Macroeconomics 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 $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to:

consume is three-fifths.

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

1.0 minus .4.

The MPC can be defined as that fraction of a:

change in income that is spent.

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

all the points at which consumption and income are equal.

As disposable income goes up, the:

average propensity to consume falls.

A decline in disposable income:

decreases consumption by moving downward along a specific consumption schedule.

Which of the following is correct?

APC + APS = 1.

As disposable income increases, consumption:

and saving both increase.

The MPC for an economy is:

the slope of the consumption schedule or line.

Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the:

MPC is greater in A than in B.

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.

Which of the following is correct?

MPC + MPS = APC + APS.

Dissaving means:

that households are spending more than their current incomes.

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.

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.

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

an upward shift of the saving schedule.

Refer to the given diagram. Suppose the economy’s saving schedule shifts from S1 to S2 as shown in the given diagram. We can say that its:

MPS has increased.

Refer to the given data. At the $200 level of disposable income:

dissaving is $5.

Refer to the given diagram. The marginal propensity to consume is equal to:

CB/AB.

Refer to the given diagram. At income level F, the volume of saving is:

CD.

Refer to the given diagram. Consumption will be equal to income at:

an income of E.

Refer to the given data. At the $100 level of income, the average propensity to save is:

.10.

Refer to the given diagram. The marginal propensity to consume is:

.8.

Refer to the diagram. The break-even level of income is:

$150.

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 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.

The investment demand curve will shift to the right as the result of:

businesses becoming more optimistic about future business conditions.

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

12 percent.

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:

investment will take place until i and r are equal.

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

expected profits are highly variable, capital goods are durable, innovation occurs at an irregular pace.

The multiplier effect means that:

an increase in investment can cause GDP to change by a larger amount.

The multiplier is:

1/MPS.

If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will:

increase by $10 billion.

If the MPC is .6, the multiplier will be:

2.5.

The multiplier applies to:

investment, net exports, and government spending.

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase:

consumption by $80 billion.