Macro 181: Ch.10: Basic Macroeconomic Relationships – Flashcards

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2? (see photo) Lower expected rates of return on investment. A higher interest rate. A lower interest rate. Higher expected rates of return on investment.

The investment demand curve will shift to the right as the result of: the availability of excess production capacity. an increase in business taxes. businesses becoming more optimistic about future business conditions. an increase in the real interest rate.

The wealth effect is shown graphically as a: movement along an existing investment schedule. shift of the investment schedule. movement along an existing consumption schedule. shift of the consumption schedule.

The investment demand curve will shift to the right as a result of: an increase in business taxes. an increase in the excess production capacity available in industry. an increase in the acquisition and maintenance cost of capital goods. technological progress.

Investment spending in the United States tends to be unstable because: innovation occurs at an irregular pace. expected profits are highly variable. all of these contribute to the instability. capital goods are durable.

(see photo) Refer to the diagram. The marginal propensity to consume is: .4. .5. .6. .8.

A decline in disposable income: increases consumption because it shifts the consumption schedule upward. decreases consumption because it shifts the consumption schedule downward. decreases consumption by moving downward along a specific consumption schedule. increases consumption by moving upward along a specific consumption schedule.

The investment demand slopes downward and to the right because lower real interest rates: enable more investment projects to be undertaken profitably. boost expected rates of returns on investment. create tax incentives to invest. expand consumer borrowing, making investments more profitable.

The most important determinant of consumer spending is: the stock of wealth. consumer expectations. the level of income. the level of household borrowing.

The multiplier effect indicates that: a change in spending will change aggregate income by a larger amount. a change in spending will increase aggregate income by the same amount. an increase in total income will generate a larger change in aggregate expenditures. a decline in the interest rate will cause a proportionately larger increase in investment.