# Chapter 9 test banks Jaxon Craft
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the level of income.

The most important determinant of consumer spending is:
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level of income.

The most important determinant of consumption and saving is the:
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consume is three-fifths.

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.

With an MPS of .4, the MPC will be:
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change in income that is spent.

The MPC can be defined as that fraction of a:
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all the points at which consumption and income are equal.

The 45-degree line on a graph relating consumption and income shows:
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APC falls.

As disposable income goes up the:
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the amounts households intend to consume at various possible levels of aggregate income.

The consumption schedule shows:
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consumption to the level of disposable income.

The consumption schedule directly relates:
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decreases consumption by moving downward along a specific consumption schedule.

A decline in disposable income:
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consumption/income.

The APC is calculated as:
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a direct relationship between aggregate consumption and aggregate income.

The consumption schedule shows:
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specific level of total income that is consumed.

The APC can be defined as the fraction of a:
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increase absolutely, but decline as a percentage of income.

The consumption schedule is drawn on the assumption that as income increases, consumption will:
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APC + APS = 1.

Which of the following is correct?
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the MPC is constant and the APC declines as income rises.

The consumption schedule is such that:
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MPC is greater than zero, but less than one.

The consumption and saving schedules reveal that the:
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greater than zero, but less than one.

The size of the MPC is assumed to be:
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and saving both increase.

As disposable income increases, consumption:
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a direct and relatively stable relationship exists between consumption and income.

The relationship between consumption and disposable income is such that:
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consumption and saving cannot be determined from the information given.

If the MPC is .8 and disposable income is \$200, then:
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the slope of the consumption schedule or line.

The MPC for an economy is:
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relatively stable.

In contrast to investment, consumption is:
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90.

(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.

(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

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.

At the point where the consumption schedule intersects the 45-degree line:
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consumption spending will be \$14,500.

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.

If Trent’s MPC is .80, this means that he will:
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APC is greater than 1.

Suppose a family’s consumption exceeds its disposable income. This means that its
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\$100.

(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.

(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.

(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.

One can determine the amount of any level of total income that is consumed by:
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MPC + MPS = APC + APS

Which of the following is correct?
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that households are spending more than their current incomes.

Dissaving means:
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consumption exceeds income.

Dissaving occurs where:
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MPS = MPC + 1

Which of the following relations is not correct?
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saving will increase absolutely and as a percentage of income.

The saving schedule is drawn on the assumption that as income increases:
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saving is zero.

At the point where the consumption schedule intersects the 45-degree line:
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increases, but by a smaller amount.

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.

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.

Given the consumption schedule, it is possible to graph the relevant saving schedule by:
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.1.

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.

The greater is the marginal propensity to consume, the:
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MPS must be constant.

If the saving schedule is a straight line, the:
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an increase in disposable income

Which one of the following will cause a movement up along an economy’s saving schedule?
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wealth effect.

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.

The wealth effect is shown graphically as a:
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wealth effect of an increase in stock market prices.

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.

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.

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.

An upward shift of the saving schedule suggests:
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the expectation of a future decline in the consumer price index

Which of the following will not tend to shift the consumption schedule upward?
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will shift downward.

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

Which of the following will not cause the consumption schedule to shift?
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both the consumption and saving schedules downward.

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.

If for some reason households become increasingly thrifty, we could show this by:
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MPS has increased.

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.

Assume the economy’s consumption and saving schedules simultaneously shift downward. This must be the result of:
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.80.

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.

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

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.

Refer to the above diagram. The marginal propensity to consume is equal to:
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CD.

Refer to the above diagram. At income level F the volume of saving is:
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an income of E.

Refer to the above diagram. Consumption will be equal to income at:
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at income level H.

Refer to the above diagram. The economy is dissaving:
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CD/EF.

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.

The above figure suggests that:
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saving would be minus \$20 billion at the zero level of income.

Refer to the above figure. If the relevant saving schedule were constructed:
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0.80.

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.

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.

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.

The saving schedule shown in the above diagram would shift downward if, all else equal:
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C = 40 + .6Yd

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

Which of the following equations represents the saving schedule implicit in the above data?
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the real interest rate and investment.

The investment demand curve portrays an inverse (negative) relationship between:
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enable more investment projects to be undertaken profitably.

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.

Other things equal, a decrease in the real interest rate will:
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20 percent.

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.

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.

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.

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.

Given the expected rate of return on all possible investment opportunities in the economy:
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increase the amount of investment spending.

A decline in the real interest rate will:
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expected rate of return on capital goods and the real interest rate.

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.

The investment demand curve suggests:
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r l 20% \$10 15 20 10 30 5 40 0 50

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.

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.

If business taxes are reduced and the real interest rate increases:
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shift the investment-demand curve to the right.

Other things equal, a 10 percent decrease in corporate income taxes will:
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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.

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.

Other things equal, if the real interest rate falls and business taxes rise:
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technological progress.

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.

The investment demand curve will shift to the left as a result of:
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r is greater than i.

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.

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.

The real interest rate is:
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the interest rate.

When we draw an investment demand curve we hold constant all of the following except:
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12 percent.

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.

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.

A high rate of inflation is likely to cause a:
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r will fall as more investment is undertaken.

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.

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

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

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.

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.

In annual percentage terms, investment spending in the United States is:
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all of these contribute to the instability.

Investment spending in the United States tends to be unstable because:
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profits are highly variable.

Investment spending in the United States tends to be unstable because:
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durable; instability

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.

The multiplier effect means that:
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1/MPS.

The multiplier is:
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change in GDP resulting from a change in spending.

The multiplier is useful in determining the:
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change in GDP/initial change in spending.

The multiplier is defined as:
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infinitely large.

If 100 percent of any change in income is spent, the multiplier will be:
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1/(1 – MPC).

The multiplier can be calculated as:
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reciprocal of the slope of the saving schedule.

The size of the multiplier is equal to the:
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3.

If the MPS is only half as large as the MPC, the multiplier is:
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increase by \$10 billion.

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.

The numerical value of the multiplier will be smaller the:
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magnifies initial changes in spending into larger changes in GDP.

The practical significance of the multiplier is that it:
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2.5.

If the MPC is .6, the multiplier will be:
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\$6 billion.

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.

The multiplier applies to:
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a change in spending will change aggregate income by a larger amount.

The multiplier effect indicates that:
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5.

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.

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.

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.

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.

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.

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.

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.

(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.

(Consider This) During the Great Recession of 2007-2009:
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the multiplier.