Question 1

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

Accepted Answer

A)   a sharp increase in the amount of wealth held by households
B)   a change in consumer incomes
C)   the expectation of a recession
D)   a growing expectation that consumer durables will be increasing in price soon

Question 2

If the Hennige family's marginal propensity to consume is 0.70, then it will necessarily consume seven-
tenths of its total income.

Accepted Answer

A) True 
 B)False

Question 3

The multiplier is deﬁned as

Accepted Answer

A)   1 − MPS.
B)   change in GDP × initial change in spending.
C)   change in GDP / initial change in spending.
D)   change in GDP − initial change in spending.

Question 4

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

Accepted Answer

A)   GDP by $120 billion.
B)   GDP by $20 billion.
C)   saving by $25 billion.
D)   consumption by $80 billion.

Question 5

If 100 percent of any change in income is spent, the multiplier will be

Accepted Answer

A)   equal to the MPC.
B)   1.
C)   zero.
D)   inﬁnitely large.

Question 6

If the slope of the consumption schedule is 0.75, then the slope of the saving schedule

Accepted Answer

A)   is 0.25.
B)   is 0.75.
C)   is 1.25.
D)   cannot be determined from the data.

Question 7

(Advanced analysis)  The equation for the given saving schedule is

Accepted Answer

A)   Yd = −20 + 0.8S.
B)   Yd = 20 + 0.2S.
C)   S = −20 + 0.2Yd.
D)   S = 20 + 0.8Yd.

Question 8

The most important determinant of consumer spending is

Accepted Answer

A)   the level of household borrowing.
B)   consumer expectations.
C)   the stock of wealth.
D)   the level of income.

Question 9

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

Accepted Answer

A)   an income of E.
B)   an income of F.
C)   point C.
D)   point D.

Question 10

The wealth effect is shown graphically as a

Accepted Answer

A)   shift of the consumption schedule.
B)   movement along an existing consumption schedule.
C)   shift of the investment schedule.
D)   movement along an existing investment schedule.

Question 11

Investment spending in the United States tends to be unstable because

Accepted Answer

A)   expected proﬁts are highly variable.
B)   capital goods are durable.
C)   innovation occurs at an irregular pace.
D)   all of the factors mentioned in other answers contribute to the instability.

Question 12

The most important determinant of consumption and saving is the

Accepted Answer

A)   level of bank credit.
B)   level of income.
C)   interest rate.
D)   price level.

Question 13

The relationship between the MPS and the MPC is such that

Accepted Answer

A)   MPC − MPS = 1.
B)   MPS/MPC = 1.
C)   1 − MPC = MPS.
D)   MPC − 1 = MPS.

Question 14

The multiplier shows the relationship between changes in a component of spending, say, investment,
and the consequent changes in real income and output.

Accepted Answer

A) True 
 B)False

Question 15

A decline in the real interest rate will shift the investment demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 16

Economists widely agree that the value of the real-world multiplier is 2.5.

Accepted Answer

A) True 
 B)False

Question 17

Assume that for the entire business sector of a private closed economy, there are $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15
Worth of investments that will yield an expected rate of return of 20-25 percent, another $15 with an
Expected rate of return of 15-20 percent, and an additional $15 of investment projects in each
Successive rate of return range down to and including the 0-5 percent range. The expected rate of
Return curve

Accepted Answer

A)   shows a direct relationship between the interest rate and investment.
B)   is also the investment demand curve.
C)   is indeterminate.
D)   implies a direct (positive)  relationship between the interest rate and the level of GDP.

Question 18

Refer to the diagram. At disposable income level D, the average propensity to save is equal to

Accepted Answer

A)   CD/BD.
B)   CD/0D.
C)   0D/CD.
D)   0A/0B.

Question 19

Refer to the diagram. The average propensity to consume

Accepted Answer

A)   is greater than 1 at all levels of disposable income above $100.
B)   is greater than 1 at all levels of disposable income below $100.
C)   is equal to the average propensity to save.
D)   cannot be determined from the information given.

Question 20

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

Accepted Answer

A)   2 percent.
B)   zero percent.
C)   10 percent.
D)   22 percent.

Exam 10: Basic Macroeconomic Relationships

The most important determinant of consumer spending is

Correct Answer
verified

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

Correct Answer
verified

The multiplier is deﬁned as

Correct Answer
verified

Refer to the diagram. The average propensity to consume

Correct Answer
verified

A decline in the real interest rate will shift the investment demand curve to the right.

Correct Answer
verified

The most important determinant of consumption and saving is the

Correct Answer
verified

If the slope of the consumption schedule is 0.75, then the slope of the saving schedule

Correct Answer
verified

Investment spending in the United States tends to be unstable because

Correct Answer
verified

(Advanced analysis) The equation for the given saving schedule is

Correct Answer
verified

If 100 percent of any change in income is spent, the multiplier will be

Correct Answer
verified

Economists widely agree that the value of the real-world multiplier is 2.5.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Refer to the diagram. At disposable income level D, the average propensity to save is equal to

Correct Answer
verified

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

Correct Answer
verified

The multiplier shows the relationship between changes in a component of spending, say, investment, and the consequent changes in real income and output.

Correct Answer
verified

The relationship between the MPS and the MPC is such that

Correct Answer
verified

If the Hennige family's marginal propensity to consume is 0.70, then it will necessarily consume seven- tenths of its total income.

Correct Answer
verified

The wealth effect is shown graphically as a

Correct Answer
verified

Exam 10: Basic Macroeconomic Relationships

The most important determinant of consumer spending is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The multiplier is deﬁned as

Correct AnswerverifiedShow Answer

Refer to the diagram. The average propensity to consume

Correct AnswerverifiedShow Answer

A decline in the real interest rate will shift the investment demand curve to the right.

Correct AnswerverifiedShow Answer

The most important determinant of consumption and saving is the

Correct AnswerverifiedShow Answer

If the slope of the consumption schedule is 0.75, then the slope of the saving schedule

Correct AnswerverifiedShow Answer

Investment spending in the United States tends to be unstable because

Correct AnswerverifiedShow Answer

(Advanced analysis) The equation for the given saving schedule is

Correct AnswerverifiedShow Answer

If 100 percent of any change in income is spent, the multiplier will be

Correct AnswerverifiedShow Answer

Economists widely agree that the value of the real-world multiplier is 2.5.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the diagram. At disposable income level D, the average propensity to save is equal to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The multiplier shows the relationship between changes in a component of spending, say, investment, and the consequent changes in real income and output.

Correct AnswerverifiedShow Answer

The relationship between the MPS and the MPC is such that

Correct AnswerverifiedShow Answer

If the Hennige family's marginal propensity to consume is 0.70, then it will necessarily consume seven- tenths of its total income.

Correct AnswerverifiedShow Answer

The wealth effect is shown graphically as a

Correct AnswerverifiedShow Answer

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