ECON 2010 CH 10 HomeWork – Flashcards

The size of the multiplier is equal to the: a) slope of the consumption schedule. b) reciprocal of the slope of the consumption schedule. c) slope of the saving schedule. d) reciprocal of the slope of the saving schedule.

At the point where the consumption schedule intersects the 45-degree line: a) the MPC equals 1. b) the APC is zero. c) saving equals income. d) saving is zero.

The MPC for an economy is: a) the slope of the consumption schedule or line. b) the slope of the savings schedule or line. c) 1 divided by the slope of the consumption schedule or line. d) 1 divided by the slope of the savings schedule or line.

Which of the following relations is not correct? a) 1 - MPC = MPS b) APS + APC = 1 c) MPS = MPC + 1 d) MPC + MPS = 1

The greater is the marginal propensity to consume, the: a) smaller is the marginal propensity to save. b) higher is the interest rate. c) smaller is the average propensity to consume. d) lower is the price level.

The Assumed Increase In Investment has $20 under Change in Income and $4.00 under Change in Saving, Second Round has $12.80 under Change in Consumption, All Other Rounds has $36.00 under Change in Consumption, and Totals has $20.00 under Change in Saving. The multiplier in this economy is: a) 2. b) 4. c) 5. d) 10.

T/F: A specific investment will be undertaken if the expected rate of return, r, exceeds the interest rate, i.

A rightward shift of the investment demand curve might be caused by: a) an increase in the price level. b) a decline in the real interest rate. c) businesses planning to increase their stock of inventories. d) an increase in business taxes.

Suppose that an initial $20 billion increase in investment spending expands GDP by $20 billion in the first round of the multiplier process. Also assume that GDP and consumption both rise by $12 billion in the second round of the process. a. What is the MPC in this economy? b. What is the size of the multiplier? c. If, instead, GDP and consumption both rose by $16 billion in the second round, what would have been the size of the multiplier?

Suppose a handbill publisher can buy a new duplicating machine for $500 and the duplicator has a 1-year life. The machine is expected to contribute $550 to the year's net revenue. a) What is the expected rate of return? b1) If the real interest rate at which funds can be borrowed to purchase the machine is 8 percent, will the publisher choose to invest in the machine? (Yes or No) b2) Will it invest in the machine if the real interest rate is 9 percent? (Yes or No) b3) If it is 11 percent? (Yes or No)

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

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: a) $200 billion. b) $300 billion. c) $400 billion. d) $500 billion.

The investment demand curve portrays an inverse (negative) relationship between: a) investment and real GDP. b) the real interest rate and investment. c) the nominal interest rate and investment. d) the price level and investment.

The multiplier is: a) 1/MPC. b) 1/(1 + MPC). c) 1/MPS. d) 1/(1 - MPS).

If Trent's MPC is .80, this means that he will: a) spend eight-tenths of any increase in his disposable income. b) spend eight-tenths of any level of disposable income. c) break even when his disposable income is $8,000. d) save two-tenths of any level of disposable income.