Question 1

The relationship between consumption and disposable income is such that:

Accepted Answer

A)   an inverse and stable relationship exists between consumption and income.
B)   a direct, but very volatile, relationship exists between consumption and income.
C)   a direct and quite stable relationship exists between consumption and income.
D)   the two are always equal.E) B) and D)
F) None of the above

Question 2

The most important determinant of consumer spending is:

Accepted Answer

A)   the level of household debt.
B)   consumer expectations.
C)   the stock of wealth.
D)   the level of disposable income.E) A) and D)
F) None of the above

Question 3

Following is consumption schedules for three private closed economies. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars.
 
-Refer to the above 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.E) None of the above
F) All of the above

Question 4

The APC can be defined as:

Accepted Answer

A)   change in consumption/change in income
B)   consumption/income
C)   change in income/change in consumption
D)   income/consumptionE) B) and D)
F) C) and D)

Question 5

Other things equal, a 10 percent decrease in corporate income taxes will:

Accepted Answer

A)   decrease the market price of real capital goods.
B)   have no effect on the location of the investment-demand curve.
C)   shift the investment-demand curve to the right.
D)   shift the investment-demand curve to the left.E) None of the above
F) B) and C)

Question 6

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

Accepted Answer

A)   households will consume three-fourths of whatever level of disposable income they receive.
B)   households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.
C)   there is an inverse relationship between disposable income and consumption.
D)   households will save $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.E) C) and D)
F) A) and C)

Question 7

-Refer to the consumption schedules shown in the above diagram for economies 1, 2, 3, and 4. The MPC is greatest in economy:

Accepted Answer

A)   1.
B)   2.
C)   3.
D)   4.E) B) and D)
F) All of the above

Question 8

Dissaving means:

Accepted Answer

A)   the same thing as disinvesting.
B)   that households are spending in excess of their current incomes.
C)   that saving and investment are equal.
D)   that disposable income is less than zero.E) A) and B)
F) C) and D)

Question 9

Technological progress will:

Accepted Answer

A)   shift the investment schedule downward and increase the level of employment.
B)   shift the investment schedule downward and decrease the level of employment.
C)   increase unplanned investment in inventories.
D)   shift the investment schedule upward and increase the equilibrium level of GDP.E) B) and D)
F) None of the above

Question 10

The greater is the marginal propensity to consume:

Accepted Answer

A)   the smaller is the marginal propensity to save.
B)   the higher is the interest rate.
C)   the lower is the average propensity to consume.
D)   the lower is the price level.E) B) and D)
F) A) and B)

Question 11

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

Accepted Answer

A)   an increase in stock prices
B)   a decrease in stock prices
C)   an increase in consumer indebtedness
D)   a decrease in disposable incomeE) B) and C)
F) All of the above

Question 12

If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when disposable income is:

Accepted Answer

A)   $80.
B)   $100.
C)   $120.
D)   $160.E) A) and C)
F) A) and D)

Question 13

The slope of the saving schedule measures the size of the multiplier.

Accepted Answer

A) True 
 B)False

Question 14

In view of your answer to the previous question, if the real interest rate is 15 percent in this economy, the aggregate amount of investment will be:

Accepted Answer

A)   $25.
B)   $20.
C)   $15.
D)   $10.E) B) and C)
F) A) and C)

Question 15

Which of the following equations correctly represents the data below? d = 40 + .6C B)  C = 60 + .4Yd C)  C = 40 + .6Yd D)  C = .6Yd" class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   Yd = 40 + .6C
B)   C = 60 + .4Yd
C)   C = 40 + .6Yd
D)   C = .6YdE) All of the above
F) B) and D)

Question 16

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then other things equal:

Accepted Answer

A)   investment will take place until i and r are equal.
B)   investment will take place until r exceeds i by the greatest amount.
C)   r will rise as more investment is undertaken.
D)   i will rise as more investment is undertaken.E) B) and D)
F) A) and D)

Question 17

The multiplier effect means that:

Accepted Answer

A)   consumption is typically several times as large as saving.
B)   a small change in consumption demand can cause a much larger increase in investment.
C)   a small decline in the MPC can cause equilibrium GDP to rise by several times that amount.
D)   a small increase in investment can cause national income to change by a larger amount.E) B) and C)
F) All of the above

Question 18

Assume a machine which 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. The expected rate of return on this machine is:

Accepted Answer

A)   7.5 percent.
B)   10 percent.
C)   15 percent.
D)   20 percent.E) A) and B)
F) None of the above

Question 19

The consumption schedule shows:

Accepted Answer

A)   a direct relationship between aggregate consumption and accumulated wealth.
B)   a direct relationship between aggregate consumption and aggregate income.
C)   an inverse relationship between aggregate consumption and accumulated financial wealth.
D)   an inverse relationship between aggregate consumption and aggregate income.E) B) and C)
F) B) and D)

Question 20

The multiplier is equal to the reciprocal of the MPC.

Accepted Answer

A) True 
 B)False

Exam 8: Basic Macroeconomic Relationships

In view of your answer to the previous question, if the real interest rate is 15 percent in this economy, the aggregate amount of investment will be:

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-Refer to the consumption schedules shown in the above diagram for economies 1, 2, 3, and 4. The MPC is greatest in economy:

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Which of the following equations correctly represents the data below?

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If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when disposable income is:

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The most important determinant of consumer spending is:

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The APC can be defined as:

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Technological progress will:

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If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then other things equal:

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Assume a machine which 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. The expected rate of return on this machine is:

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The slope of the saving schedule measures the size of the multiplier.

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Other things equal, a 10 percent decrease in corporate income taxes will:

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The multiplier effect means that:

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Dissaving means:

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The greater is the marginal propensity to consume:

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The relationship between consumption and disposable income is such that:

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The multiplier is equal to the reciprocal of the MPC.

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Following is consumption schedules for three private closed economies. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. -Refer to the above data. At an income level of $40 billion, the average propensity to consume:

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

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The consumption schedule shows:

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

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