Chapter 10 Consumption, Investment, Spending Multiplier

Suppose the MPC is .6 and consumption increases by $8 billion. Consequently, total income through the multiplier effect will:

$20 billion

Refer to the consumption schedule above. If disposable income is $42,000, then saving is:

$6,000

Refer to the data above. The marginal propensity to consume is:

.60

With an MPS of .2, the MPC will be:

.8

If consumption spending increases from $758 to $767 billion when disposable income increases from $912 to $927 billion, it can be concluded that the marginal propensity to consume is:

0.6

The relationship between the MPS and the MPC is such that:

1- MPC= MPS

If the MPC is .9, the spending multiplier will be:

10

If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $150 billion in the second round, the multiplier and the marginal propensity to consume will be, respectively:

4.00 and 0.75

Which would increase the quantity of investment demanded?

A decrease in the real interest rate

Which would cause consumption to fall?

A decrease in wealth

Refer to the graph above. Which of the following would shift the investment demand curve from ID 2 to ID 3?

A more rapid rate of technological progress

Which of the following would shift the investment demand curve rightward?

A more rapid rate of technological progress

Let us suppose that consumer expectations are optimistic and therefore consumer spending rises. Which of the following effects would likely take place?

An increase in aggregate demand

Which would increase investment demand?

An increase in business optimism

If households' income taxes are cut, how are households likely to respond?

An increase in consumption expenditure

Which would decrease investment demand?

An increase in the cost of acquiring capital goods

As disposable income rises, consumption:

And saving both increase

Which of the following would shift the investment demand curve leftward?

Higher business taxes on capital goods

Which of the following tends to cause business investment in plant and equipment to decline?

higher real interest rates

Other things being equal, a decline in business taxes will cause investment to:

increase

The average propensity to consume is consumption:

Divided by disposable income

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

Average propensity to consume

The fraction, or percentage, of total income which is saved is called the:

Average propensity to save

The investment demand curve will shift to the left as the result of:

Business pessimism about future economic conditions

The MPC can be defined as the:

Change in consumption divided by the change in income

If Sara Thomas' disposable income increases from $4,000 to $4,500 and her level of saving increases from $200 to $300, it may be concluded that her marginal propensity to:

Consume is .80

Disposable income equals

Consumption plus saving

The investment demand curve will shift to the right as a result of a(n):

Decrease in the acquisition and maintenance cost of capital goods

Given the expected rate of return on all possible investment opportunities in the economy, a(n):

Decrease in the rate of interest will tend to increase the level of investment

An increase in the real interest rate will:

Decrease the amount of investment spending

The amount of consumption in an economy depends:

Directly on the level of disposable income

The consumption schedule shows the relationship of household consumption to the level of:

Disposable income

The saving schedule shows the relationship of saving of households to the level of:

Disposable income

The marginal propensity to save is the change in saving divided by the change in:

Income

Assume the marginal propensity to consume is 0.8. If consumer spending rises by $20 billion, then total income through the multiplier effect will:

Increase by $100 billion

Suppose the MPC is .6 and consumption increases by $6 billion. Consequently, total income through the multiplier effect will:

Increase by $15 billion

Refer to the graph above. Which of the following would shift the investment demand curve from ID 2 to ID 1?

Increasing business taxes

An inverse relationship between the rate of interest and the level of:

Investment spending is suggested by the investment-demand curve

The primary determinant of the level of consumption and saving in the economy is the:

Level of income

Which of the following would shift the investment demand curve rightward?

Lower acquisition costs for capital goods

Which of the following would shift the investment demand curve leftward?

Lower expected returns on investment

If you know that an increase in a household's disposable income from $35,000 to $45,000 leads to an increase in consumption from $30,000 to $38,000, then you can conclude that the:

Marginal propensity to consume is .8

In a consumption schedule, the change in consumption is a constant $12 billion and the change in income is a constant $16 billion across each consumption and income level. It can be concluded that the:

Marginal propensity to save is .25

An initial increase in investment spending will generate:

More of an increase in income than the initial increase because of the multiplier effect

A higher real interest rate typically induces consumers to:

Purchase fewer goods that are bought using credit

A higher real interest rate typically induces consumers to:

Save more

If disposable income is $900 billion when the average propensity to consume is 0.8, it can be concluded that:

Saving is $180 billion

If businesses feel more optimistic about the state of the economy, then this change is likely to:

Shift the investment demand curve to the right

If a family's MPC is .7, it is:

Spending seven-tenths of any increment to its income

The multiplier can be calculated by dividing:

The change in real GDP by the initial change in spending

An increase in investment demand would be a consequence of a fall in:

The costs of acquiring new technology

The magnification of small changes in spending into larger changes in output and income is produced by:

The multiplier effect