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As disposable income increases, consumption

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and savings both increase

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The relationship between consumption and disposable income is such that

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a direct and relatively stable relationship exist between consumption and income

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

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consumption and savings can not be determined from this information

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The MPC for an economy is

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the slope of the consumption schedule or line

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in contrast to investment, consumption is

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relatively stable

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which of the following will cause a movement down along an economies consumption schedule.

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a decrease in disposable income

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at the point where the consumption schedule intersects the 45 degree line

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The APC is 1.00

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Teesas break even income is 10,000 and her MPC is .75. If her actual income is 16,000 her level of

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consumption spending will be 14500

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If trents MPC is .80 this means that he will

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spend eight tenths of any increase in his disposable income

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Suppose a familys consumption exeeds its disposable income. This means that

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APC is greater than 1

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one can determine the amount of any level of total income that is consumed by

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multiplying total income by the APC

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Which of the following is correct

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MPC+MPS=APC+APS

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Dissaving means

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The households are spending more than their current incomes

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Dissaving occurs when

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consumption exeeds income

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Which of the following relations is not correct

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MPS=MPC+1

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The savings schedule is drawn on the assumption that as income increases

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Savings will increase absolutely and as a percentage of income

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At the point where the consumption schedule intersects the 45 degree line

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Savings is 0

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the saving schedule is such that as aggregate income increases by a certain amount, saving

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increases, but by a smaller amount

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If the consumption schedule is linear, then the

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Savings schedule will also be linear

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GIven the consumption schedule, it is possible to graph the relevant savings schedule by

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Plotting the vertical differences between the consumption schedule and the 45 degree line

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the marginal propensity to consume is .9 then the marginal propensity to save must be

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.1

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The greater the marginal propensity is

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the smaller is the marginal propensity to save

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if the savings schedule is a straight line

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MPS must be constant

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which of the following will cause a movement up along an economies saving schedule

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an increase in disposable income

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in the late 1990's the U.s stock marked boomed causing U.S consumption to rise. Economist refer to this outcome as

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Wealth effect

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The wealth effect is shown graphically as a

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shift of the consumption schedule

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An upward shift of the savings schedule suggest

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That the APC has decreased and the APS has increased at each GDP leve

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Which of the following will not shift the consumption schedule upward

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the expectation of a future decline in the consumer index

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If the consumption schedule shift upwards and the shift was not caused by a tax xhange, the savings schedule

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will shift downward

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

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a change in consumers income

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When consumption and savings are graphed relative to REAL GDP, an increase in personal taxes will shift

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Both the consumption schedule and the savings schedule downwards

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If for some reasons households become increasingly thrifty, we could show this by

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an upward shift in the savings schedule

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Assume the economies consumption and savings schedule simultaneously shift downward. This must be a result of

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an increase in personal taxes

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The investment demand slopes downwrd and to the right because lower real interest rates

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enable more investment project to be undertaken profitably

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The invest ment demand curve portrays an inverse (negative ) relationship between

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The real interest rate and investment

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Other things equal, a decrease in the real interest rate will

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move the economy downward along its existing investment demand curve

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the relationship between the real interest rate and investment is shown by the

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investment demand schedule

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Given the expected rate of return on all possible investment opportunities in the economy

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An increase in the real rate of interest will reduce level of investment

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A decline in real interest rates will

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increase the amount of investment spending

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The immediate determinants of invesment spending are the

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expected rate of return on capital goods and the real interest rate

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The investment demand curve suggest that

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There is an inverse relationship between the real rate of interest and the level of investment spending

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If business taxes are reduced and the real interest rate increases

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the level of investment spending might either increase or decrease

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Other thing equal, a 10 percent decrease in cooperate income taxes will

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shift the investment demand curve to the right

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The investment curve will shift to the right as a result of

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Business becoming more optimistic about future business conditions

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Other thing equal, f the real interest rate falls and business taxes rise

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we will be uncertain as to the resulting change in investment

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the investment demand curve will shift to the right as a result of

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Technological programs

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The investment demand curve will shift to the left as a result of

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an increase in the exess production capacity available in industry

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If the real interst rate in the economy is (i) and expected rate of return from additional investment is (r), then more investment will be forthcoming when

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r is greater than i

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a rightward shift of the investment demand curve might be caused by

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Business planning to increase their stock of inventories

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The real interest rate is

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The percentage increase in purchasing power that the lender receives on a loan

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When we draw an investment demand curve, we hold consistant all of the following except

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the interest rate

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If nominal interest rate is 18 percent and the real interest rate is 6 percent the inflation rate is

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12 percent

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

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22 percetn

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A high rate of inflation is likely to cause a

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high nominal interest rate

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

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r will fall as more investment is undertaken

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In annual percentage terms, investment spending in the united states is

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more variable than REAL GDP

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Investment spending in the United States tends to be unstable because

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all of these contribute to instability

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Investment spending in the United States tends to be unstable because

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profits are highly variablw

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the mulitplier effect means that

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an increase in investment can cause GDP to change by a larger amount

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The multiplier is

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1/MPS

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The Multiplier is useful in determining

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change in real GDP resulting from a change in spending

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The Multiplier is defined as

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change in GDP/Initial change in spending

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

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infinitely large

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the multiplier can be calculated by

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1(1-MPC)

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the size of the multiplier is equal to the

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Reciprocal of the slope of the saving schedule

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If the MPS is only half as large as the MPC, the multiplier is

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3

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If the MPC is .70 and investment increases by 3 billion the equilibrium will

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increase by 10 billion

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The numerical value of the multiplier will be smaller the

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larger the slope of the saving schedule

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the practical significance of the multiplier is that

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magnifies initial change in spending into larger changes in GDP

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If the MPC is .6 the multiplier will be

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2.5

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Assume the MPC is 2/3. If investment spending increase by 2 billion the level of GDP will increase by

answer

6 billion

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