Econ 202 Exam 3 Study Questions for chapter 8

1. Tessa's break-even income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of: A. consumption spending will be $14,500. B. consumption spending will be $15,500.C. consumption spending will be $13,000.D. saving will be $2,500.

A.

1. The MPC for an economy is: A. the slope of the consumption schedule or line. B. the slope of the savings schedule or line. C. 1 divided by the slope of the consumption schedule or line. D. 1 divided by the slope of the savings schedule or line.

A.

1. The greater is the marginal propensity to consume, the: A. smaller is the marginal propensity to save. B. higher is the interest rate. C. lower is the average propensity to consume. D. lower is the price level.

A.

1. If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when disposable income is: A. $80.B. $100.C. $120.D. $160.

B.

1. Refer to the above data. If disposable income was $325, we would expect consumption to be: A. $315. B. $305. C. $20. D. $290.

B.

1. Which of the following will not cause the consumption schedule to shift? A. a sharp increase in the amount of wealth held by households B. a change in consumer incomes C. the expectation of a recession D. a growing expectation that consumer durables will be in short supply

B.

The consumption schedule shows: A. a direct relationship between aggregate consumption and accumulated wealth. B. a direct relationship between aggregate consumption and aggregate income. C. an inverse relationship between aggregate consumption and accumulated financial wealth. D. an inverse relationship between aggregate consumption and aggregate income.

B. a direct relationship between aggregate consumption and aggregate income

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

B. change in income that is spent

The APC is calculated as: A. change in consumption / change in income. B. consumption / income. C. change in income / change in consumption. D. income / consumption.

B. consumption / income

The most important determinant of consumption and saving is the: A. level of bank credit.B. level of income.C. interest rate.D. price level

B. the level of income

Refer to the figure above. The consumption schedule indicates that: A. consumers will maximize their satisfaction where the consumption schedule and 45° line intersect. B. up to a point consumption exceeds income, but then falls below income. C. the MPC falls as income increases. D. households consume as much as they earn

B. up to a point consumption exceeds income, but then falls below income

1. (Advanced analysis) The equation for the above saving schedule is: A. Yd = -20 + .8S. B. Yd = 20 + .2S. C. S = -20 + 0.2Yd. D. S = 20 + .8Yd.

C.

1. Refer to the above diagram. The break-even level of disposable income: A. is zero. B. is minus $10. C. is $100. D. cannot be determined from the information given.

C.

1. The consumption schedule is such that: A. both the APC and the MPC increase as income rises. B. the APC is constant and the MPC declines as income rises. C. the MPC is constant and the APC declines as income rises. D. the MPC and APC must be equal at all levels of income.

C.

1. The multiplier effect means that: A. consumption is typically several times as large as saving. B. a change in consumption can cause a larger increase in investment. C. an increase in investment can cause GDP to change by a larger amount. D. a decline in the MPC can cause GDP to rise by several times that amount.

C.

1. Which of the following equations correctly represents the above data? A. Yd = 40 + .6C B. C = 60 + .4Yd C. C = 40 + .6Yd D. C = .6Yd

C.

1. Which of the following relations is not correct? A. 1 - MPC = MPS B. APS + APC = 1 C. MPS = MPC + 1 D. MPC + MPS = 1

C.

Answer the next question(s) on the basis of the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. 1. Refer to the above data. At an $800 level of disposable income, the level of saving is: A. $180.B. $740.C. $60. D. $18.

C.

1. The 45-degree line on a graph relating consumption and income shows: A. all points where the MPC is constant. B. all points at which saving and income are equal. C. all the points at which consumption and income are equal. As we went over this a few times in class. D. the amounts households will plan to save at each possible level of income.

C. all points at which consumption and income are equal

1. If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to: A. save is three-fifths.B. consume is one-half.C. consume is three-fifths. D. consume is one-sixth.

C. consume is three-fifths

1. If the equation C = 20 + 0.6Y, where C is consumption and Y is disposable income, were graphed: A. the vertical intercept would be +.6 and the slope would be +20. B. it would reveal an inverse relationship between consumption and disposable income. C. the vertical intercept would be negative, but consumption would increase as disposable income rises. D. the vertical intercept would be +20 and the slope would be +0.6.

D.

1. Refer to the above data. The marginal propensity to consume is: A. .25. B. .75. C. .20. D. .80.

D.

Answer the next question(s) on the basis of the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. 1. Refer to the above data. The MPC is: A. 0.45.B.0 .20.C. 0.50.D. 0.90.

D.

1. The most important determinant of consumer spending is: A. the level of household borrowing.B. consumer expectations.C. the stock of wealth.D. the level of income.

D. the level of income

monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

1. In a closed economy with no government, aggregate expenditure is a. consumption plus investment AE = C + I b. saving plus investment c. consumption plus the MPC d. MPC + MPS

a.

1. Saving equals a. Yd - C b. Y-planned I c. Y-actual I d. Inventory changes

a.

1. 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.

1. 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.

1. Refer to Table 8.2. The equation for the aggregate saving function is a. S = -100 + 0.15Y b. S=-100 + 0.1Y c. S=-150 + 0.2Y d. S = -150 + 0.85Y

b.

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.

1. 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.

1. 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.

1. Refer to Table 8.3. At an aggregate output level of $800 billion, aggregate saving A. Equals -$50 billion B. Equals $0. C. Equals $50 billion D. Cannot be determined from this information

c.

1. 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.

1. Refer to Table 8.2. Society's MPC is a. 0.1 b. 0.2 c. 0.8 d. 0.9

d.

1. Refer to Table 8.3. The equilibrium level of aggregate output equals a. $400 billion b. $600 billion c. $800 billion d. $1,000 billion

d.

fiscal policy

the government's spending and taxing policies