Chapter 10 Smartbook

If marginal propensity to consume equals 0.6 and the change in income is $12 billion, what is the change in consumption?

$7.2 billion

If disposable income increases from $450 to $470 billion and savings increases from $15 to $20 billion, what is the marginal propensity to save (MPS)?

0.25

When the multiplier is 4, the marginal propensity to save (MPS) is ______.

0.25

Disposable income rises by $20 billion to $40 billion. Households consume $15 billion of the increase and save $5 billion of that income. What is the marginal propensity to consume (MPC)?

0.75

The average propensity to consume and the average propensity to save together equal _____

1

The direct relationship between MPC and the multiplier is shown in the following equation:

1/(1-MPC)

If disposable income increases from $410 to $430 billion and savings increases from $5 to _____ billion, the marginal propensity to save is 0.25.

10

According to the table, when disposable income is $470 billion, what is the savings?

20 billion

Economists use what term to mean "total" or "combined"?

Aggregate

What does saving divided by income equal?

Average propensity to save

Which of the following are determinants of household consumption and savings?

Borrowing Wealth Interest rates

What is the primary factor that determines the amounts that households will consume and save?

Disposable income

Real interest rates are rates adjusted for what?

Inflation

Because the fraction of any change in income not consumed is saved, which of the following equations is true?

MPC + MPS = 1

Consumption and disposable income have what kind of relationship?

Positive

Which type of interest rate is used to make investment decisions?

Real

What happens to the investment demand curve when there is an increase in demand?

Shifts to the right

The nominal interest rate minus the rate of inflation equals what?

The real interest rate

The _____propensity to consume is the fraction or percentage of total income that is consumed.

average

The fraction of total income that is saved equals the _____ propensity to save.

average

______propensity to save equals saving divided by income.

average

The fraction or percentage of total income that is consumed is called the:

average propensity to consume

Total consumption divided by total disposable income equals the ______.

average propensity to consume

The fraction of total income that is saved is called the:

average propensity to save

In the figure, an increase in acquisition, maintenance, and operating costs affects the investment demand curve _____.

by shifting it from ID0 to ID2

_____ spending consists of expenditures on new plants, capital equipment, machinery, and inventories.

capital

Average propensity to consume equals total ____ divided by total disposable income

consumption

The _____schedule shows the various amounts that households would plan to spend at each of the various levels of disposable income.

consumption

When real interest rates ______ households tend to borrow more, consume more, and save less

decrease

Any factor that leads businesses to collectively expect lower rates of return on their investments ______ investment demand.

decreases

The relationship between spending and GDP is?

direct

There is a(n) ______ relationship between spending and GDP.

direct

The consumption schedule shows the various amounts that households plan to consume at each level of:

disposable income

Since disposable income is either consumed or saved, the fraction of any disposable income consumed plus the fraction saved must be ______.

equal to 1

Increases in investment demand occur when businesses collectively expect:

greater rates of return on their investments

Consumption is positively related to disposable

income

Any factor that leads businesses collectively to expect greater rates of return on their investments ______ investment demand.

increases

The ____ relationship between interest rates and quantity of investment conforms to the law of demand.

inverse

A change in acquisition, maintenance and operating costs affect the _____ demand curve by shifting it left or right depending on whether the costs go up or down.

investment

A firm's spending on new plants, capital equipment, machinery, and inventory is all considered ______.

investment

In economic terms _____ means "extra" or "a change in".

marginal

The change in consumption divided by the change in income is equal to the _____ propensity to consume.

marginal

The economic term for "extra" or "a change in" is:

marginal

The ratio of a change in consumption to a change in the income that caused the consumption change is called the

marginal propensity to consume.

A change in saving divided by a change in income is equal to the

marginal propensity to save.

The fraction of any change in income not consumed is, by definition, the marginal propensity to save explains why the marginal propensity to consume plus this fraction of any change equals one.

marginal propenstiy to save

When real interest rates fall, households tend to borrow ______, consume ______ and save _______.

more, more, less

1/MPS is the formula for the spending )_____

multiplier

A business purchases a new piece of equipment. Another firm earns income from this sale and with this income builds a new factory. The contractor that built the factory earns income and uses the income to take a vacation. The resort earns income from the contractor. This scenario describes the:

multiplier effect

1/(1-MPC) is what formula?

multiplier formula

When making an investment decision, the inflation rate should be subtracted from the ______interest rate to find the real rate of interest.

nominal

Any factor that leads businesses to collectively expect lower rates of return on their investments _____.

reduces investment demand

In terms of the investment demand curve, an increase in demand is represented by a(n) ______ shift and a decrease in demand is represented by a(n) ______ shift.

rightward; leftward

The marginal propensity to save is equal to a change in _____ divided by a change in income.

savings

according to the table _____ is $30 billion when disposable income is $510 billion.

savings

The economy supports repetitive, continuous flows of ______ and income through which dollars spent by Smith are received as income by Chin and then spent by Chin and received as income by Gonzales, and so on.

spending

The inverse relationship between interest rates and quantity of investment conforms to ______.

the law of demand

1/MPS is the formula for:

the multiplier

To economists, the term "aggregate" means ______.

total; combined