A decline in real interest will…. |
increase the amount of investment spending |

An increase in household wealth that creates a wealth effect would shift the: |
Consumption schedule upward and the saving schedule downward |

The MPC can be defined as that fraction of a: |
change in income that is spent. |

A firm invests in a new machine that costs $5,000 a year but which is expected to produce an increase in total revenue of $5,200 a year. The current real rate of interest is 7 percent. The firm should: |
Not undertake the investment because the expected rate of return of 4 percent is less than the real rate of interest |

A high rate of inflation is likely to cause a |
high nominal interest rate |

The most important determinant of consumption and saving is the |
level of income. |

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

In contrast to investment, consumption is: |
relatively stable. |

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. |

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by: |
$6 billion. |

In an economy, for every $1600 decrease in income, spending falls by $1200. It can be concluded that the: |
Marginal propensity to save is .25 |

The consumption schedule shows: |
the amounts households intend to consume at various possible levels of aggregate income |

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when: |
r is greater than i. |

1 – MPC = MPS. True |
True |

Personal saving is equal to: |
Disposable income minus consumption |

The multiplier effect indicates that: |
a change in spending will change aggregate income by a larger amount. |

An MPC value of less than 1.0 indicates that as income increases: |
Consumption also increases, though not as much as income |

A change in interest rates would shift the consumption schedule and the saving schedule ______; a change in taxes would shift these two schedules ______. |
In opposite directions; in the same direction |

Generally speaking, the greater the MPS, the: |
Smaller would be the increase in income which results from an increase in consumption spending |

A rightward shift of the investment demand curve might be caused by: |
businesses planning to increase their stock of inventories |

Dissaving means |
that households are spending more than their current incomes. |

Assume that MPS is 0.4. If spending increases by $8 billion, then real GDP will increase by: |
$20 billion |

# Macroeconomics Ch. 10

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