Mazro M3 Ch 10 – Flashcards

The most important determinant of consumption and saving is the: level of bank credit. level of income. interest rate. price level.

The MPC can be defined as that fraction of a: change in income that is not spent. change in income that is spent. given total income that is not consumed. given total income that is consumed.

The 45-degree line on a graph relating consumption and income shows: all points where the MPC is constant. all points at which saving and income are equal. all the points at which consumption and income are equal. the amounts households will plan to save at each possible level of income.

The consumption schedule shows: that the MPC increases in proportion to GDP. that households consume more when interest rates are low. that consumption depends primarily on the level of business investment. the amounts households intend to consume at various possible levels of aggregate income

Refer to the figure above. The consumption schedule indicates that: M2A-5.png consumers will maximize their satisfaction where the consumption schedule and 45° line intersect. up to a point consumption exceeds income, but then falls below income. the MPC falls as income increases. households consume as much as they earn.

Which of the following is correct? APC + APS = 1. APC + MPS = 1. APS + MPC = 1. APS + MPS = 1.

The size of the MPC is assumed to be: less than zero. greater than one. greater than zero, but less than one. two or more.

As disposable income increases, consumption: and saving both increase. and saving both decrease. decreases and saving increases. increases and saving decreases.

The MPC for an economy is: the slope of the consumption schedule or line. the slope of the savings schedule or line. 1 divided by the slope of the consumption schedule or line. 1 divided by the slope of the savings schedule or line.

(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:

(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: $180. $740. $60. $18.

Refer to the above diagram which shows consumption schedules for economies A and B. We can say that the: M2A-12.png MPC is greater in B than in A. APC at any given income level is greater in B than in A. MPS is smaller in B than in A. MPC is greater in A than in B.

At the point where the consumption schedule intersects the 45-degree line: the MPC is 1.00. the APC is 1.00. saving is equal to consumption. the economy is in equilibrium.

If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed: the vertical intercept would be +.6 and the slope would be +20. it would reveal an inverse relationship between consumption and disposable income. the vertical intercept would be negative, but consumption would increase as disposable income rises. the vertical intercept would be + 20 and the slope would be + .6.

Given the consumption schedule, it is possible to graph the relevant saving schedule by: subtracting the MPC from 1 at each level of income. subtracting investment from consumption at each level of GDP. plotting the horizontal differences between the consumption schedule and the 45-degree line. plotting the vertical differences between the consumption schedule and the 45-degree line.

If the marginal propensity to consume is .9, then the marginal propensity to save must be: 1 0.1 1.1 0.9

In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the: Keynes effect. interest-rate effect. wealth effect. multiplier effect.

The wealth effect is shown graphically as a: shift of the consumption schedule. movement along an existing consumption schedule. shift of the investment schedule. movement along an existing investment schedule.

Refer to the above graph. A movement from b to a along C1 might be caused by a: M2A-19.png recession. wealth effect of an increase in stock market prices. decrease in income tax rates. increase in saving.

Refer to the above graph. A shift of the consumption schedule from C1 to C2 might be caused by a: recession. wealth effect of an increase in stock market prices. increase in income tax rates. increase in saving.

Refer to the above graph. A movement from a to b along C1 might be caused by a: recession. wealth effect of an increase in stock market prices. increase in income tax rates. increase in real GDP.

Refer to the above graph. A shift of the consumption schedule from C2 to C1 might be caused by a(an): increase in real GDP. reverse wealth effect, caused by a decrease in stock market prices. decrease in income tax rates. decrease in saving.

Which of the following will not cause the consumption schedule to shift? a sharp increase in the amount of wealth held by households a change in consumer incomes the expectation of a recession a growing expectation that consumer durables will be in short supply

Suppose the economy's saving schedule shifts from S1 to S2 as shown in the above diagram. We can say that its: M2A-24.png MPC has increased. MPS has increased. APS has increased at all levels of disposable income. APS has decreased at all levels of disposable income.

Refer to the above diagram. Suppose an economy's consumption schedule shifts from C1 to C2 as shown in the diagram. We can say that its: M2A-25.png MPC has increased but its APC at each income level is unchanged. APC at each income level is increased but its MPC is unchanged. MPC and APC at each income level have both increased. MPC and APC at each income level have both decreased.

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

The investment demand slopes downward and to the right because lower real interest rates: expand consumer borrowing, making investments more profitable. boost expected rates of returns on investment. enable more investment projects to be undertaken profitably. create tax incentives to invest.

The relationship between the real interest rate and investment is shown by the: investment demand schedule. consumption of fixed capital schedule. saving schedule. aggregate supply curve.

Given the expected rate of return on all possible investment opportunities in the economy: an increase in the real rate of interest will reduce the level of investment. a decrease in the real rate of interest will reduce the level of investment. a change in the real interest rate will have no impact on the level of investment. an increase in the real interest rate will increase the level of investment.

The investment demand curve will shift to the right as the result of: the availability of excess production capacity. an increase in business taxes. businesses becoming more optimistic about future business conditions. an increase in the real interest rate.

Which of the following would shift the investment demand curve from ID1 to ID2? M2A-33.png a lower interest rate lower expected rates of return on investment a higher interest rate higher expected rates of return on investment

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

Investment spending in the United States tends to be unstable because: profits are highly variable. the price level fluctuates rapidly. investment spending is affected by interest rates. capital wears out quickly and must be replaced often.

The multiplier effect means that: consumption is typically several times as large as saving. a change in consumption can cause a larger increase in investment. an increase in investment can cause GDP to change by a larger amount. a decline in the MPC can cause GDP to rise by several times that amount.

The multiplier applies to: investment but not to net exports or government spending. investment, net exports, and government spending. increases in spending but not to decreases in spending. spending by the private sector but not by the public sector.

The multiplier effect indicates that: a decline in the interest rate will cause a proportionately larger increase in investment. a change in spending will change aggregate income by a larger amount. a change in spending will increase aggregate income by the same amount. an increase in total income will generate a larger change in aggregate expenditures.