Interest and Topic

CHAPTER 9Basic Macroeconomic Relationships studyQuestion numbersConsumption melt down/ armored personnel carrier/MPC 1-39Saving function/APS/ system of macrophages 40-53Shifts in using up and miserliness functions 54-69Graphs/tables mixed expending and bringing 70-106Investment demand 107-145Multiplier effect 146-181Consider This 182-183Last Word 184-185True-False 186-ccMultiple Choice Questions Consumption function/APC/MPC pillowcase A field 1 E 152 MA 152 .The most important determinant of fillr disbursal isA)the aim of household debt.B)the convey of wealth.C)consumer hopes.D)the aim of income. wait on DType D take 1 E 152 MA 1522. The most important determinant of breathing in and deliverance is theA) take aim of bank credit.B) level of income.C) quest come in.D) price level.Answer BType A consequence 1 E 156 MA 1563. If Smiths expendable income join ons from $1,200 to $1,700 and her level of saving join ons from minus $ degree Celsius to a plus $100, her fr ingy craving toA)save is three-fifths.C)consume is three-fifths.B)consume is iodin-half.D)consume is one-sixth.Answer CType A theme 1 E 156 MA 1564. With an mononuclear phagocyte system of . 4, the MPC go away beA)1. 0 minus . 4.B) . 4 minus 1. 0.C) the reciprocal of the MPS.D) . 4.Answer AType D event 1 E 156 MA 1565. The MPC can be define as that fraction of aA) form in income that is not spent.C)given quantity income that is not consumed.B) transport in income that is spent.D)given derive income that is consumed.Answer BType A number 1 E 154 MA 1546. The 45-degree variant on a graph relating expending and income showsA) inbuiltly points where the MPC is unalterable.B)all points at which saving and income atomic number 18 stir.C)all the points at which aspiration and income ar bear on.D)the measuring sticks households lead plan to save at all(prenominal) possible level of income.Answer CType A motif 1 E 154 MA 1547. As spendable income goes up theA)APC loco mote.C)volume of using up capitulations suddenly.B)APS authorises.D)volume of investiture diminishes.Answer AType D upshot 1 E 153 MA 1538. The consumption roll showsA)that the MPC out harvest-feasts in proportion to gross domestic product.B)that households consume more when wager pass judgment are low.C)that consumption depends primarily on the level of line of descent coronation.D)the amounts households plan or intend to consume at various possible levels of comed income.Answer DType D stem 1 E 153 MA 1539. The consumption document relatesA)consumption to the level of spendable income.C) available income to domestic income.B)saving to the level of disposable income.D)consumption to saving.Answer AType A emergence 1 E 153 MA 15310. A decline in disposable incomeA) cast ups consumption by moving upward along a specific consumption schedule.B) strikes consumption be father it shifts the consumption schedule downwardss.C) simplifications consumption by moving downw ard along a specific consumption schedule.D)increases consumption because it shifts the consumption schedule upward.Answer CType D Topic 1 E 154 MA 15411. The APC is figure asA)change in consumption / change in incomeC)change in income / change in consumptionB)consumption / incomeD)income / consumptionAnswer BType A Topic 1 E 153 MA 15312. The consumption schedule showsA)a educate relationship amid gather consumption and accumulated wealth.B)a direct relationship between aggregate consumption and aggregate income.C)an contrary relationship between aggregate consumption and accumulated financial wealth.D)an inverse relationship between aggregate consumption and aggregate income.Answer BType D Topic 1 E 153 MA 15313. The APC can be specify as the fraction of aA)change in income that is not spent.B)change in income that is spent.C)specific level of follow income that is not consumed.D)specific level of total income that is consumed.Answer DType G Topic 1 E 154-155 MA 154-15514. The consumption schedule in the supra diagram indicates thatA)consumers lead maximize their satisfaction where the consumption schedule and 45 line intersect.B)up to a point consumption exceeds income, further then falls below income.C)the MPC falls as income increases.D)households consume as much as they earn.Answer BType A Topic 1 E 154 MA 15415. The consumption schedule is drawn on the assumption that as income increases consumption willA)be unaffected.B)increase absolutely, but remain constant as a percentage of income.C)increase absolutely, but decline as a percentage of income.D)increase both absolutely and as a percentage of income.Answer CType A Topic 1 E 154 MA 15416. Which of the adjacent is correct?A)APC + APS = 1.B) APC + MPS = 1.C) APS + MPC = 1.D) APS + MPS = 1.Answer AType A Topic 1 E 154-156 MA 16117. The consumption schedule is such thatA)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 cons tant and the APC declines as income rises.D)the MPC and APC mustiness be equal at all levels of income.Answer CType A Topic 1 E 154 MA 15418. For all levels of income to the left of the intersection of the 45-degree line and the consumption schedule, the APC isA)greater than 100 percent.B) less than the APS.C) equal to the MPC.D) equal to 100 percent.Answer AType A Topic 1 E 156 MA 15619. The consumption and saving schedules reveal that theA)MPC is greater than zero, but less than one.B)MPC and APC are equal at the point where the consumption schedule intersects the 45-degree line.C)APS is positive at all income levels.D)MPC is equal to or greater than one at all income levels.Answer AType A Topic 1 E 156 MA 15620. The size of the MPC is assumed to beA)less than zero.B) greater than one.C) greater than zero, but less than one.D) two or more.Answer CType A Topic 1 E 153-154 MA 153-15421. As disposable income increases, consumptionA)and saving both increase.C)decreases and saving inc reases.B)and saving both decrease.D)increases and saving decreases.Answer AType D Topic 1 E 154 MA 15422. The sightly proneness to consume indicates theA)amount by which income exceeds consumption.B)relationship between a change in saving and the consequent change in consumption.C)percentage of total income that will be consumed.D)percentage of a change in income that will be consumed.Answer CType A Topic 1 E 153 MA 15323. The relationship between consumption and disposable income is such thatA)an inverse and persistent relationship exists between consumption and income.B)a direct, but very volatile, relationship exists between consumption and income.C)a direct and relatively stable relationship exists between consumption and income.D)the two are always equal.Answer CType A Topic 1 E 156 MA 15624. If the MPC is . 8 and disposable income is $200, thenA)consumption and saving cannot be determined from the information given.B)saving will be $20.C)personal consumption expenditures wi ll be $80.D)saving will be $40.Answer AType A Topic 1 E 156 MA 15625. The MPC for an parsimoniousness isA)the pitch of the consumption schedule or line.B)the run of the savings schedule or line.C)1 dissever by the slope of the consumption schedule or line.D)1 divided by the slope of the savings schedule or line.Answer AType F Topic 1 E 158 MA 15826. In contrast to investing, consumption isA)relatively stable.B) relatively unstable.C) measurable.D) unmeasurable.Answer AUse the by-line to answer questions 27-28 Advanced analysis) Answer the next question(s) on the al-Qaeda of the quest consumption schedule C = 20 + . 9Y , where C is consumption and Y is disposable income.Type E Topic 1 E 156 MA 15627. discover to the higher up selective information. The MPC isA). 45.B) . 20.C) . 50.D) . 90.Answer DType E Topic 1 E 156 MA 15628. have-to doe with to the supra data. At an $800 level of disposable income, the level of saving isA)$180.B) $740.C) $60.D) $18.Answer CType A Topic 1 E 156 MA 15629. Which one of the following will cause a effort down along an providences consumption schedule?A)an increase in rakehell pricesC)an increase in consumer indebtednessB)a decrease in form pricesD)a decrease in disposable incomeAnswer DType G Topic 1 E 156 MA 15630. The higher up diagram shows consumption schedules for economies A and B. We can say that theA)MPC is greater in B than in A.B)APC at any given income level is greater in B than in A.C)MPS is smaller in B than in A.D)MPC is greater in A than in B.Answer DType A Topic 1 E 154 MA 15431. At the point where the consumption schedule intersects the 45-degree lineA)the MPC is 1. 00.C)saving is equal to consumption.B)the APC is 1. 0.D)the parsimoniousness is in equilibrium.Answer BType C Topic 1 E 156 MA 15632. Hollys break-even level of income is $10,000 and her MPC is 0. 75. If her actual disposable income is $16,000, her level ofA)consumption spending will be $14,500.C)consumption spending will be $13,000.B) consumption spending will be $15,500.D)saving will be $2,500.Answer AType A Topic 1 E 156 MA 15633. If Bens MPC is . 80, this means that he willA)spend eight-tenths of any increase in his disposable income.B)spend eight-tenths of any level of disposable income.C)break even when his disposable income is $8,000.D)save two-tenths of any level of disposable income.Answer AType A Topic 1 E 154 MA 15434. speak out a familys consumption exceeds its disposable income. This means that itsA)MPC is greater than 1.B) MPS is negative.C) APC is greater than 1.D) APS is positive.Answer CType E Topic 1 E 154 MA 15435. (Advanced analysis) If the par for the consumption schedule is C = 20 + 0. 8Y , where C is consumption and Y is disposable income, then the average thirst to consume is 1 when disposable income isA)$80.B) $100.C) $120.D) $160.Answer BType E Topic 1 E 156 MA 15636. (Advanced analysis) The equation C = 35 + . 75Y , where C is consumption and Y is disposable income, shows thatA)househ olds will consume three-fourths of some(prenominal) 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.Answer BType E Topic 1 E 156 MA 15637. Advanced analysis) If the equation C = 20 + . 6Y , where C is consumption and Y is disposable income, were graphedA)the vertical arrest would be +. 6 and the slope would be +20.B)it would reveal an inverse relationship between consumption and disposable income.C)the vertical intercept would be negative, but consumption would increase as disposable income rises.D)the vertical intercept would be +20 and the slope would be +. 6.Answer DType A Topic 1 E 154 MA 15438. angiotensin-converting enzyme can determine the amount of any level of total income that is consumed byA)multiplying total income by the slope of the consumption schedule.B)multiplying total income by the APC.C)subtracting the MPS from total income.D)multiplying total income by the MPC.Answer BType C Topic 1 E 154, 156 MA 154, 15639. Which of the following is correct?A)MPC + MPS = APC + APSC)APC + MPC = APS + MPSB)APC + MPS = APS + MPCD)APC APS = MPC MPSAnswer A Saving function/APS/MPSType A Topic 2 E 154 MA 15440. The consumption and saving schedules reveal thatA)consumption rises, but saving declines, as disposable income rises.B)saving varies inversely with the profitability of investing.C)saving varies this instant with the level of disposable income.D)saving is inversely related to the send of reside.Answer CType D Topic 2 E 154 MA 15441. Dissaving meansA)the same thing as disinvesting.B)that households are spending more than their current incomes.C)that saving and investing funds are equal.D)that disposable income is less than zero.Answer BType D Topic 2 E 154 MA 15442. Dissaving occurs whereA)income exceeds consumption.C)consumption exceeds income.B)saving exceeds consumption.D)saving exceeds income.Answer CType A Topic 2 E 156 MA 15643. Which of the following relations is not correct?A)1 MPC = MPSB) APS + APC = 1C) MPS = MPC + 1D) MPC + MPS = 1Answer CType A Topic 2 E 154 MA 15444. The saving schedule is drawn on the assumption that as income increasesA)saving will decline absolutely and as a percentage of income.B)saving will increase absolutely, but remain constant as a percentage of income.C)saving will increase absolutely, but decline as a percentage of income.D)saving will increase absolutely and as a percentage of income.Answer DType A Topic 2 E 154 MA 15445. At the point where the consumption schedule intersects the 45-degree lineA)the MPC equals 1.B) the APC is zero.C) saving equals income.D) saving is zero.Answer DType A Topic 2 E 154 MA 15446. The saving schedul e is such that as aggregate income increases by a certain amount savingA)increases by the same amount as the increase in income.B)does not change.C)increases, but by a smaller amount.D)increases by an even turgidr amount.Answer CType A Topic 2 E 156 MA 15647. If the consumption schedule is linear, then theA)saving schedule will also be linear.C)MPC will decline as income rises.B)MPS will decline as income rises.D)APC will be constant at all levels of income.Answer AType A Topic 2 E 153 MA 15348. Given the consumption schedule, it is possible to graph the relevant saving schedule byA)subtracting the MPC from 1 at apiece level of income.B)subtracting investiture from consumption at individually level of GDP.C)plotting the horizontal differences between the consumption schedule and the 45-degree line.D)plotting the vertical differences between the consumption schedule and the 45-degree line.Answer DType A Topic 2 E 154 MA 15449. As aggregate income decreases, the APCA)and APS will both increase.C)will increase, but the APS will decrease.B)will decrease, but the APS will increase.D)and APS will both decrease.Answer CType A Topic 2 E 156 MA 15650. If the marginal propensity to consume is . 9, then the marginal propensity to save must beA)1.B) . 1.C) 1. 1.D) . 9.Answer BType A Topic 2 E 156 MA 15651. The greater is the marginal propensity to consume, theA)smaller is the marginal propensity to save.C) swallow is the average propensity to consume.B)higher is the raise straddle.D)lower is the price level.Answer AType A Topic 2 E 156 MA 15652. If the saving schedule is a straight line, theA)MPS must be constant.C)APC must be constant.B)APS must be constant.D)MPC must be rising.Answer AType A Topic 2 E 154 MA 15453. Which one of the following will cause a movement up along an parsimonys saving schedule?A)an increase in household debt outstandingC)an increase in stock pricesB)an increase in disposable incomeD)an increase in amuse treadsAnswer B Shifts in consump tion and saving functionsType D Topic 3 E 156-157 MA 156-15754. In the late 1990s the U. S. stock market boomed, causing U. S. consumption to rise. Economists refer to this outcome as theA)Keynes effect.B) interest- order effect.C) wealth effect.D) multiplier effect.Answer CType A Topic 3 E 157 MA 15755. The wealth effect is shown graphically as aA)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.Answer AUse the following to answer questions 56-59Type G Topic 3 E 157 MA 15756. get up to the supra graph. A movement from b to a along C1 great power be caused by aA)recession.B)wealth effect of an increase in stock market prices.C)decrease in income tax prises.D)increase in saving.Answer AType G Topic 3 E 157 MA 15757. Refer to the above graph. A shift of the consumption schedule from C1 to C2 might be caused by aA)recession.B)wealth effect of an increase in stock ma rket prices.C)increase in income tax stations.D)increase in saving.Answer BType G Topic 3 E 157 MA 15758. Refer to the above graph. A movement from a to b along C1 might be caused by aA)recession.B)wealth effect of an increase in stock market prices.C)increase in income tax rates.D)increase in literal GDP.Answer DType G Topic 3 E 157 MA 15759. Refer to the above graph. A shift of the consumption schedule from C2 to C1 might be caused by aA)increase in concrete GDP.B)reverse wealth effect, caused by a decrease in stock market prices.C)decrease in income tax rates.D)decrease in saving.Answer BType C Topic 3 E 157 MA 15760. An upward shift of the saving schedule suggestsA)nothing with respect to changes in the APC and APS.B)that the APC and APS have both decreased at each GDP level.C)that the APC and APS have both increased at each GDP level.D)that the APC has decreased and the APS has increased at each GDP level.Answer DType A Topic 3 E 157 MA 15761. Which of the following will not tend to shift the consumption schedule upward?A)a currently small stock of durable goods in the possession of consumersB)the expectation of a upcoming decline in the consumer price indexC)a currently low level of household debt.D)the expectation of future shortages of essential consumer goods.Answer BType A Topic 3 E 157 MA 15762. If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving scheduleA)will not shift.C)will shift downward.B)may shift either upward or downward.D)will also shift upward.Answer CType A Topic 3 E 156 MA 15663. Which of the following will not cause the consumption schedule to shift?A)a sharp increase in the amount of wealth held by householdsB)a change in consumer incomesC)the expectation of a recessionD)a growing expectation that consumer durables will be in short supplyAnswer BType A Topic 3 E 157 MA 15764. An increase in personal taxes will shiftA)both the consumption and saving schedules downward.B)both the consum ption and saving schedules upward.C)the consumption schedule upward and the saving schedule downward.D)the consumption schedule downward and the saving schedule upward.Answer AType A Topic 3 E 157 MA 15765. If for some reason households become increasingly thrifty, we could show this byA)a downshift of the saving schedule.C)an upshift of the saving schedule.B)an upshift of the consumption schedule.D)an increase in the equilibrium GDP.Answer CType G Topic 3 E 156 MA 15666. Suppose the economys saving schedule shifts from S1 to S 2 as shown in the above diagram. We can say that itsA)MPC has increased.B)MPS has increased.C)APS has increased at all levels of disposable income.D)APS has decreased at all levels of disposable income.Answer BType C Topic 3 E 154 MA 15467. If a consumption schedule shifts upward, this ineluctably means that theA)MPC has increased.B)MPS has decreased.C)APC is now higher at each level of disposable income.D)APC is now lower at each level of disposable income. Answer CType A Topic 3 E 158 MA 15868. Assume the economys consumption and saving schedules simultaneously shift downward. This must be the result ofA)an increase in disposable income.C)an increase in personal taxes.B)an increase in household wealth.D)the expectation of a recession.Answer CType G Topic 3 E 154 MA 15469. Suppose an economys consumption schedule shifts from C1 to C2 as shown in the above diagram. We can say that itsA)MPC has increased but its APC at each income level is unchanged.B)APC at each income level is increased but its MPC is unchanged.C)MPC and APC at each income level have both increased.D)MPC and APC at each income level have both decreased.Answer CGraphs/tables mixed consumption and saving Use the following to answer questions 70-72Type T Topic 4 E 156 MA 15670. Refer to the above data. The marginal propensity to consume isA). 25.B) . 75.C) . 20.D) . 80.Answer DType T Topic 4 E 154 MA 15471. Refer to the above data. At the $200 level of disposable incomeA) the marginal propensity to save is 2? percent.C)the average propensity to save is . 20.B)dissaving is $5.D)the average propensity to consume is . 80.Answer BType T Topic 4 E 156 MA 15672. Refer to the above data. If disposable income was $325, we would expect consumption to beA)$315.B) $305.C) $20.D) $290.Answer BUse the following to answer questions 73-78Type G Topic 4 E 154 MA 15473. Refer to the above diagram. The average propensity to consume is 1 at pointA)F.B) A.C) D.D) B.Answer BType G Topic 4 E 156 MA 15674. Refer to the above diagram. The marginal propensity to consume is equal toA)AE/0E.B) CF/CD.C) CB/AB.D) CD/CF.Answer CType G Topic 4 E 154-155 MA 154-15575. Refer to the above diagram. At income level F the volume of saving isA)BD.B) AB.C) CF-BF.D) CD.Answer DType G Topic 4 E 154 MA 15476. Refer to the above diagram. Consumption will be equal to income atA)an income of E.B) an income of F.C) point C.D) point D.Answer AType G Topic 4 E 154-155 MA 154-15577. Refer to the ab ove diagram. The economy is dissavingA)in the amount CD.C)at income level H.B)at all income levels greater than E.D)at income level E.Answer CType G Topic 4 E 156 MA 15678. Refer to the above diagram. The marginal propensity to save isA)CD/EF.B) CB/CF.C) CB/AF.D) EF/CB.Answer AUse the following to answer questions 79-80Type A Topic 4 E 153 MA 15379. The above figure suggests thatA)consumption would be $60 one thousand million even if income were zero.B)saving is zero at the $120 billion income level.C)as income increases, consumption decreases as a percentage of income.D)as income increases, consumption decreases absolutely.Answer CType A Topic 4 E 154-155 MA 154-15580. Refer to the above figure. If the relevant saving schedule were constructedA)saving would be minus $20 billion at the zero level of income.B)aggregate saving would be $60 at the $60 billion level of income.C)its slope would be 1/2.D)it would slope downward and to the rightAnswer AUse the following to answer question s 81-83Answer the next question(s) on the basis of the following data for a hypothetical economy.Type T Topic 4 E 156 MA 15681. Refer to the above data. The marginal propensity to consume isA). 80.B) . 75.C) . 20.D) . 25.Answer AType T Topic 4 E 154 MA 15482. Refer to the above data. At the $100 level of income, the average propensity to save isA). 10.B) . 20.C) . 25.D) . 90.Answer AType T Topic 4 E 156 MA 15683. Refer to the above data. If plotted on a graph, the slope of the saving schedule would beA). 80.B) . 10.C) . 20.D) . 15.Answer CUse the following to answer questions 84-88Type G Topic 4 E 156 MA 15684. Refer to the above diagram. The marginal propensity to save is equal toA)CD/0D.B) 0B/0A.C) 0D/0D.D) CD/BD.Answer DType G Topic 4 E 154 MA 15485. Refer to the above diagram. At disposable income level D, the average propensity to save is equal toA)CD/BD.B) CD/D.C) D/CD.D) A/B.Answer BType G Topic 4 E 154-155 MA 154-15586. Refer to the above diagram. At disposable income level D, consumption isA)equal to CD.B) equal to D minus CD.C) equal to CD/D.D) equal to CD plus BD.Answer BType G Topic 4 E 154-155 MA 154-15587. Refer to the above diagram. Consumption equals disposable income whenA)disposable income is B.B) disposable income is D.C) CD equals A.D) B equals CD.Answer AType A Topic 4 E 156-157 MA 156-15788. The saving schedule shown in the above diagram would shift downward if, all else equalA)the average propensity to save increased at each income level.B)the marginal propensity to save rose at each income level.C)consumer wealth rose rapidly because of a significant increase in stock market prices.D)the real interest rate fell.Answer CUse the following to answer questions 89-96Answer the next question(s) on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars.Type T Topic 4 E 156 MA 15689. Refer to the above data. The marginal propensity to con sume in economy (1) isA). 5.B) . 3.C) . 8.D) . 7.Answer DType T Topic 4 E 156 MA 15690. Refer to the above data. The marginal propensity to consumeA)is highest in economy (1).C)is highest in economy (3).B)is highest in economy (2).D)cannot be calculated from the data given.Answer CType T Topic 4 E 156 MA 15691. Refer to the above data. The marginal propensity to saveA)is highest in economy (1).C)is highest in economy (3).B)is highest in economy (2).D)cannot be determined from the data given.Answer AType T Topic 4 E 154 MA 15492. Refer to the above data. At an income level of $40 billion, the average propensity to consumeA)is highest in economy (1).C)is highest in economy (3).B)is highest in economy (2).D)cannot be determined from the data given.Answer BType T Topic 4 E 154 MA 15493. Refer to the above data. At an income level of $400 billion, the average propensity to save in economy (2) isA). 9125.B) . 0725.C) . 0875.D) . 9305.Answer CType T Topic 4 E 156 MA 15694. (Advanced analys is) Refer to the above data. When plotted on a graph, the vertical intercept of the consumption schedule in economy (3) is _____ and the slope is _____.A)minus $2 . 9.B) $2 . 18.C) $100 . 5.D) $2 . 9.Answer DType T Topic 4 E 158 MA 15895. Refer to the above data. Suppose that consumption decreased by $2 billion at each level of DI in each of the three countries. We can conclude that theA)marginal propensity to consume will remain unchanged in each of the three countries.B)marginal propensity to consume will decline in each of the three countries.C)average propensity to save will fall at each level of DI in each of the three countries.D)marginal propensity to save will rise in each of the three countries.Answer AType T Topic 4 E 157 MA 15796. Refer to the above data. A $2 billion increase in consumption at each level of DI could be caused byA)a decrease in consumer wealth.C)an increase in taxation.B)new expectations of higher future income.D)an increase in saving.Answer BUse the foll owing to answer questions 97-100Type G Topic 4 E 154 MA 15497. Refer to the above diagram. The break-even level of disposable incomeA)is zero.B) is minus $10.C) is $100.D) cannot be determined from the information given.Answer CType G Topic 4 E 156 MA 15698. Refer to the above diagram. The marginal propensity to consume isA). 2.B) . 8.C) . 4.D) . 3.Answer BType G Topic 4 E 156 MA 15699. (Advanced analysis) The equation for the above saving schedule isA)Yd = -20 + . 8S.B) Yd = 20 + . 2S.C) S = -20 + . 2Yd.D) S = 20 + . 8Yd.Answer CType G Topic 4 E 154-155 MA 154-155100. Refer to the above diagram. The average propensity to consumeA)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.Answer BUse the following to answer questions 101-104Type G Topic 4 E 154 MA 154101. Refer to the above diagram. The break-even level of income isA)zero.B) $150.C) $60.D) $120.Answer BType G Topic 4 E 154 MA 154102. Refer to the above diagram. The average propensity to consume isA)greater than 1 at all levels of income above $150.B)greater than 1 at all levels of income below $150.C)zero.D). 6.Answer BType G Topic 4 E 156 MA 156103. Refer to the above diagram. The marginal propensity to consume isA). 4.B) . 6.C) . 5.D) . 8.Answer BType G Topic 4 E 156 MA 156104. (Advanced analysis) Refer to the above diagram. The equation for the consumption schedule isA)C = . 6Y .B) Y = 60 + . C.C) C = 60 + . 6Y .D) C = 60 + . 4Y .Answer CUse the following to answer questions 105-106 (Advanced analysis) Answer the next question(s) on the basis of the following dataType T Topic 4 E 156 MA 156105. Which of the following equations correctly represents the above data?A)Yd = 40 + . 6CB) C = 60 + . 4YdC) C = 40 + . 6YdD) C = . 6YdAnswer CType T Topic 4 E 156 MA 156106. Which of the following equations represents the saving schedule im plicit in the above data?A)S = C YdB) S = 40 + . 4YdC) S = 40 + . 6YdD) S = -40 + . YdAnswer DInvestment demandType F Topic 5 E 160 MA 160 Status New107. The investment demand curve portrays an inverse (negative) relationship betweenA)investment and real GDP.C)the nominal interest rate and investment.B)the real interest rate and investment.D)the price level and investment.Answer BType F Topic 5 E 160 MA 160 Status New108. The investment demand slopes downward and to the right because lower real interest ratesA)expand consumer borrowing, making investments more profitable.B)boost expected rates of give-up the ghosts on investment.C)enable more investment projects to be undertaken profitably.D)create tax incentives to invest.Answer CType ATopic 5 E 159 MA 159 Status New109. Other things equal, a decrease in the real interest rate willA)shift the investment demand curve to the right.B)shift the investment demand curve to the left.C)move the economy upward along its existing investmen t demand curve.D)move the economy downward along its existing investment demand curve.Answer DType A Topic 5 E 159 MA 159110. Suppose that a new machine tool having a expedient life of only one year cost $80,000. Suppose, also, that the net additional revenue resulting from get this tool is expected to be $96,000. The expected rate of fade on this tool isA)80 percent.B) 8 percent.C) 2 percent.D) 20 percent.Answer DType A Topic 5 E 159 MA 159111. 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 flow on this machine isA)7. 5 percent.B) 10 percent.C) 15 percent.D) 20 percent.Answer CType A Topic 5 E 159 MA 159112. If the firm in the previous question finds it can borrow funds at an interest rate of 10 percent the firm shouldA)not purchase the machine because the expected rate of ret urn exceeds the interest rate.B)not purchase the machine because the interest rate exceeds the expected rate of return.C)purchase the machine because the expected rate of return exceeds the interest rate.D)purchase the machine because the interest rate exceeds the expected rate of return.Answer CType D Topic 5 E 159-160 MA 159-160113. The relationship between the real interest rate and investment is shown by theA)investment demand schedule.C)saving schedule.B)consumption of fixed capital schedule.D)aggregate supply curve.Answer AType A Topic 5 E 159-160 MA 159-160114. Given the expected rate of return on all possible investment opportunities in the economyA)an increase in the real rate of interest will reduce the level of investment.B)a decrease in the real rate of interest will reduce the level of investment.C)a change in the real interest rate will have no impact on the level of investment.D)an increase in the real interest rate will increase the level of investment.Answer AType A Topic 5 E 159-160 MA 159-160115. A decline in the real interest rate willA)increase the amount of investment spending.C)shift the investment demand curve to the right.B)shift the investment schedule downward.D)shift the investment demand curve to the left.Answer AType A Topic 5 E 159-160 MA 159-160116. The immediate determinants of investment spending are theA)expected rate of return on capital goods and the real interest rate.B)level of saving and the real interest rate.C)marginal propensity to consume and the real interest rate.D)interest rate and the expected price level.Answer AType A Topic 5 E 160 MA 160117. The investment demand curve suggestsA)that changes in the real interest rate will not affect the amount invested.B)there is an inverse relationship between the real rate of interest and the level of investment spending.C)that an increase in line of products taxes will tend to stimulate investment spending.D)there is a direct relationship between the real rate of interest and the level of investment spending.Answer BType T Topic 5 E 160 MA 160118. Assume there are no prospective investment projects (I) that will let up an expected rate of return (r) of 25 percent or more, but that there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. The investment-demand curve for this economy isAnswer BType T Topic 5 E 160 MA 160119. 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 beA)$25.B) $20.C) $15.D) $10.Answer DType C Topic 5 E 162 MA 162120. If wrinkle taxes are reduced and the real interest rate increasesA)consumption and saving will necessarily increase.B)the level of investment spending might either increase or decrease.C)the level of investment spending will necessarily increase.D)the level of investment spending will necessarily decrease.An swer BType A Topic 5 E 162 MA 162121. Other things equal, a 10 percent decrease in corporate income taxes willA)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.Answer CType A Topic 5 E 162 MA 162122. The investment demand curve will shift to the right as the result ofA)the availability of excess production capacity.B)an increase in business taxes.C)businesses becoming more optimistic about future business conditions.D)an increase in the real interest rate.Answer CType A Topic 5 E 159-160 MA 159-160123. Other things equal, the real interest rate and the level of investment areA)related only when saving equals planned investment.B)unrelated.C)inversely related.D)directly related.Answer CUse the following to answer questions 124-125Answer the next question(s) on the basis of the following tableType T Topic 5 E 160 MA 160124. Th e above table reflects a(n)A)interest rate schedule.C)investment demand schedule.B)demand-for- funds schedule.D)profit schedule.Answer CType T Topic 5 E 160 MA 160125. The above schedule indicates that if the real interest rate is 8 percent, thenA)we cannot ensure what volume of investment will be profitable.B)$30 billion will be both saved and invested.C)$30 billion of investment will be undertaken.D)$60 billion of investment will be undertaken.Answer CType C Topic 5 E 162 MA 162126. Other things equal, if the real interest rate falls and business taxes riseA)investment will rise until it is equal to saving.B)we will be uncertain as to the resulting change in investment.C)we can be certain that investment will rise.D)we can be certain that investment will fall.Answer BType A Topic 5 E 162 MA 162127. The investment demand curve will shift to the right as a result ofA)an increase in the excess production capacity available in industry.B)an increase in business taxes.C)technological progress.D)an increase in the acquisition and maintenance cost of capital goods.Answer CType A Topic 5 E 162 MA 162128. The investment demand curve will shift to the left as a result ofA)an increase in the excess production capacity available in industry.B)a decrease in business taxes.C)increased business optimism with respect to future economic conditions.D)a decrease in labor costs.Answer AType A Topic 5 E 159 MA 159129. 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 whenA)r falls.B) i is greater than r.C) r is greater than i.D) i rises.Answer CType A Topic 5 E 162 MA 162130. A rightward shift of the investment demand curve might be caused byA)an increase in the price level.B)a decline in the real interest rate.C)an increase in the expected rate of return on investment.D)an increase in business taxes.Answer CType A Topic 5 E 159 MA 159131. The real interest rate isA)the percent age increase in money that the lender receives on a loan.B)the percentage increase in purchasing power that the lender receives on a loan.C)also called the after-tax interest rate.D)usually higher than the nominal interest rate.Answer BType A Topic 5 E 160 MA 160132. When we draw an investment demand curve we hold constant all of the following pull outA)the expected rate of return on the investment.C)the interest rate.B)business taxes.D)the present stock of capital goods.Answer CType A Topic 5 E 159 MA 159133. If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate isA)18 percent.B) 24 percent.C) 12 percent.D) 6 percent.Answer CType A Topic 5 E 159-160 MA 159-160134. If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate isA)2 percent.B) zero percent.C) 10 percent.D) 22 percent.Answer DType A Topic 5 E 160 MA 160135. A high rate of inflation is likely to cause aA)high nominal interest ra te.C)low rate of growth of nominal GDP.B)low nominal interest rate.D)decrease in nominal wages.Answer AType A Topic 5 E 160 MA 160136. If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then other things equalA)more investment will be forthcoming when i exceeds r.B)less investment will be forthcoming when r rises.C)r will fall as more investment is undertaken.D)r will exceed i at all possible levels of investment.Answer CType A Topic 5 E 159 MA 159137. If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then other things equalA)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 fall as more investment is undertaken.Answer AType G Topic 5 E 160 MA 160138. Assume that for the entire business celestial sphere of a mystic closed economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. precisely 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 similarly an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range. Which of the lines on the above diagram represents these data?A)AB) BC) CD) DAnswer BUse the following to answer questions 139-141Answer the next question(s) on the basis of the following information for a private closed economy. Assume that for the entire business sector of the economy there is $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 similarly an additional $15 of inve stment projects in each successive rate of return range down to and including the 0-5 percent range.Type G Topic 5 E 159 MA 159139. Refer to the above information. If the real interest rate is 15 percent, what amount of investment will be undertaken?A)$15B) $30C) $45D) $60Answer BType G Topic 5 E 159 MA 159140. Refer to the above information. If the real interest rate is 5 percent, what amount of investment will be undertaken?A)$15B) $30C) $45D) $60Answer DType G Topic 5 E 160 MA 160141. Refer to the above information. The expected rate of return curveA)shows a direct relationship between the interest rate and investment.B)is also the investment demand curve.C)is indeterminant.D)implies a direct (positive) relationship between the interest rate and the level of GDP.Answer BUse the following to answer questions 142-144Type G Topic 5 E 162 MA 162 Status New142. Which of the following would shift the investment demand curve from ID1 to ID2?A)a lower interest rateC)a higher interest rat eB)lower expected rates of return on investmentD)higher expected rates of return on investmentAnswer DType G Topic 5 E 162 MA 162 Status New143. Which of the following would shift the investment demand curve from ID1 to ID3?A)a lower interest rateC)a higher interest rateB)lower expected rates of return on investmentD)higher expected rates of return on investmentAnswer BType G Topic 5 E 160 MA 160 Status New144. Which of the following would increase investment, while leaving an existing investment demand curve, say, ID2, in place?A)a lower interest rateC)lower expected returns on investmentB)a higher interest rateD)higher expected returns on investmentAnswer AType F Topic 5 E 162-163 MA 162-163 Status New145. In annual percentage terms, investment spending in the United States isA)less variable than real GDP.C)less variable than the price level.B)less variable than consumption spending.D)more variable than real GDP.Answer DMultiplier effectType A Topic 6 E 164 MA 164146. The multipli er effect means thatA)consumption is typically several times as large as saving.B)a change in consumption can cause a larger increase in investment.C)an increase in investment can cause GDP to change by a larger amount.D)a decline in the MPC can cause GDP to rise by several times that amount.Answer CType E Topic 6 E 166 MA 166147. The multiplier isA)1/MPC.B) 1/(1 + MPC).C) 1/MPS.D) 1/(1 MPS).Answer CType A Topic 6 E 164 MA 164148. The multiplier is useful in determining theA)full-employment unemployment rate.B)level of business inventories.C)rate of inflation.D)change in GDP resulting from a change in spending.Answer DType D Topic 6 E 164 MA 164149. The multiplier is defined asA)1 MPS.C)change in GDP/initial change in spending.B)change in GDP ? initial change in spending.D)change in GDP initial change in spending.Answer CUse the following to answer questions 150-151Type G Topic 6 E 156 MA 156150. The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which econ omy has the highest marginal propensity to consume?A)1B) 2C) 3D) 4Answer DType G Topic 6 E 166 MA 166151. The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the largest multiplier?A)1B) 2C) 3D) 4Answer DType E Topic 6 E 166 MA 166 152. If 100 percent of any change in income is spent, the multiplier will beA)equal to the MPC.B) 1.C) zero.D) infinitely large.Answer DType E Topic 6 E 166 MA 166153. The multiplier can be calculated asA)1/(MPS + MPC)B) MPC/MPSC) 1/(1 MPC)D) 1 MPC = MPSAnswer CType D Topic 6 E 166 MA 166154. The multiplierA)occurs only in response to a change in the level of investment spending.B)can be found by taking the reciprocal of the MPS.C)occurs only when intended investment increases as GDP increases.D)is measured by the slope of the saving schedule.Answer BType A Topic 6 E 166 MA 166155. The size of the multiplier is equal to theA)slope of the consumption schedule.B)reciprocal of the slope of the consumption schedule.C) slope of the saving schedule.D)reciprocal of the slope of the saving schedule.Answer DType C Topic 6 E 166 MA 166156. If the MPS is only half as large as the MPC, the multiplier isA)2.B) 3.C) 4.D) 5.Answer BType A Topic 6 E 166 MA 166157. If the MPC is . 70 and gross investment increases by $3 billion, the equilibrium GDP willA)increase by $10 billion.C)decrease by $4. 29 billion.B)increase by $2. 10 billion.D)increase by $4. 29 billion.Answer AType A Topic 6 E 166 MA 166158. The numerical value of the multiplier will be smaller theA)larger the average propensity to consume.C)larger the slope of the consumption schedule.B)larger the slope of the saving schedule.D)smaller the slope of the saving schedule.Answer BType A Topic 6 E 165 MA 165159. The practical significance of the multiplier is that itA)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.Answer BType F Topic 6 E 166 MA 166160. The multiplierA)varies directly with the slope of the investment demand schedule.B)is unrelated to the slope of the saving schedule.C)will be greater, the smaller is the slope of the saving schedule.D)will be greater, the steeper is the slope of the saving schedule.Answer CType A Topic 6 E 166 MA 166161. The increase in income that results from an increase in investment spending would be greater theA)smaller the MPS.B) smaller the APC.C) larger the MPS.D) smaller the MPC.Answer AType A Topic 6 E 164 MA 164162. The multiplier effectA)reduces the MPC.B)magnifies changes in spending into larger changes in output and income.C)promotes stability of the general price level.D)lessens upswings and downswings in business activity.Answer BType E Topic 6 E 166 MA 166163. If the MPC is . 6, the multiplier will beA)4. 0.B) 6. 0.C) 2. 5.D) 1. 67.Answer CType C Topic 6 E 166 MA 166164. Assume the MPC is 2/3. If investment spen ding increases by $2 billion, the level of GDP will increase byA)$3 billion.B) $2/3 billion.C) $6 billion.D) $2 billion.Answer CType E Topic 6 E 166 MA 166165. The multiplier isA)1/APS.B) 1/APC.C) 1/MPC.D) 1/MPS.Answer DType A Topic 6 E 164 MA 164 Status New166. The multiplier applies toA)investment but not to net exports or government spending.B)investment, net exports, and government spending.C)increases in spending but not to decreases in spending.D)spending by the private sector but not by the public sector.Answer BType A Topic 6 E 164 MA 164167. The multiplier effect indicates thatA)a decline in the interest rate will cause a proportionately larger increase in investment.B)a change in spending will change aggregate income by a larger amount.C)a change in spending will increase aggregate income by the same amount.D)an increase in total income will generate a larger change in aggregate expenditures.Answer BUse the following to answer questions 168-173Answer the next question(s) o n the basis of the following table that illustrates the multiplier process. Type T Topic 6 E 156 MA 156168. Refer to the above table. The marginal propensity to consume isA). 5.B) . 75.C) . 8.D) . 9.Answer CType T Topic 6 E 156 MA 156169. Refer to the above table. The marginal propensity to save isA). 5.B) . 25.C) . 2.D) . 1.Answer CType T Topic 6 E 156 MA 156170. Refer to the above table. The change in income in act two will beA)$4.B) $16.C) $20.D) $24.Answer BType T Topic 6 E 164 MA 164171. Refer to the above table. The total change in income resulting from the initial change in investment will beA)$100.B) $20.C) $80.D) $200.Answer A Type T Topic 6 E 165 MA 165172. Refer to the above table. The total change in consumption resulting from the initial change in investment will beA)$100.B) $96.C) $180.D) $80.Answer DType T Topic 6 E 166 MA 166173. Refer to the above table. The multiplier in this economy isA)2.B) 4.C) 5.D) 10.Answer CType C Topic 6 E 164 MA 164174. If a $200 billion i ncrease 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 isA)4.B) 5.C) 3. 33.D) 2. 5.Answer BType C Topic 6 E 164 MA 164175. If a $50 billion decrease in investment spending causes income to decline by $50 billion in the first round of the multiplier process and by $25 in the second round, the multiplier in the economy isA)2.B) 3. 33.C) 5.D) 10.Answer AType C Topic 6 E 165 MA 165176. If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round, income will last decline byA)$200 billion.B) $300 billion.C) $400 billion.D) $500 billion.Answer CType C Topic 6 E 165 MA 165177. 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 eventual ly increase byA)$2500 billion.B) $3000 billion.C) $4000 billion.D) $5000 billion.Answer DType C Topic 6 E 166 MA 166178. If the marginal propensity to save is 0. 2 in an economy, a $20 billion rise in investment spending will increaseA)GDP by $120 billion.C)saving by $25 billion.B)GDP by $20 billion.D)consumption by $80 billion.Answer DType A Topic 6 E 166 MA 166179. A $1 billion increase in investment will cause aA)(1/MPS) billion increase in GDP.C)(1 MPC) billion increase in GDP.B)(MPS) billion increase in GDP.D)(MPC MPS) billion increase in GDP.Answer AType F Topic 6 E 166-167 MA 166-167180. The Council of Economic Advisers has estimated that the actual multiplier for the U. S. economy is approximatelyA)4.B) 3. 5.C) 3.D) 2.Answer DType F Topic 6 E 166-167 MA 166-167 Status New181. The actual multiplier effect in the U. S. economy is less than the multiplier effect in the text examples becauseA)the real-world MPS is larger than the MPS in the examples.B)in addition to saving, ho useholds use some of any increase in income to buy imported goods and to pay higher taxes.C)the gap between the nominal interest rate and the real interest rate widens as the economy expands or contracts.D)the MPC in the United States is greater than 1.Answer BConsider This QuestionsType F E 159 MA 159 Status New182. (Consider This) U. S. consumption increased between March 2000 and July 2002 even though stock values declined by $3. 7 trillion. One of the reasons was thatA)lower interest rates allowed umteen households to reduce their monthly loan payments and increase their consumption spending.B)deflation occurred, which increased purchasing power.C)economic growth accelerated relative to the prior two years.D)the unemployment rate dramatically declined.Answer AType F E 159 MA 159 Status New183. (Consider This) Part of the wealth effect of a $3. 7 trillion decline in stock values between March 2000 and July 2002 was offset by risingA)tax rates.B) interest rates.C) house values.D) expectations of future income.Answer CLast Word QuestionsType A E 167 MA 167184. (Last Word) Art Buchwalds article Squaring the Economic Circle is a humorous description ofA)a negative GDP gap.C)the marginal propensity to save.B)a positive GDP gap.D)the multiplier.Answer DType A E 167 MA 167185. Last Word) Art Buchwalds article Squaring the Economic Circle humorously describes howA)a persons decision not to buy an automobile eventually reduces many peoples incomes, including that of the person making the original decision.B)a price increase on a single product eventually leads to rapid inflation.C)an increase in imports eventually leads to a greater increase in exports.D)a government tax rate increase eventually results in the government collecting less tax revenue than earlier the tax rate hike.Answer ATrue/False QuestionsType A E 154 MA 154186. If DI is $275 billion and the APC is 0. 8, we can conclude that saving is $55 billion.Answer TrueType A E 156 MA 156187. If the MPC is c onstant at various levels of income, then the APC must also be constant at all of those income levels.Answer FalseType A E 154 MA 154188. The average propensity to consume is defined as income divided by consumption.Answer FalseType D E 156 MA 156189. 1 MPC = MPS.Answer TrueType A E 159 MA 159190. A decline in the real interest rate will shift the investment demand curve to the right.Answer FalseType A E 156 MA 156191. If the Brown familys marginal propensity to consume is 0. 70, then it will necessarily consume seven-tenths of its total income.Answer FalseType A E 156 MA 156192. 1 + MPS = MPC.Answer FalseType A E 156 MA 156193. The slope of the consumption schedule is measured by the MPC.Answer TrueType A E 159 MA 159194. A specific investment will be undertaken if the expected rate of return, r, exceeds the interest rate, i.Answer TrueType A E 163-164 MA 163-164195. Investment is highly stable it rarely changes.Answer FalseType A E 156 MA 156196. The greater the MPC, the greater the multiplier.Answer TrueType A E 166 MA 166197. If the MPS is 1, the multiplier will be 1.Answer TrueType A E 166 MA 166198. The multiplier is equal to the reciprocal of the MPC.Answer FalseType F E 164 MA 164 Status New199. The multiplier shows the relationship between changes in a component of spending, say, investment, and the consequent changes in real income and output.Answer TrueType F E 167 MA 167 Status New200. The estimate for the value of the real-world multiplier is 2.Answer True