TEST 3

Suppose that the marginal propensity to consume (MPC) is .75 and there is an increase in investment spending of $100,000. As a result, equilibrium real Gross Domestic Product (GDP) would increase by

$400,000

Suppose that when disposable income increases by $1,000, consumption spending increases by $750. Given this information, we know that the marginal propensity to consume (MPC) is

.75

If the MPC is 0.8, then the MPS is

0.2

Suppose per capita real GDP grows by 7% per year. Based on the Rule of 70, approximately how many years will it take for the level of per capita real GDP to double?

10 years

Which of the following represents the relationship between disposable income (DI), consumption (C), and saving (S)?

DI = C + S

Thinking as an economist would, which is true of investment?

Investment represents spending on capital goods

Which of the following is true?

Real standards of living can increase without any positive economic growth

Which of the following is NOT a reason for the slope of the aggregate demand curve?

The substitution effect

A small reduction in a country's growth rate is a concern to policy makers because

a small change can have large effects on per capita GDP over time

The total of all planned production for the entire economy is known as

aggregate supply

All of the following would shift the LRAS curve to the right EXCEPT

an increase in the overall price level

When interest rates rise,

borrowing costs increase, and total planned real expenditures decline

Autonomous consumption is

consumption spending that does not depend on the level of income

If the marginal propensity to save (MPS) increases, the multiplier

decreases

Suppose the equilibrium for an economy occurs when C + I + G + X = $14 trillion. If the real Gross Domestic Product (GDP) is $13 trillion, then unplanned inventories are

decreasing, and real Gross Domestic Product (GDP) will expand.

Dissaving occurs when

disposable income is less than consumption

The reason that differences in economic growth rates are important in the long run is that

growth compounds over time

If a nation's production possibilities curve shifts outward, we should expect its long-run aggregate supply curve to

have a rightward shift

If all income is consumed in a year, then

investment spending will be zero

Other things being equal, a higher savings rate

means higher standards of living in the future

A higher rate of saving should lead to

more investment, higher capital growth, and more future consumption

Your real disposable income is your real income after you have paid

net taxes

Which of the following variables is used to measure economic growth?

real GDP per capita

The terms "saving" and "savings" differ in that

savings are in stock, and saving is a flow

An increase in growth rates will cause the production possibilities curve to

shift outward

In the graph for the consumption function, the 45 degree line

shows various combinations where planned consumption equals real disposable income

If the price level increases,

the buying power of your checking account falls

The long run aggregate supply curve (LRAS) also represents

the full-employment level of output

The larger the marginal propensity to consume (MPC),

the larger is the multiplier

Long-run aggregate supply is

the level of output that occurs when the economy is operating on the production possibilities curve

The long-run aggregate supply curve is

vertical at the full-employment level of real Gross Domestic Product (GDP)

When prices increase, the real interest rate

will increase and the total planned spending on goods and services will decrease