macro chapter 28 true/false – Flashcards
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Consumption equals disposable income plus savings.
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False
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The most significant determinant of the level of consumer spending is disposable income.
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True
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Historical data suggests that the level of consumption expenditures is directly related to the level of disposable income.
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True
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Consumption rises and savings falls when disposable income increases.
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False
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Empirical data suggests that households tend to spend a similar proportion of a small disposable income as they do of a larger disposable income.
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False
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The break-even income is the income level at which business begins to make a profit.
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False
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The average propensity to save is equal to the level of saving divided by the level of consumption.
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False
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The marginal propensity to consume is the change in consumption divided by the change in income.
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True
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The slope of the saving schedule is equal to the average propensity to save.
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False
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An increase in wealth will increase consumption schedule (shift the consumption curve upward).
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True
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An increase in the taxes paid by consumers will decrease the amount they spend for consumption and the amount they save.
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True
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Both the consumption schedule and savings schedule tend to be relatively stable over time.
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True
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The real interest rate is the nominal interest rate minus the rate of inflation.
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True
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A business firm will purchase additional capital goods if the real rate of interest it must pay exceeds the expected rate of return from the investment.
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False
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An increase in the stock of capital goods on hand will decrease the investment demand.
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True
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An increase in plan inventories will decrease the investment demand.
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False
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Investment tends to be relatively stable over time.
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False
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The irregularity of innovations and the variability of business profits contribute to the instability of investment expenditures.
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True
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The multiplier is equal to the change in real GDP multiplied by the initial change in spending.
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False
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The initial change in spending for the multiplier is usually associated with investment spending because of investment's volatility.
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True
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The multiplier effect works only in a positive direction in changing GDP.
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False
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The multiplier is based on the idea that any change in income will cause both consumption and saving to vary in the same direction as a change in income and by a fraction of that change in income.
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True
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The higher the marginal propensity to consume, the larger the size of the multiplier.
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True
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When it is computed as 1/MPS, the multiplier reflects only the leakage of income into saving.
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True
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The value of the actual multiplier for the economy will usually be greater than the value of a textbook multiplier because the actual multiplier is based only on the marginal propensity to save.
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False
