Eco exam–Chapter 10

The most important determinant of consumer spending is:

the level of income

The most important determinant of consumption and saving is the:

level of income

If Carol’s disposable income increases from 1200 to 1700 and her level of saving increases from minus 100 to plus 100, her marginal propensity to:

consume is 3/5ths

With marginal propensity to save of .4, the marginal propensity to consume will be:

1.0 minus .4

The MPC can be defined as the fraction of a:

change in income that is spent.

The 45-degree line on a graph relating consumption and income shows:

all points at which consumption and income are equal.

The disposable income goes up, the:

average propensity to consume falls.

The consumption schedule shows:

the amounts households intend to consume at various possible levels of aggregate income.

The consumption schedule directly relates:

consumption to the level of disposable income.

A decline in disposable income:

decreases consumption by moving downward alone a specific consumption schedule.

The APC is calculated as:

consumption/income.

The consumption schedule shows: (what type of relationship)

a direct relationship between aggregate consumption and aggregate income.

The APC can be defined as the fraction of a:

specific level of total income that is consumed.

The consumption schedule is drawn on the assumption that as income increases, consumption will:

increase absolutely by decline as a percentage of income.

which of the following is correct?

APC+APS=1.

The consumption schedule is such that:

the MPC is constant and the APC declines as income rises.

The consumption and saving schedules reveal that the:

MPC is greater than zero but less than one.

The size of the MPC is assumed to be:

greater than zero but less than one.

As disposable income increases, consumption:
A.
and saving both increase.
B.
and saving both decrease.
C.
decreases and saving increases.
D.
increases and saving decreases.

and saving both increase.

The relationship between consumption and disposable income is such that:

a direct and relatively stable relationship exists between consumption and income.

If the MPC is .8 and disposable income is 200 then:

consumption and savings cannot be determined from the given information.

The MPC for an economy is:

the slope of the consumption schedule or line.

In contrast to investment, consumption is:

relatively stable.

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

A decrease in disposable income.

At the point where the consumption schedule intersects the 45-degree line:

the APC is 1.00.

Tessa’s break-even income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of:

consumption spending will be $14,500.

If Trent’s MPC is .80, this means that he will:

spend eight-tenths of any increase in his disposable income.

Suppose a family’s consumption exceeds its disposable income. This means that its:

APC is greater than 1.

The equation C = 35 + .75Y, where C is consumption and Y is disposable income, shows that:

households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.

If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed:

the vertical intercept would be +20 and the slope would be +.6.

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?
A.
MPC + MPS = APC + APS.
B.
APC + MPS = APS + MPC.
C.
APC + MPC = APS + MPS.
D.
APC – APS = MPC – MPS.

MPC + MPS = APC + APS.

Dissaving means:

that households are spending more than their current incomes.

Dissaving occurs where:

consumption exceeds income.

Which of the following relations is not correct?
A.
1 – MPC = MPS.
B.
APS + APC = 1.
C.
MPS = MPC + 1.
D.
MPC + MPS = 1.

MPS = MPC + 1.

The saving schedule is drawn on the assumption that as income increases:

saving will increase absolutely and as a percentage of income.

At the point where the consumption schedule intersects the 45-degree line:
(s is..)

saving is zero.

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

saving schedule will also be linear.

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

plotting the vertical differences between the consumption schedule and the 45-degree line.

If the marginal propensity to consume is .9, then the marginal propensity to save must be:

.1

The greater is the marginal propensity to consume, the:

smaller is the marginal propensity to save.

If the saving schedule is a straight line, the:

MPS must be constant.

Which one of the following will cause a movement up along an economy’s saving schedule?

An increase in disposable income.

In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the:

wealth effect.

The wealth effect is shown graphically as a:

shift of the consumption schedule.

An upward shift of the saving schedule suggests:

that the APC has decreased and the APS has increased at each GDP level.

Which of the following will not tend to shift the consumption schedule upward?

A currently small stock of durable goods in the possession of consumers.
B.
The expectation of a future decline in the consumer price index.
C.
A currently low level of household debt.
D.
The expectation of future shortages of essential consumer goods.

The expectation of a future decline in the consumer price index.

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:

will shift downward.

Which of the following will not cause the consumption schedule to shift?

A change in consumer incomes

When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift:

both the consumption and saving schedules downward.

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

an upward shift of the saving schedule.

Assume the economy’s consumption and saving schedules simultaneously shift downward. This must be the result of:

an increase in personal taxes.

The investment demand curve portrays an inverse (negative) relationship between:

the real interest rate and investment.

The investment demand slopes downward and to the right because lower real interest rates:

enable more investment projects to be undertaken profitably.

Other things equal, a decrease in the real interest rate will:

move the economy downward along its existing investment demand curve.

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:

20 percent.

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 the level of investment.

A decline in the real interest rate will:

increase the amount of investment spending.

The immediate determinants of investment spending are the:

expected rate of return on capital goods and the real interest rate.

The investment demand curve suggests:

there is an inverse relationship between the real rate of interest and the level of investment spending.

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

profits are highly variable.

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

more variable than real GDP.

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:

investment will take place until i and r are equal.

A high rate of inflation is likely to cause a:

high nominal interest rate.

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:

22 percent.

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

12 percent.

When we draw an investment demand curve, we hold constant all of the following except:
A.
the expected rate of return on the investment.
B.
business taxes.
C.
the interest rate.
D.
the present stock of capital goods.

the interest rate.

Capital goods, because their purchases can be postponed like ______ consumer goods, tend to contribute to ________ in investment spending.

durable; instability

The multiplier 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 the:

change in 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 as:

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 GDP 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 it:

magnifies initial changes 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 increases by $2 billion, the level of GDP will increase by:

$6 billion.

The multiplier applies to:

investment, net exports, and government spending.

The multiplier effect indicates that:

a change in spending will change aggregate income by a larger amount.