Question 1

The simple multiplier 1/MPS:

Accepted Answer

A)   Understates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes
B)   Understates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes
C)   Overstates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes
D)   Overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxesE) A) and B)
F) A) and C)

Question 2

2 shifts to A3 because of the so-called wealth effect, then in figure (B)  line: A)  B2 will shift to B3 B)  B1 will shift to B2 C)  B2 will shift to B1 D)  B3 will shift to B2" class="answers-bank-image d-inline" rel="preload" > Refer to the above figures with consumption schedules in figure (A)  and saving schedules in figure (B) , which correspond to each other across different levels of disposable income. If, in figure (A) , line A2 shifts to A3 because of the so-called wealth effect, then in figure (B)  line:

Accepted Answer

A)   B2 will shift to B3
B)   B1 will shift to B2
C)   B2 will shift to B1
D)   B3 will shift to B2E) B) and D)
F) All of the above

Question 3

Assume there are no investment projects that will produce an expected rate of return of 8 percent or more. There are, however, $2 billion worth of investment projects with an expected rate of return at 7 percent, an additional $2 billion for every drop of the interest rate by 1 percent. If the real interest rate is 3 percent in this economy, the cumulative amount of investment at the 3 percent or higher rate of return is:

Accepted Answer

A)   $10 billion
B)   $8 billion
C)   $6 billion
D)   $4 billionE) None of the above
F) A) and D)

Question 4

Art Buchwald's article, "Squaring the Economic Circle," is a humorous description of what happens to total income if:

Accepted Answer

A)   Prices of products started falling significantly
B)   People bought consumer goods instead of investment goods
C)   Consumers bought imported goods instead of domestic products
D)   People and firms stopped buying from one anotherE) B) and C)
F) B) and D)

Question 5

The table shows a consumption schedule.  Refer to the data above. If disposable income is $550, we would expect consumption to be:

Accepted Answer

A)   $430
B)   $450
C)   $460
D)   $470E) None of the above
F) A) and D)

Question 6

Answer the following question based on the table below which illustrates the multiplier process resulting from an autonomous increase in investment by $5.  Refer to the above table. The total change in income resulting from the initial change in investment will be:

Accepted Answer

A)   $5
B)   $10
C)   $15
D)   $20E) None of the above
F) A) and C)

Question 7

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will:

Accepted Answer

A)   Increase by $100 billion
B)   Decrease by $100 billion
C)   Increase by $16 billion
D)   Will not changeE) None of the above
F) C) and D)

Question 8

Refer to the consumption schedule above. If disposable income is $42,000, then saving is:

Accepted Answer

A)   $0
B)   $2,000
C)   $4,000
D)   $6,000E) All of the above
F) None of the above

Question 9

If the consumption schedule is a straight line, it can be concluded that the:

Accepted Answer

A)   APC is necessarily constant
B)   MPC is zero
C)   MPC is constant at various levels of income
D)   APC is equal to the MPCE) B) and D)
F) A) and C)

Question 10

Refer to the saving schedule above. As income falls from level 3 to level 2, the amount of:

Accepted Answer

A)   Dissaving decreases
B)   Dissaving increases
C)   Saving decreases
D)   Saving increasesE) None of the above
F) A) and D)

Question 11

2 to ID1? A)  A falling real interest rate B)  A rising real interest rate C)  Increasing operating costs for capital goods D)  Decreasing operating costs for capital goods" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID1?

Accepted Answer

A)   A falling real interest rate
B)   A rising real interest rate
C)   Increasing operating costs for capital goods
D)   Decreasing operating costs for capital goodsE) B) and D)
F) A) and C)

Question 12

Which of the following may shift the consumption schedule upward?

Accepted Answer

A)   An increase in disposable income
B)   A decrease in interest rates
C)   A significant decrease in stock prices
D)   A decrease in people's ability to borrowE) A) and B)
F) None of the above

Question 13

The multiplier measures the change in real GDP that results from a given change in the price level.

Accepted Answer

A) True 
 B)False

Question 14

If people saved more of any extra income that they receive, then the consumption schedule will become flatter.

Accepted Answer

A) True 
 B)False

Question 15

The simple multiplier formula assumes the following, except:

Accepted Answer

A)   The economy has excess capacity and room to expand output
B)   Firms will raise prices as buyers buy more of their output
C)   People will spend more if they earn additional income
D)   Business firms will increase production if demand for their output increasesE) B) and D)
F) A) and B)

Question 16

The change in real GDP resulting from an initial change in spending can be calculated by:

Accepted Answer

A)   Dividing the multiplier by the initial change in spending
B)   Dividing the initial change in spending by the multiplier
C)   Multiplying the multiplier by the initial change in spending
D)   Adding the initial change in spending to the multiplierE) All of the above
F) A) and B)

Question 17

When a consumption schedule is plotted as a straight line, the slope of the consumption line is:

Accepted Answer

A)   Vertical
B)   Horizontal
C)   Greater than the slope of the 45° line
D)   Less than the slope of the 45° lineE) B) and C)
F) A) and D)

Question 18

The table shows a consumption schedule.  Refer to the data above. At the $300 level of disposable income:

Accepted Answer

A)   The marginal propensity to save is .80
B)   The average propensity to consume is .60
C)   The average propensity to save is .30
D)   There is a dissaving of $10E) None of the above
F) All of the above

Question 19

The multiplier effect relates:

Accepted Answer

A)   Changes in the price level to changes in real GDP
B)   Changes in the interest rate to changes in investment
C)   Changes in disposable income to changes in consumption
D)   Changes in spending to changes in real GDPE) A) and B)
F) A) and C)

Question 20

The table shows a consumption schedule.  Refer to the data above. The marginal propensity to consume is:

Accepted Answer

A)   .80
B)   .75
C)   .60
D)   .40E) A) and B)
F) None of the above

Exam 10: Basic Macroeconomic Relationships

The table shows a consumption schedule. Refer to the data above. The marginal propensity to consume is:

Correct Answer
verified

If the consumption schedule is a straight line, it can be concluded that the:

Correct Answer
verified

The simple multiplier 1/MPS:

Correct Answer
verified

Refer to the saving schedule above. As income falls from level 3 to level 2, the amount of:

Correct Answer
verified

Answer the following question based on the table below which illustrates the multiplier process resulting from an autonomous increase in investment by $5. Refer to the above table. The total change in income resulting from the initial change in investment will be:

Correct Answer
verified

Which of the following may shift the consumption schedule upward?

Correct Answer
verified

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will:

Correct Answer
verified

When a consumption schedule is plotted as a straight line, the slope of the consumption line is:

Correct Answer
verified

The table shows a consumption schedule. Refer to the data above. If disposable income is $550, we would expect consumption to be:

Correct Answer
verified

The multiplier measures the change in real GDP that results from a given change in the price level.

Correct Answer
verified

Refer to the consumption schedule above. If disposable income is $42,000, then saving is:

Correct Answer
verified

Art Buchwald's article, "Squaring the Economic Circle," is a humorous description of what happens to total income if:

Correct Answer
verified

If people saved more of any extra income that they receive, then the consumption schedule will become flatter.

Correct Answer
verified

The change in real GDP resulting from an initial change in spending can be calculated by:

Correct Answer
verified

Correct Answer
verified

The multiplier effect relates:

Correct Answer
verified

The table shows a consumption schedule. Refer to the data above. At the $300 level of disposable income:

Correct Answer
verified

The simple multiplier formula assumes the following, except:

Correct Answer
verified

Refer to the graph above. Which of the following would shift the investment demand curve from ID₂ to ID₁?

Correct Answer
verified

Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B) , which correspond to each other across different levels of disposable income. If, in figure (A) , line A₂ shifts to A₃ because of the so-called wealth effect, then in figure (B) line:

Correct Answer
verified

Exam 10: Basic Macroeconomic Relationships

The table shows a consumption schedule. Refer to the data above. The marginal propensity to consume is:

Correct AnswerverifiedShow Answer

If the consumption schedule is a straight line, it can be concluded that the:

Correct AnswerverifiedShow Answer

The simple multiplier 1/MPS:

Correct AnswerverifiedShow Answer

Refer to the saving schedule above. As income falls from level 3 to level 2, the amount of:

Correct AnswerverifiedShow Answer

Answer the following question based on the table below which illustrates the multiplier process resulting from an autonomous increase in investment by $5. Refer to the above table. The total change in income resulting from the initial change in investment will be:

Correct AnswerverifiedShow Answer

Which of the following may shift the consumption schedule upward?

Correct AnswerverifiedShow Answer

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will:

Correct AnswerverifiedShow Answer

When a consumption schedule is plotted as a straight line, the slope of the consumption line is:

Correct AnswerverifiedShow Answer

The table shows a consumption schedule. Refer to the data above. If disposable income is $550, we would expect consumption to be:

Correct AnswerverifiedShow Answer

The multiplier measures the change in real GDP that results from a given change in the price level.

Correct AnswerverifiedShow Answer

Refer to the consumption schedule above. If disposable income is $42,000, then saving is:

Correct AnswerverifiedShow Answer

Art Buchwald's article, "Squaring the Economic Circle," is a humorous description of what happens to total income if:

Correct AnswerverifiedShow Answer

If people saved more of any extra income that they receive, then the consumption schedule will become flatter.

Correct AnswerverifiedShow Answer

The change in real GDP resulting from an initial change in spending can be calculated by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The multiplier effect relates:

Correct AnswerverifiedShow Answer

The table shows a consumption schedule. Refer to the data above. At the $300 level of disposable income:

Correct AnswerverifiedShow Answer

The simple multiplier formula assumes the following, except:

Correct AnswerverifiedShow Answer

Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID1?

Correct AnswerverifiedShow Answer

Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B) , which correspond to each other across different levels of disposable income. If, in figure (A) , line A2 shifts to A3 because of the so-called wealth effect, then in figure (B) line:

Correct AnswerverifiedShow Answer

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Refer to the graph above. Which of the following would shift the investment demand curve from ID₂ to ID₁?

Correct Answer
verified

Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B) , which correspond to each other across different levels of disposable income. If, in figure (A) , line A₂ shifts to A₃ because of the so-called wealth effect, then in figure (B) line:

Correct Answer
verified