Macro Ch 8 Midterm 2 – Flashcards
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D. the level of disposable income.
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1. The most important determinant of consumer spending is: A. the level of household debt. B. consumer expectations. C. the stock of wealth. D. the level of disposable income.
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C. all the points at which consumption and income are equal.
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2. The 45-degree line on a chart relating consumption and income shows: A. all points where the MPC is constant. B. all points at which saving and income are equal. C. all the points at which consumption and income are equal. D. the amounts households will plan to save at each possible level of income.
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B. up to a point consumption exceeds income, but then falls below income.
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3. The consumption schedule in the diagram below indicates that: refer to quiz A. consumers will maximize their satisfaction where the consumption schedule and 45 line intersect. B. up to a point consumption exceeds income, but then falls below income. C. the MPC falls as income increases. D. households consume as much as they earn.
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B. a direct relationship between aggregate consumption and aggregate income.
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4. The consumption schedule shows: A. a direct relationship between aggregate consumption and accumulated wealth. B. a direct relationship between aggregate consumption and aggregate income. C. an inverse relationship between aggregate consumption and accumulated financial wealth. D. an inverse relationship between aggregate consumption and aggregate income.
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B. 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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5. The equation C = 35 + .75Y, where C is consumption and Y is disposable income, tells us that: A. households will consume three-fourths of whatever level of disposable income they receive. B. households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive. C. there is an inverse relationship between disposable income and consumption. D. households will save $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.
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D. $2 and .9
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6. Refer to the data below. When plotted on a graph, the vertical intercept of the consumption schedule in this economy is _____ and the slope is _____. refer to actual quiz A. -2 and 1 B. $2 and .18 C. $100 and .5 D. $2 and .9
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A. an income equal to OE.
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7. Refer to the diagram below. Consumption will be equal to income at: refer to actual quiz A. an income equal to OE. B. an income equal to OF. C. point C. D. point D.
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B. that households are spending in excess of their current incomes.
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8. Dissaving means: A. the same thing as disinvesting. B. that households are spending in excess of their current incomes. C. that saving and investment are equal. D. that disposable income is less than zero.
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D. saving is zero.
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9. 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.
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C. is $100.
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10. Refer to the above diagram. The break-even level of disposable income: A. is zero. B. is minus $10. C. is $100. D. cannot be determined from the information given.
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C. APC is greater than 1.
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11. Suppose a family's consumption exceeds its disposable income. This means that its: A. MPC is greater than 1. B. MPS is negative. C. APC is greater than 1. D. APS is positive.
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A. 1.0 minus .4.
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12. With an MPS of .4, the MPC will be: A. 1.0 minus .4. B. .4 minus 1.0. C. the reciprocal of the MPS. D. .4.
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A. APC + APS = 1.
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13. Which of the following is correct? A. APC + APS = 1. B. APC + MPS = 1. C. APS + MPC = 1. D. APS + MPS = 1.
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A. the smaller is the marginal propensity to save.
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14. The greater is the marginal propensity to consume: A. the smaller is the marginal propensity to save. B. the higher is the interest rate. C. the lower is the average propensity to consume. D. the lower is the price level.
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A. MPS must be constant.
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15. If the saving schedule is a straight line, the: A. MPS must be constant. B. APS must be constant. C. APC must be constant. D. MPC must be rising.
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C. an upshift of the saving schedule.
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16. If for some reason households become increasingly thrifty, we could show this by: A. a downshift of the saving schedule. B. an upshift of the consumption schedule. C. an upshift of the saving schedule. D. an increase in the equilibrium GDP.
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D. that the APC has decreased and the APS has increased at each GDP level.
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17. An upward shift of the saving schedule suggests: A. nothing with respect to changes in the APC and APS. B. that the APC and APS have both decreased at each GDP level. C. that the APC and APS have both increased at each GDP level. D. that the APC has decreased and the APS has increased at each GDP level.
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D. an increase in personal taxes
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18. Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of: A. an increase in disposable income. B. an increase in household wealth. C. the expectation of a recession. D. an increase in personal taxes
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B. the nominal rate less the rate of inflation .
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19. The real interest rate is: A. the percentage increase in money that the lender receives on a loan. B. the nominal rate less the rate of inflation . C. also called the after-tax interest rate. D. usually higher than the nominal interest rate.
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C. 12 percent.
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20. If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is: A. 18 percent. B. 24 percent. C. 12 percent. D. 6 percent.
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C. inversely related.
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21. Other things equal, the real interest rate and the level of investment are: A. related only when saving equals planned investment. B. unrelated. C. inversely related. D. directly related
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A. increase the amount of investment spending.
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22. A decline in the real interest rate will: A. increase the amount of investment spending. B. shift the investment schedule downward. C. shift the investment-demand curve to the right. D. shift the investment-demand curve to the left.
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B. the interest rate.
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23. When we draw an investment demand curve we hold constant all of the following except: A. the expected rate of return from the investment. B. the interest rate. C. business taxes. D. the present stock of capital goods
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B. the level of investment spending might either increase or decrease.
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24. If business taxes are reduced and the real interest rate increases: A. consumption and saving will necessarily increase. B. the level of investment spending might either increase or decrease. C. the level of investment spending will necessarily increase. D. the level of investment spending will necessarily decrease.
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D. changes in investment expenditures
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25. Which of the following is the primary explanation for most of the fluctuations in output and employment over the course of the business cycle? A. changes in net exports B. changes in the marginal propensity to consume C. abrupt changes in stock market prices D. changes in investment expenditures
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C. change in GDP/initial change in spending.
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26. The simple multiplier is defined as: A. 1 - MPS. B. change in GDP initial change in spending. C. change in GDP/initial change in spending. D. change in GDP - initial change in spending.
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D. a small increase in investment can cause national income to change by a larger amount.
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27. The multiplier effect means that: A. consumption is typically several times as large as saving. B. a small change in consumption demand can cause a much larger increase in investment. C. a small decline in the MPC can cause equilibrium GDP to rise by several times that amount. D. a small increase in investment can cause national income to change by a larger amount.
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B. magnifies relatively small initial changes in spending into larger changes in GDP.
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28. The practical significance of the multiplier is that it: A. brings about an equality of planned investment and saving. B. magnifies relatively small initial changes in spending into larger changes in GDP. C. keeps inflation within tolerable limits. D. helps to stabilize the economy.
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B. $50 billion.
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29. Suppose that the level of GDP increased by $100 billion in an economy where the marginal propensity to consume is 0.5. The initial change in spending must have been: A. $100 billion. B. $50 billion. C. $500 billion. D. $5 billion.
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C. 1/MPS.
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30. The simple multiplier is: A. 1/MPC. B. 1/(1 + MPC). C. 1/MPS. D. 1/(1 - MPS).
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D. 4
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31. The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the highest marginal propensity to consume? refer to actual quiz A. 1 B. 2 C. 3 D. 4
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D. 4
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32. The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the largest multiplier? refer to actual quiz A. 1 B. 2 C. 3 D. 4
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D. reciprocal of the slope of the saving schedule.
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33. The size of the simple 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.
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A. 1.
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34. Refer to the consumption schedules shown in the above diagram for economies 1, 2, 3, and 4. The MPC is greatest in economy: refer to actual quiz A. 1. B. 2. C. 3. D. 4.
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B. 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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35. The equation C = 35 + .75Y, where C is consumption and Y is disposable income, tells us that: A. households will consume three-fourths of whatever level of disposable income they receive. B. households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive. C. there is an inverse relationship between disposable income and consumption. D. households will save $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.
