Econ Test 2

2.) there is an increase in personal taxes, then consumption and saving both shift downward

A downshift of the consumption schedule typically involves an equal upshift of the saving schedule. The exception to this relationship occurs when 1.) there is a decrease in personal taxes, then consumption shifts upward and saving shifts downward. 2.) there is an increase in personal taxes, then consumption and saving both shift downward. 3.) there is a decrease in personal taxes, then consumption and saving both shift downward. 4.) there is an increase in personal taxes, then consumption and saving both shift upward.

B.) 5.0

If a $50 billion initial increase in spending leads to a $250 billion change in real GDP, how big is the multiplier? A.) 4.0 B.) 5.0 C.) 2.5 D.) 1.0

1.) fall

If the MPS rises, then the MPC will: 1.) fall 2.) stay the same 3.) rise.

consumption disposable income directly saving disposable income directly

What are the variables (the items measured on the axes) in a graph of the (a) consumption schedule and (b) saving schedule? Are the variables inversely (negatively) related, or are they directly (positively) related? a. Consumption schedule The variable on the vertical (y) axis is __________________ and the variable on the horizontal (x) axis is _____________________. These variables are ____________ related. b. Saving schedule The variable on the vertical (y) axis is _________________ and the variable on the horizontal (x) axis is ____________________ These variables are ____________ related.

greater than or equal to the real interest rate at which it can borrow

A reduction in the real interest rate will increase investment spending, other things equal, because firms will make an investment purchase only if the expected return is 1.) equal to the real interest rate at which it can lend 2.) greater than or equal to the real interest rate at which it can borrow. 3.) less than or equal to the real interest rate at which it can borrow 4.) growing at the same rate as inflation.

upward downward downward upward upward downward upward downward

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal? a. A large decrease in real estate values, including private homes. The consumption schedule will shift ______________. The saving schedule will shift ______________. b. A sharp, sustained increase in stock prices. The consumption schedule will shift ____________________. The saving schedule will shift _________________________. c. A 5-year increase in the minimum age for collecting Social Security benefits. The consumption schedule will shift _____________________. The saving schedule will shift __________________________. d. An economywide expectation that a recession is over and that a robust expansion will occur. The consumption schedule will shift ___________________. The saving schedule will shift ___________________. e. A substantial increase in household borrowing to finance auto purchases. The consumption schedule will shift ______________________. The saving schedule will shift _______________________.

A.) 0.80

In year 1, Adam earns $1,000 and saves $100. In year 2, Adam gets a $500 raise so that he earns a total of $1,500. Out of that $1,500, he saves $200. What is Adam's MPC out of his $500 raise? A) 0.80 B.) 1.000 C.) .750 D.) .50

Yes

Irving owns a chain of movie theaters. He is considering whether he should build a new theater downtown. The expected rate of return is 15 percent per year. He can borrow money at a 12 percent interest rate to finance the project. Should Irving proceed with this project? Yes No

the MPC is the change in consumption divided by the change in income, whereas the APC is total consumption divided by total income

The difference between the MPC and the APC is that 1.) the MPC is the change in consumption divided by the change in income, whereas the APC is total consumption divided by total income. 2.) the MPC is total income divided by total consumption, whereas the APC is the change in income divided by the change in consumption. 3.) the MPC is total consumption divided by total income, whereas the APC is the change in consumption divided by the change in income. 4.) the MPC is the change in income divided by the change in consumption, whereas the APC is total income divided by total consumption.

intensifies the effect of a spending change, whether it is an increase or a decrease

The multiplier effect 1.) intensifies the effect of a spending change, whether it is an increase or a decrease. 2.) intensifies the effect of an increase, but not a decrease, in spending. 3.) diminishes the effect of a spending change, whether it is an increase or a decrease. 4.) intensifies the effect of a decrease, but not an increase, in spending

larger, the larger the MPC and the smaller the MPS

The multiplier will be 1.) smaller, the smaller the MPC and the smaller the MPS 2.) larger, the smaller the MPC and the larger the MPS 3.) larger, the larger the MPC and the smaller the MPS. 4.) smaller, the larger the MPC and the smaller the MPS.

all additional income must be spent or saved

The sum of the MPC and the MPS must equal 1 because 1.) these values are determined by macroeconomic policy makers. 2.) total income must be spent or saved 3.) all additional income must be spent or saved. 4.) when the MPC and the MPS equal 1, the economy is in equilibrium.

2.) Real GDP and disposable income are higher.

What is the fundamental reason that the levels of consumption and saving in the United States are each higher today than they were a decade ago? 1.) Real GDP and disposable income are lower. 2.) Real GDP and disposable income are higher. 3.) Interest rates are higher 4.) Interest rates are lower.