Question 1

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 2

If the Hennige family's marginal propensity to consume is .70,then it will necessarily consume seven-tenths of its total income.

Accepted Answer

A) True 
 B)False

Question 3

The practical significance of the multiplier is that it:

Accepted Answer

A)   equates the real interest rate and the expected rate of return on investment.
B)   magnifies initial changes in spending into larger changes in GDP.
C)   keeps inflation within tolerable limits.
D)   helps to stabilize the economy.

Question 4

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

Accepted Answer

A)   1.0 minus .4.
B)   .4 minus 1.0.
C)   the reciprocal of the MPS.
D)   .4.

Question 5

Dissaving means:

Accepted Answer

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

Question 6

The MPC for an economy is:

Accepted Answer

A)   the slope of the consumption schedule or line.
B)   the slope of the savings schedule or line.
C)   1 divided by the slope of the consumption schedule or line.
D)   1 divided by the slope of the savings schedule or line.

Question 7

The size of the MPC is assumed to be:

Accepted Answer

A)   less than zero.
B)   greater than one.
C)   greater than zero but less than one.
D)   two or more.

Question 8

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 9

The multiplier is useful in determining the:

Accepted Answer

A)   full-employment unemployment rate.
B)   level of business inventories.
C)   change in the rate of inflation from a change in the interest rate.
D)   change in GDP resulting from a change in spending.

Question 10

(Advanced analysis) If the equation for the consumption schedule is C = 20 + .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.

Question 11

A high rate of inflation is likely to cause a:

Accepted Answer

A)   high nominal interest rate.
B)   low nominal interest rate.
C)   low rate of growth of nominal GDP.
D)   decrease in nominal wages.

Question 12

(Advanced analysis) The equation C = 35 + .75Y,where C is consumption and Y is disposable income,shows 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.

Question 13

The consumption schedule is such that:

Accepted Answer

A)   both the APC and the MPC increase as income rises.
B)   the APC is constant and the MPC declines as income rises.
C)   the MPC is constant and the APC declines as income rises.
D)   the MPC and the APC must be equal at all levels of income.

Question 14

The multiplier is:

Accepted Answer

A)   1/MPC.
B)   1/(1 + MP
C)  .
C)   1/MPS.
D)   1/(1 - MPS) .

Question 15

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

Accepted Answer

A)   Keynes effect.
B)   interest-rate effect.
C)   wealth effect.
D)   multiplier effect.

Question 16

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round,the multiplier in the economy is:

Accepted Answer

A)   4.
B)   5.
C)   3.33.
D)   2.5.

Question 17

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:

Accepted Answer

A)   consumption spending will be $14,500.
B)   consumption spending will be $15,500.
C)   consumption spending will be $13,000.
D)   saving will be $2,500.

Question 18

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

Accepted Answer

A)   consumption and saving cannot be determined from the information given.
B)   saving will be $20.
C)   personal consumption expenditures will be $80.
D)   saving will be $40.

Question 19

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

Accepted Answer

A)   nondurable;instability
B)   nondurable;stability
C)   durable;instability
D)   durable;stability

Question 20

If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round,income will eventually increase by:

Accepted Answer

A)   $2,500 billion.
B)   $3,000 billion.
C)   $4,000 billion.
D)   $5,000 billion.

Exam 29: Basic Macroeconomic Relationships

The practical significance of the multiplier is that it:

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

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The multiplier is useful in determining the:

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The MPC for an economy is:

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(Advanced analysis) If the equation for the consumption schedule is C = 20 + .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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If the Hennige family's marginal propensity to consume is .70,then it will necessarily consume seven-tenths of its total income.

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The multiplier is:

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

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

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If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round,income will eventually increase by:

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The consumption schedule is such that:

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If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round,the multiplier in the economy is:

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

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

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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:

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

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The size of the MPC is assumed to be:

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Dissaving means:

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A high rate of inflation is likely to cause a:

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The wealth effect is shown graphically as a:

Correct AnswerverifiedShow Answer

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

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