# Basic Macroeconomic relationships – Flashcards

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As disposable income increases, consumption
and savings both increase
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The relationship between consumption and disposable income is such that
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
consumption and savings can not be determined from this information
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The MPC for an economy is
the slope of the consumption schedule or line
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in contrast to investment, consumption is
relatively stable
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which of the following will cause a movement down along an economies consumption schedule.
a decrease in disposable income
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at the point where the consumption schedule intersects the 45 degree line
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
consumption spending will be 14500
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If trents MPC is .80 this means that he will
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
APC is greater than 1
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one can determine the amount of any level of total income that is consumed by
multiplying total income by the APC
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Which of the following is correct
MPC+MPS=APC+APS
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Dissaving means
The households are spending more than their current incomes
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Dissaving occurs when
consumption exeeds income
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Which of the following relations is not correct
MPS=MPC+1
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The savings schedule is drawn on the assumption that as income increases
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
Savings is 0
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the saving schedule is such that as aggregate income increases by a certain amount, saving
increases, but by a smaller amount
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If the consumption schedule is linear, then the
Savings schedule will also be linear
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GIven the consumption schedule, it is possible to graph the relevant savings schedule by
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
.1
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The greater the marginal propensity is
the smaller is the marginal propensity to save
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if the savings schedule is a straight line
MPS must be constant
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which of the following will cause a movement up along an economies saving schedule
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
Wealth effect
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The wealth effect is shown graphically as a
shift of the consumption schedule
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An upward shift of the savings schedule suggest
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
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
will shift downward
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Which of the following will not cause the consumption schedule to shift
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
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
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
an increase in personal taxes
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The investment demand slopes downwrd and to the right because lower real interest rates
enable more investment project to be undertaken profitably
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The invest ment demand curve portrays an inverse (negative ) relationship between
The real interest rate and investment
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Other things equal, a decrease in the real interest rate will
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
investment demand schedule
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Given the expected rate of return on all possible investment opportunities in the economy
An increase in the real rate of interest will reduce level of investment
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A decline in real interest rates will
increase the amount of investment spending
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The immediate determinants of invesment spending are the
expected rate of return on capital goods and the real interest rate
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The investment demand curve suggest that
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
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
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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Other thing equal, f the real interest rate falls and business taxes rise
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
Technological programs
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The investment demand curve will shift to the left as a result of
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
r is greater than i
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a rightward shift of the investment demand curve might be caused by
Business planning to increase their stock of inventories
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The real interest rate is
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
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
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
22 percetn
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A high rate of inflation is likely to cause a
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
r will fall as more investment is undertaken
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In annual percentage terms, investment spending in the united states is
more variable than REAL GDP
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Investment spending in the United States tends to be unstable because
all of these contribute to instability
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Investment spending in the United States tends to be unstable because
profits are highly variablw
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the mulitplier effect means that
an increase in investment can cause GDP to change by a larger amount
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The multiplier is
1/MPS
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The Multiplier is useful in determining
change in real GDP resulting from a change in spending
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The Multiplier is defined as
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
infinitely large
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the multiplier can be calculated by
1(1-MPC)
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the size of the multiplier is equal to the
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
3
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If the MPC is .70 and investment increases by 3 billion the equilibrium will
increase by 10 billion
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The numerical value of the multiplier will be smaller the
larger the slope of the saving schedule
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the practical significance of the multiplier is that