Macroeconomics Chapter 11 practice/review Part 2

The aggregate consumption function will _____ if the marginal propensity to consume decreases.

become flatter and rotate downward

If expected future GDP is _____, investment spending will _____.

lowered; decrease

An increase in the market interest rate will MOST likely:

make any given investment project less profitable. Hint Remember that increased interest rates affect the cost of firms borrowing funds.

Planned investment spending is _____ the interest rate.

negatively correlated to

If expected future gross domestic product (GDP) rises, then:

planned investment spending increases.

A publisher produces 1,000 copies of a philosophy textbook in September. The price of the book is $120. If the publisher sells 1,300 textbooks, then:

unplanned inventory investment is -$36,000

If the marginal propensity to consume is 0.6, then an increase in investment of $400 causes an increase in real GDP of:

$1,000 hint m = 1 / (1 - MPC). This part of the larger formula illustrates the relationship between the multiplier and marginal propensity to consume.

If the consumption function is C = 250 + 0.75 x YD, and disposable income is $2,000, then consumption is:

$1,750

If the marginal propensity to save is 0.25, then an increase in investment spending of $300 will cause an increase in real GDP of $_____.

1,200

Which is the multiplier if the marginal propensity to save (MPS) is 0.2?

5

Which statement is true regarding income and expenditure?

Investment spending during the Great Depression of the 1930s fell by more than 80% in the United States.

Which statement is true regarding expenditure and income?

The marginal propensity to consume in an economy is a positive number.

Which statement is true regarding the consumption function?

The slope of the consumption function is equal to (1 - MPS)

A larger marginal propensity to consume (MPC) causes _____ in real GDP when investment spending changes than a smaller MPC.

a comparatively larger change

In a closed economy with no taxes, if the marginal propensity to consume (MPC) is 0.7, then the marginal propensity to save (MPS) is:

0.3 hint maybe MPC + MPS =1

Given an increase in investment spending by $200 and an increase in GDP of $800, what is the marginal propensity to consume (MPC)?

0.75

If the consumption function is C = 250 + 0.75 x YD, then autonomous consumption is:

250

If planned investment spending is $3 trillion and unplanned inventory investment is $0.75 trillion, then actual investment is $_____ trillion.

3.75

If the rate of return on an investment project is _____% and the interest rate is _____%, then the firm should undertake the project if profit is the only motive.

8; 5

900

According to the graph, if disposable income is $1,000, then consumption is $_____.

0.6

According to the graph, the marginal propensity to consume (MPC) is:

$600

According to the graph, when disposable income increases from $1,000 to $2,000, consumption increases by:

If the multiplier is 4, then a decrease in investment spending of $200 causes a(n) _____ in real GDP of $_____.

decrease; 800

As the marginal propensity to save increases, the multiplier:

decreases

As the marginal propensity to save (MPS) _____, the multiplier _____.

decreases; increases

The marginal propensity to consume is the increase in consumer spending when _____ increase(s) by $1.

disposable income

If interest rates rise, then planned investment spending _____ and residential construction _____.

falls; falls

Negative unplanned inventory investment usually indicates _____ the economy.

growth in

The accelerator principle:

helps to explain investment booms.