Ch. 10 Macroeconomics Quiz

If households in the economy save more of any extra income that they earn, then the multiplier effect will: Be unaffected Become less than 1.0 Increase Decrease

decrease

In contrast to investment, consumption is: relatively stable. unmeasurable. measurable. relatively unstable.

relatively stable

Assume that MPS is 0.4. If spending increases by $8 billion, then real GDP will increase by: $8 billion $20 billion $15 billion $13.3 billion

$20 billion

If the marginal propensity to consume is .9, then the marginal propensity to save must be: .1. 1.1. 1. .9.

.1

An increase in spending of $25 billion increases real GDP from $600 billion to $700 billion. The marginal propensity to consume must be: 0.25 and the multiplier is 4 0.50 and the multiplier is 2 0.80 and the multiplier is 5 0.75 and the multiplier is 4

0.75 and the multiplier is 4

The relationship between the MPS and the MPC is such that: MPC - MPS = 1 1 - MPC = MPS MPC - 1 = MPS MPS/MPC = 1

1 - MPC = MPS

With a marginal propensity to save of .4, the marginal propensity to consume will be: .4. .4 minus 1.0. the reciprocal of the MPS. 1.0 minus .4.

1.0 minus .4

An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round. The multiplier in the economy is: 5 2 4 3

4

If the MPC is 0.75, the multiplier will be: 3 3.5 4 2

4

During the Great Recession of 2007-2009, real interest rates: Increased sharply, and investments declined significantly Declined to about zero, and investments increased sharply Increased sharply, and investments also rose significantly Declined to about zero, and investments also declined sharply

Declined to about zero, and investments also declined sharply

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2? Lower expected rates of return on investment. A higher interest rate. Higher expected rates of return on investment. A lower interest rate.

Higher expected rates of return on investment

Which of the following equations represents the saving schedule implicit in the given data? S = 40 + .4Yd. S = C - Yd. S = -40 + .4Yd. S = 40 + .6Yd.

S = -40 + .4Yd

Which of the following will not tend to shift the consumption schedule upward? The expectation of a future decline in the consumer price index. A currently low level of household debt. A currently small stock of durable goods in the possession of consumers. The expectation of future shortages of essential consumer goods.

The expectation of a future decline in the consumer price index.

(Last Word) Art Buchwald's article "Squaring the Economic Circle" humorously describes how: a price increase on a single product eventually leads to rapid inflation. an increase in imports eventually leads to a greater increase in exports. a person's decision not to buy an automobile eventually reduces many people's incomes, including that of the person making the original decision. a government tax rate increase eventually results in the government collecting less tax revenue than before the tax rate hike.

a person's decision not to buy an automobile eventually reduces many people's incomes, including that of the person making the original decision.

Investment spending in the United States tends to be unstable because: capital goods are durable. innovation occurs at an irregular pace. expected profits are highly variable. all of these contribute to the instability.

all of these contribute to the instability

As disposable income increases, consumption: and saving both increase. and saving both decrease. decreases and saving increases. increases and saving decreases.

and saving both increase

The MPC can be defined as that fraction of a: change in income that is not spent. given total income that is not consumed. change in income that is spent. given total income that is consumed.

change in income that is spent.

(Advanced analysis) The equation C = 35 + .75Y, where C is consumption and Y is disposable income, shows that: households will consume three-fourths of whatever level of disposable income they receive. households will save $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive. households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive. there is an inverse relationship between disposable income and consumption.

households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.

The most important determinant of consumer spending is: the level of income. consumer expectations. the stock of wealth. the level of household borrowing.

the level of income

The investment demand curve portrays an inverse (negative) relationship between: investment and real GDP. the price level and investment. the nominal interest rate and investment. the real interest rate and investment.

the real interest rate and investment.