |
The greater the marginal propensity is |
the smaller is the marginal propensity to save |
if the savings schedule is a straight line |
MPS must be constant |
which of the following will cause a movement up along an economies saving schedule |
an increase in disposable income |
in the late 1990’s the U.s stock marked boomed causing U.S consumption to rise. Economist refer to this outcome as |
Wealth effect |
The wealth effect is shown graphically as a |
shift of the consumption schedule |
An upward shift of the savings schedule suggest |
That the APC has decreased and the APS has increased at each GDP leve |
Which of the following will not shift the consumption schedule upward |
the expectation of a future decline in the consumer index |
If the consumption schedule shift upwards and the shift was not caused by a tax xhange, the savings schedule |
will shift downward |
Which of the following will not cause the consumption schedule to shift |
a change in consumers income |
When consumption and savings are graphed relative to REAL GDP, an increase in personal taxes will shift |
Both the consumption schedule and the savings schedule downwards |
If for some reasons households become increasingly thrifty, we could show this by |
an upward shift in the savings schedule |
Assume the economies consumption and savings schedule simultaneously shift downward. This must be a result of |
an increase in personal taxes |
The investment demand slopes downwrd and to the right because lower real interest rates |
enable more investment project to be undertaken profitably |
The invest ment demand curve portrays an inverse (negative ) relationship between |
The real interest rate and investment |
Other things equal, a decrease in the real interest rate will |
move the economy downward along its existing investment demand curve |
the relationship between the real interest rate and investment is shown by the |
investment demand schedule |
Given the expected rate of return on all possible investment opportunities in the economy |
An increase in the real rate of interest will reduce level of investment |
A decline in real interest rates will |
increase the amount of investment spending |
The immediate determinants of invesment spending are the |
expected rate of return on capital goods and the real interest rate |
The investment demand curve suggest that |
There is an inverse relationship between the real rate of interest and the level of investment spending |
If business taxes are reduced and the real interest rate increases |
the level of investment spending might either increase or decrease |
Other thing equal, a 10 percent decrease in cooperate income taxes will |
shift the investment demand curve to the right |
The investment curve will shift to the right as a result of |
Business becoming more optimistic about future business conditions |
Other thing equal, f the real interest rate falls and business taxes rise |
we will be uncertain as to the resulting change in investment |
the investment demand curve will shift to the right as a result of |
Technological programs |
The investment demand curve will shift to the left as a result of |
an increase in the exess production capacity available in industry |
If the real interst rate in the economy is (i) and expected rate of return from additional investment is (r), then more investment will be forthcoming when |
r is greater than i |
a rightward shift of the investment demand curve might be caused by |
Business planning to increase their stock of inventories |
The real interest rate is |
The percentage increase in purchasing power that the lender receives on a loan |
When we draw an investment demand curve, we hold consistant all of the following except |
the interest rate |
If nominal interest rate is 18 percent and the real interest rate is 6 percent the inflation rate is |
12 percent |
If the inflation rate is 10 percent and the real interest rate is 12 percen, the nominal interest rate is |
22 percetn |
A high rate of inflation is likely to cause a |
high nominal interest rate |
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 |
r will fall as more investment is undertaken |
In annual percentage terms, investment spending in the united states is |
more variable than REAL GDP |
Investment spending in the United States tends to be unstable because |
all of these contribute to instability |
Investment spending in the United States tends to be unstable because |
profits are highly variablw |
the mulitplier effect means that |
an increase in investment can cause GDP to change by a larger amount |
The multiplier is |
1/MPS |
The Multiplier is useful in determining |
change in real GDP resulting from a change in spending |
The Multiplier is defined as |
change in GDP/Initial change in spending |
If 100 percent of any change in income is spent, the multiplier will be |
infinitely large |
the multiplier can be calculated by |
1(1-MPC) |
the size of the multiplier is equal to the |
Reciprocal of the slope of the saving schedule |
If the MPS is only half as large as the MPC, the multiplier is |
3 |
If the MPC is .70 and investment increases by 3 billion the equilibrium will |
increase by 10 billion |
The numerical value of the multiplier will be smaller the |
larger the slope of the saving schedule |
the practical significance of the multiplier is that |
magnifies initial change in spending into larger changes in GDP |
If the MPC is .6 the multiplier will be |
2.5 |
Assume the MPC is 2/3. If investment spending increase by 2 billion the level of GDP will increase by |
6 billion |
Basic Macroeconomic relationships
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