Chapter 9 test banks

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the level of income.
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The most important determinant of consumer spending is:
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level of income.
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The most important determinant of consumption and saving is the:
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consume is three-fifths.
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If Carol’s disposable income increases from \$1,200 to \$1,700 and her level of saving increases from minus \$100 to a plus \$100, her marginal propensity to:
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1.0 minus .4.
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With an MPS of .4, the MPC will be:
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change in income that is spent.
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The MPC can be defined as that fraction of a:
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all the points at which consumption and income are equal.
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The 45-degree line on a graph relating consumption and income shows:
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APC falls.
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As disposable income goes up the:
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the amounts households intend to consume at various possible levels of aggregate income.
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The consumption schedule shows:
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consumption to the level of disposable income.
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The consumption schedule directly relates:
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decreases consumption by moving downward along a specific consumption schedule.
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A decline in disposable income:
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consumption/income.
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The APC is calculated as:
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a direct relationship between aggregate consumption and aggregate income.
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The consumption schedule shows:
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specific level of total income that is consumed.
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The APC can be defined as the fraction of a:
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increase absolutely, but decline as a percentage of income.
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The consumption schedule is drawn on the assumption that as income increases, consumption will:
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APC + APS = 1.
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Which of the following is correct?
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the MPC is constant and the APC declines as income rises.
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The consumption schedule is such that:
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MPC is greater than zero, but less than one.
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The consumption and saving schedules reveal that the:
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greater than zero, but less than one.
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The size of the MPC is assumed to be:
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and saving both increase.
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As disposable income increases, consumption:
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a direct and relatively stable relationship exists between consumption and income.
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The relationship between consumption and disposable income is such that:
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consumption and saving cannot be determined from the information given.
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If the MPC is .8 and disposable income is \$200, then:
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the slope of the consumption schedule or line.
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The MPC for an economy is:
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relatively stable.
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In contrast to investment, consumption is:
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90.
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(Advanced analysis) Answer the question on the basis of the following consumption schedule: C = 20 + .9Y, where C is consumption and Y is disposable income. Refer to the above data. The MPC is:
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\$60.
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(Advanced analysis) Answer the question on the basis of the following consumption schedule: C = 20 + .9Y, where C is consumption and Y is disposable income. Refer to the above data. At an \$800 level of disposable income, the level of saving is:
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a decrease in disposable income
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Which one of the following will cause a movement down along an economy’s consumption schedule?
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the APC is 1.00.
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At the point where the consumption schedule intersects the 45-degree line:
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consumption spending will be \$14,500.
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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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spend eight-tenths of any increase in his disposable income.
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If Trent’s MPC is .80, this means that he will:
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APC is greater than 1.
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Suppose a family’s consumption exceeds its disposable income. This means that its
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\$100.
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(Advanced analysis) If the equation for the consumption schedule is C = 20 + 0.8Y, 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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households will consume \$35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.
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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 vertical intercept would be + 20 and the slope would be + .6.
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(Advanced analysis) If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed:
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multiplying total income by the APC.
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One can determine the amount of any level of total income that is consumed by:
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MPC + MPS = APC + APS
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Which of the following is correct?
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that households are spending more than their current incomes.
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Dissaving means:
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consumption exceeds income.
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Dissaving occurs where:
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MPS = MPC + 1
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Which of the following relations is not correct?
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saving will increase absolutely and as a percentage of income.
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The saving schedule is drawn on the assumption that as income increases:
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saving is zero.
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At the point where the consumption schedule intersects the 45-degree line:
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increases, but by a smaller amount.
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The saving schedule is such that as aggregate income increases by a certain amount saving:
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saving schedule will also be linear.
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If the consumption schedule is linear, then the:
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plotting the vertical differences between the consumption schedule and the 45-degree line.
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Given the consumption schedule, it is possible to graph the relevant saving schedule by:
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.1.
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If the marginal propensity to consume is .9, then the marginal propensity to save must be:
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smaller is the marginal propensity to save.
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The greater is the marginal propensity to consume, the:
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MPS must be constant.
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If the saving schedule is a straight line, the:
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an increase in disposable income
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Which one of the following will cause a movement up along an economy’s saving schedule?
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wealth effect.
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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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shift of the consumption schedule.
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The wealth effect is shown graphically as a:
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wealth effect of an increase in stock market prices.
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Refer to the above graph. A shift of the consumption schedule from C1 to C2 might be caused by a:
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increase in real GDP.
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Refer to the above graph. A movement from a to b along C1 might be caused by a:
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reverse wealth effect, caused by a decrease in stock market prices.
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Refer to the above graph. A shift of the consumption schedule from C2 to C1 might be caused by a(an):
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that the APC has decreased and the APS has increased at each GDP level.
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An upward shift of the saving schedule suggests:
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the expectation of a future decline in the consumer price index
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Which of the following will not tend to shift the consumption schedule upward?
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will shift downward.
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If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:
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a change in consumer incomes
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Which of the following will not cause the consumption schedule to shift?
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both the consumption and saving schedules downward.
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When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift:
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an upward shift of the saving schedule.
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If for some reason households become increasingly thrifty, we could show this by:
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MPS has increased.
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Suppose the economy’s saving schedule shifts from S1 to S2 as shown in the above diagram. We can say that its:
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an increase in personal taxes.
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Assume the economy’s consumption and saving schedules simultaneously shift downward. This must be the result of:
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.80.
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disposable income: \$200 225 250 275 300 Consumption: \$205 225 245 265 285 Refer to the above data. The marginal propensity to consume is:
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dissaving is \$5.
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disposable income: \$200 225 250 275 300 Consumption: \$205 225 245 265 285 Refer to the above data. At the \$200 level of disposable income:
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\$305
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disposable income: \$200 225 250 275 300 Consumption: \$205 225 245 265 285 Refer to the above data. If disposable income was \$325, we would expect consumption to be:
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CB/AB.
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Refer to the above diagram. The marginal propensity to consume is equal to:
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CD.
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Refer to the above diagram. At income level F the volume of saving is:
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an income of E.
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Refer to the above diagram. Consumption will be equal to income at:
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at income level H.
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Refer to the above diagram. The economy is dissaving:
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CD/EF.
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Refer to the above diagram. The marginal propensity to save is:
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as income increases, consumption decreases as a percentage of income.
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The above figure suggests that:
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saving would be minus \$20 billion at the zero level of income.
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Refer to the above figure. If the relevant saving schedule were constructed:
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0.80.
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Disposable income: \$0 50 100 150 200 Saving: -\$10 0 10 20 30 Refer to the above data. The marginal propensity to consume is:
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.10.
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Disposable income: \$0 50 100 150 200 Saving: -\$10 0 10 20 30 Refer to the above data. At the \$100 level of income, the average propensity to save is:
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.20.
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Disposable income: \$0 50 100 150 200 Saving: -\$10 0 10 20 30 Refer to the above data. If plotted on a graph, the slope of the saving schedule would be:
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consumer wealth rose rapidly because of a significant increase in stock market prices.
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The saving schedule shown in the above diagram would shift downward if, all else equal:
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C = 40 + .6Yd
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Disposable income: \$0 100 200 300 400 Consumption: \$40 100 160 220 280 Which of the following equations correctly represents the above data?
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S = -40 + .4Yd
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Which of the following equations represents the saving schedule implicit in the above data?
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the real interest rate and investment.
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The investment demand curve portrays an inverse (negative) relationship between:
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enable more investment projects to be undertaken profitably.
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The investment demand slopes downward and to the right because lower real interest rates:
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move the economy downward along its existing investment demand curve.
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Other things equal, a decrease in the real interest rate will:
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20 percent.
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Suppose that a new machine tool having a useful life of only one year costs \$80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be \$96,000. The expected rate of return on this tool is:
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15 percent.
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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 return on this machine is:
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purchase the machine because the expected rate of return exceeds the interest rate.
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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. If the firm finds it can borrow funds at an interest rate of 10 percent the firm should:
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investment demand schedule.
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The relationship between the real interest rate and investment is shown by the:
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an increase in the real rate of interest will reduce the level of investment.
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Given the expected rate of return on all possible investment opportunities in the economy:
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increase the amount of investment spending.
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A decline in the real interest rate will:
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expected rate of return on capital goods and the real interest rate.
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The immediate determinants of investment spending are the:
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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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The investment demand curve suggests:
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r l 20% \$10 15 20 10 30 5 40 0 50
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Assume there are no prospective investment projects (I) that will yield 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 is:
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\$10.
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Assume there are no prospective investment projects (I) that will yield 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. If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be:
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the level of investment spending might either increase or decrease.
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If business taxes are reduced and the real interest rate increases:
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shift the investment-demand curve to the right.
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Other things equal, a 10 percent decrease in corporate income taxes will:
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businesses becoming more optimistic about future business conditions.
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The investment demand curve will shift to the right as the result of:
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\$30 billion of investment will be undertaken.
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expected rate of return: 12% 10 8 6 4 2 Amount of investment with this rate of return or higher: \$10 20 30 40 50 60 The above schedule indicates that if the real interest rate is 8 percent, then:
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we will be uncertain as to the resulting change in investment.
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Other things equal, if the real interest rate falls and business taxes rise:
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technological progress.
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The investment demand curve will shift to the right as a result of:
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an increase in the excess production capacity available in industry.
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The investment demand curve will shift to the left as a result of:
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r is greater than i.
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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 when:
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businesses planning to increase their stock of inventories.
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A rightward shift of the investment demand curve might be caused by:
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the percentage increase in purchasing power that the lender receives on a loan.
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The real interest rate is:
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the interest rate.
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When we draw an investment demand curve we hold constant all of the following except:
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12 percent.
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If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:
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22 percent.
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If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:
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high nominal interest rate.
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A high rate of inflation is likely to cause a:
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r will fall as more investment is undertaken.
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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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investment will take place until i and r are equal.
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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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\$30
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Answer the question 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 investment projects in each successive rate of return range down to and including the 0-5 percent range. Refer to the above information. If the real interest rate is 15 percent, what amount of investment will be undertaken?
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\$60
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Answer the question 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 investment projects in each successive rate of return range down to and including the 0-5 percent range. Refer to the above information.Refer to the above information. If the real interest rate is 5 percent, what amount of investment will be undertaken?
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is also the investment demand curve.
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Answer the question 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 investment projects in each successive rate of return range down to and including the 0-5 percent range. Refer to the above information. The expected rate of return curve:
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more variable than real GDP.
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In annual percentage terms, investment spending in the United States is:
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all of these contribute to the instability.
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Investment spending in the United States tends to be unstable because:
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profits are highly variable.
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Investment spending in the United States tends to be unstable because:
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durable; instability
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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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an increase in investment can cause GDP to change by a larger amount.
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The multiplier effect means that:
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1/MPS.
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The multiplier is:
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change in GDP resulting from a change in spending.
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The multiplier is useful in determining the:
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change in GDP/initial change in spending.
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The multiplier is defined as:
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infinitely large.
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If 100 percent of any change in income is spent, the multiplier will be:
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1/(1 – MPC).
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The multiplier can be calculated as:
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reciprocal of the slope of the saving schedule.
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The size of the multiplier is equal to the:
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3.
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If the MPS is only half as large as the MPC, the multiplier is:
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increase by \$10 billion.
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If the MPC is .70 and investment increases by \$3 billion, the equilibrium GDP will:
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larger the slope of the saving schedule.
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The numerical value of the multiplier will be smaller the:
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magnifies initial changes in spending into larger changes in GDP.
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The practical significance of the multiplier is that it:
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2.5.
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If the MPC is .6, the multiplier will be:
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\$6 billion.
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Assume the MPC is 2/3. If investment spending increases by \$2 billion, the level of GDP will increase by:
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investment, net exports, and government spending.
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The multiplier applies to:
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a change in spending will change aggregate income by a larger amount.
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The multiplier effect indicates that:
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5.
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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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2.
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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 is:
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\$400 billion.
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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 eventually decline by:
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\$5000 billion.
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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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consumption by \$80 billion.
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If the marginal propensity to save is 0.2 in an economy, a \$20 billion rise in investment spending will increase:
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(1/MPS) billion increase in GDP.
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A \$1 billion increase in investment will cause a:
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in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.
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The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because:
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the investment demand curve shifted inward.
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(Consider This) During the Great Recession of 2007-2009, both real interest rates and investment spending declined. This suggests that:
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real interest rates and investment spending both declined.
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(Consider This) During the Great Recession of 2007-2009:
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the multiplier.
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(Last Word) Art Buchwald’s article “Squaring the Economic Circle” is a humorous description of:
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a person’s decision not to buy an automobile eventually reduces many people’s incomes, including that of the person making the original decision.
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(Last Word) Art Buchwald’s article “Squaring the Economic Circle” humorously describes how:

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