Econ 202 CSUF Fazeli Ch. 8

An increase in the MPC, reduces the multiplier.

FALSE

As interest rates fall, spending decreases.

FALSE

Firms react to an unplanned inventory investment by increasing output.

FALSE

If actual investment is greater than planned investment, unplanned inventories decline.

FALSE

If aggregate expenditure decreases, then equilibrium output increases.

FALSE

If planned saving exceeds planned investment, injections are greater than leakages.

FALSE

If the marginal propensity to consume is .8, the marginal propensity to save is 8.

FALSE

The larger the MPC, the smaller the multiplier.

FALSE

Uncertainty about the future is likely to increase current spending

FALSE

When aggregate expenditure is greater than aggregate output, there will be an unplanned build up of inventories.

FALSE

Assuming there is no government or foreign sector, if the multiplier is 10, the MPC is A) 0.9. B) 0.8. C) 0.5. D) 0.1.

A) 0.9.

Assuming there is no government or foreign sector, the formula for the multiplier is A) 1/(1 - MPC). B) 1/MPC. C) 1/(1 + MPC). D) 1 - MPC.

A) 1/(1 - MPC).

If C = 1,500 + .75Y and I = 500, then planned saving equals planned investment at aggregate output level of A) 8,000. B) 20,000. C) 2,666.67. D) 10,000.

A) 8,000.

Using the saving/investment approach to equilibrium, the equilibrium condition can be written as A) C + I = C + S. B) C = S + I. C) C - S = I. D) C + S = I.

A) C + I = C + S.

Saving equals A) Y - C. B) Y - planned I. C) Y - actual I. D) Inventory changes.

A) Y - C.

If the consumption function is below the 45-degree line, A) consumption is less than income and saving is positive. B) consumption is less than income and saving is negative. C) consumption exceeds income and saving is positive. D) consumption exceeds income and saving is negative.

A) consumption is less than income and saving is positive.

In a closed economy with no government, aggregate expenditure is A) consumption plus investment. B) saving plus investment. C) consumption plus the MPC. D) MPC + MPS.

A) consumption plus investment.

Assume there is no government or foreign sector. If the MPS is .05, the multiplier is A) 0.95. B) 20. C) 10. D) 50.

B) 20.

If Lily's consumption function is of the form C = 100 + 0.8Y, her saving equals zero at an income level of A) 180. B) 500. C) 800. D) cannot be determined from the given information

B) 500.

Which of the following is NOT considered investment? A) The acquisition of capital goods B) The purchase of government bonds C) The increase in planned inventories D) The construction of a new factory

B) The purchase of government bonds

Higher interest rates are likely to A) have no effect on consumer spending or saving. B) decrease consumer spending and increase consumer saving. C) decrease both consumer spending and consumer saving. D) increase consumer spending and decrease consumer saving.

B) decrease consumer spending and increase consumer saving.

Firms react to unplanned inventory reductions by A) reducing output. B) increasing output. C) reducing planned investment. D) increasing consumption.

B) increasing output.

The ratio of the change in the equilibrium level of output to a change in some autonomous variable is the A) elasticity coefficient. B) multiplier. C) automatic stabilizer. D) marginal propensity of the autonomous variable.

B) multiplier.

In macroeconomics, equilibrium is defined as that point at which A) saving equals consumption. B) planned aggregate expenditure equals aggregate output. C) planned aggregate expenditure equals consumption. D) aggregate output equals consumption minus investment.

B) planned aggregate expenditure equals aggregate output.

If you earn additional $500 in disposable income one week for painting your neighbors house, A) the total of your consumption and saving will increase by more than $500. B) the total of your consumption and saving will increase by $500. C) the total of your consumption and saving will increase by less than $500. D) your consumption will increase by more than $500, even if your MPS is 0.1.

B) the total of your consumption and saving will increase by $500.

If you save $80 when you experience a $400 rise in your income, A) your MPS is 0.25. B) your MPC is 0.80. C) your MPC is 0.85. D) your MPS is 0.40.

B) your MPC is 0.80.

Assume that in Jabara, planned investment is $30 billion, but actual investment is $45 billion. Unplanned inventory investment is A) $75 billion. B) -$15 billion. C) $15 billion. D) -$75 billion.

C) $15 billion.

In 2006 Happyland's planned investment was $90 billion and its actual investment was $140 billion. In 2006 Happyland's unplanned inventory change was A) -$50 billion. B) -$115 billion. C) $50 billion. D) $230 billion.

C) $50 billion.

Suppose consumption is $5,000 when income is $8,000 and the MPC equals 0.9. When income increases to $10,000, consumption is A) $4,500. B) $2,700. C) $6,800. D) $7,200.

C) $6,800.

Suppose consumption is $60,000 when income is $90,000 and the MPS equals 0.25. When income increases to $100,000, consumption is A) $70,000. B) $85,000. C) $67,500. D) $90,250.

C) $67,500.

Assume that in Scandia, planned investment is $80 billion but actual investment is $60 billion. Unplanned inventory investment is A) -$10 billion. B) $140 billion. C) -$20 billion. D) $70 billion.

C) -$20 billion.

The Jackson Tool Company manufactures only tools. In 2008 Jackson Tools manufactured 20,000 tools, but sold 21,000 tools. In 2008 Jackson Tools' change in inventory was A) -2,000 tools. B) 1,000 tools. C) -1,000 tools. D) 3,000 tools.

C) -1,000 tools.

If consumption is $10,000 when income is $10,000, and consumption increases to $11,000 when income increases to $12,000, the MPS is A) 0.10. B) 0.25. C) 0.50. D) 0.90.

C) 0.50.

If the consumption function is of the form C = 80 + 0.4Y, the MPS equals A) -0.4. B) 0.4. C) 0.6. D) -0.6.

C) 0.6.

If consumption is $30,000 when income is $35,000, and consumption increases to $36,000 when income increases to $43,000, the MPC is A) 0.65. B) 0.80. C) 0.75. D) 0.95.

C) 0.75.

If the MPS is .05, the MPC is A) -0.05. B) 2.25. C) 0.95. D) 1.05.

C) 0.95.

If the saving function is of the form S = -20 + 0.3Y, consumption at an income level of 200 is A) 80. B) 120. C) 160. D) 180.

C) 160.

The Tiny Tots Toy Company manufactures only sleds. In 2007 Tiny Tots manufactured 10,000 sleds, but sold only 8,000 sleds. In 2007 Tiny Tots' change in inventory was A) -2,000 sleds. B) 1,000 sleds. C) 2,000 sleds. D) 3,000 sleds.

C) 2,000 sleds.

If Logan received a $2,500 bonus and his MPS is 0.20, his consumption rises by $________ and his saving rises by $________. A) 500; 100 B) 2,500; 200 C) 2,000; 500 D) 2,500; 20

C) 2,000; 500

If Inventory investment is higher than firms planned, A) actual and planned investment are equal. B) actual investment is less than planned investment. C) actual investment is greater than planned investment. D) actual investment must be negative.

C) actual investment is greater than planned investment.

Over which component of investment do firms have the least amount of control? A) purchases of new equipment B) construction of new factories C) changes in inventories D) building new machines

C) changes in inventories

Uncertainty about the future is likely to A) increase current spending. B) have no impact on current spending. C) decrease current spending. D) either increase or decrease current spending.

C) decrease current spending.

Saving is a ________ variable and savings is a ________ variable. A) flow; flow B) stock; stock C) flow; stock D) stock; flow

C) flow; stock

If the MPS is .60, MPC A) is 1.60. B) is .30. C) is .40. D) cannot be determined by the given information.

C) is .40.

A decrease in planned investment causes A) output to increase. B) output to decrease, but by a smaller amount than the decrease in investment. C) output to decrease, but by a larger amount than the decrease in investment. D) output to decrease by an amount equal to the decrease in investment.

C) output to decrease, but by a larger amount than the decrease in investment.

If unplanned inventory investment is positive, then A) planned investment must be zero. B) planned aggregate spending must be greater than aggregate output. C) planned aggregate spending must be less than aggregate output. D) planned aggregate spending must equal aggregate output.

C) planned aggregate spending must be less than aggregate output.

If autonomous consumption increases, the size of the multiplier would A) increase. B) decrease. C) remain constant. D) either increase or decrease depending on the size of the change in autonomous consumption.

C) remain constant.

The fraction of a change in income that is consumed or spent is called A) the marginal propensity of income. B) the marginal propensity to save. C) the marginal propensity to consume. D) average consumption.

C) the marginal propensity to consume.

If planned investment exceeds actual investment, A) there will be an accumulation of inventories. B) there will be no change in inventories. C) there will be a decline in inventories. D) none of the above

C) there will be a decline in inventories.

Aggregate output will increase if there is a(n) A) increase in saving. B) unplanned rise in inventories. C) unplanned fall in inventories. D) decrease in consumption.

C) unplanned fall in inventories.

If aggregate output is greater than planned spending, then A) unplanned inventory investment is zero. B) unplanned inventory investment is negative. C) unplanned inventory investment is positive. D) actual investment equals planned investment.

C) unplanned inventory investment is positive.

Consumption is A) positively related to household income and wealth and households' expectations about the future, but negatively related to interest rates. B) negatively related to household income and wealth, interest rates, and households' expectations about the future. C) determined only by income. D) positively related to household income and wealth, interest rates, and households' expectations about the future.

A) positively related to household income and wealth and households' expectations about the future, but negatively related to interest rates.

Firms react to unplanned increases in inventories by A) reducing output. B) increasing output. C) increasing planned investment. D) increasing consumption.

A) reducing output.

The MPC is A) the change in consumption divided by the change in income. B) consumption divided by income. C) the change in consumption divided by the change in saving. D) the change in saving divided by the change in income.

A) the change in consumption divided by the change in income.

The MPS is A) the change in saving divided by the change in income. B) 1 + MPC C) income divided by saving. D) total saving divided by total income.

A) the change in saving divided by the change in income.

Which of the following is an investment? A) the purchase of a new printing press by a business B) the purchase of a corporate bond by a household C) the purchase of a share of stock by a household D) a leveraged buyout of one corporation by another

A) the purchase of a new printing press by a business

If aggregate output equals planned aggregate expenditure, then A) unplanned inventory investment is zero. B) unplanned inventory adjustment is negative. C) unplanned inventory adjustment is positive. D) actual investment is greater than planned investment.

A) unplanned inventory investment is zero.

Suppose saving is $1,400 when income is $10,000 and the MPC equals 0.8. When income increases to $12,000, saving is A) $1,680. B) $1,800. C) $2,200. D) $3,000.

B) $1,800.

If unplanned business investment is $20 million and planned investment is $20 million, then actual investment is A) $20 million. B) $40 million. C) -$20 million. D) $200 million.

B) $40 million.

If the MPS is .22, the MPC is A) -0.22. B) 0.78. C) 1.22. D) 0.66.

B) 0.78.

If S = -200 + 0.2Y and I = 100, then the equilibrium level of income is A) 3,000. B) 1,500. C) 4,000. D) 1,200.

B) 1,500.

In practice, the actual size of the multiplier is about A) 1. B) 1.4. C) 2. D) 4.

B) 1.4.

Assuming no government or foreign sector, the formula for the multiplier is A) 1/MPC. B) 1/MPS. C) 1/(1 + MPC). D) 1 - MPC.

B) 1/MPS.

Assume there is no government or foreign sector. If the multiplier is 10, a $10 billion increase in planned investment will cause aggregate output to increase by A) $1 billion. B) $5 billion. C) $10 billion. D) $100 billion.

D) $100 billion.

Assume there is no government or foreign sector. If the MPS is 0.2, a $40 billion decrease in planned investment will cause aggregate output to decrease by A) $20 billion. B) $50 billion. C) $80 billion. D) $200 billion.

D) $200 billion.

Assume there is no government or foreign sector. If the multiplier is 4, a $20 billion increase in investment will cause aggregate output to increase by A) $5 billion. B) $20 billion. C) $40 billion. D) $80 billion.

D) $80 billion.

Assuming no government or foreign sector, if the MPC is 0.9, the multiplier is A) 0.1. B) 5. C) 9. D) 10.

D) 10.

If Zander's saving function is of the form S = -150 + 0.5Y, his consumption equals his income at an income level of A) 150. B) 225. C) 1,500. D) 300.

D) 300.

Midwest State University in Nebraska is trying to convince Nebraska taxpayers that the tax dollars spent at Midwest State University are well spent. One of the university's arguments is that for every $1 spent by Midwest State University an additional $5 of expenditures are generated within Nebraska. Midwest State University is arguing that the multiplier for their expenditures is A) 0.2. B) 1. C) 4. D) 5.

D) 5.

If C = 100 + .8Y and I = 50, then the equilibrium level of income is A) 600. B) 375. C) 187.5. D) 750.

D) 750.

If C = 500 + .9Y and I = 400, then the equilibrium level of income is A) 900. B) 1,800. C) 1,000. D) 9,000.

D) 9,000.

Without the government or the foreign sector in the income-expenditure model, planned aggregate expenditure equals A) consumption plus actual investment. B) consumption plus inventory adjustment. C) consumption minus planned investment. D) consumption plus planned investment.

D) consumption plus planned investment.

If Wanda's income is reduced to zero after she loses her job, her consumption will be ________ and her saving will be ________. A) less than zero; less than zero B) greater than zero; greater than zero C) less than zero; greater than zero D) greater than zero; less than zero

D) greater than zero; less than zero

The economy can be in equilibrium if, and only if, A) planned investment is zero. B) actual investment is zero. C) planned investment is greater than actual investment. D) planned investment equals actual investment.

D) planned investment equals actual investment.

Actual investment equals planned investment plus unplanned changes in inventories.

TRUE

Assuming there is no government or foreign sector, the economy will be in equilibrium if, and only if, planned investment equals actual investment.

TRUE

Firms react to negative inventory investment by increasing output.

TRUE

If planned investment increases, equilibrium will be restored only when saving has increased by exactly the amount of the initial increase in planned investment, assuming there is no government or foreign sector.

TRUE

If the MPC is .75, then the multiplier is 4.

TRUE

If the MPS is .1, then the multiplier is 10.

TRUE

The marginal propensity to consume is the change in consumption per change in income.

TRUE

The smaller the MPS, the larger the multiplier.

TRUE

When the economy is in equilibrium, savings equals planned investment.

TRUE

When there is an unplanned draw down of inventories, firms will increase production.

TRUE