Macroeconomics Exam #3

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

A

A rightward shift of the investment demand curve might be caused by A. an increase in business taxes. B. businesses planning to increase their stock of inventories. C. an increase in the price level. D. a decline in the real interest rate.

B

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of A. an increase in household wealth. B. an increase in personal taxes. C. an increase in disposable income. D. the expectation of a recession.

B

If businesses feel more optimistic about the state of the economy, then this change is likely to A. cause a movement up the investment demand curve. B. shift the investment demand curve to the right. C. shift the investment demand curve to the left. D. cause a movement down the investment demand curve.

B

In contrast to investment, consumption is A. unmeasurable. B. relatively stable. C. measurable. D. relatively unstable.

B

When consumers decide to increase household debt, this action will A. shift the consumption schedule downward. B. shift the consumption schedule upward. C. decrease the amount consumed along a stable consumption schedule. D. increase the amount consumed along a stable consumption schedule.

B

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will A. decrease by $100 billion. B. not change. C. increase by $100 billion. D. increase by $16 billion.

C

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

C

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase A. saving by $25 billion. B. GDP by $120 billion. C. GDP by $20 billion. D. consumption by $80 billion.

D

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

D

The fraction, or percentage, of total income that is saved is called the A. disposable income schedule. B. saving schedule. C. marginal propensity to save. D. average propensity to save.

D

The immediate determinants of investment spending are the A.level of saving and the real interest rate. B. interest rate and the expected price level. C. marginal propensity to consume and the real interest rate. D. expected rate of return on capital goods and the real interest rate.

D

The investment demand curve will shift to the right as the result of A. an increase in business taxes. B. the availability of excess production capacity. C. an increase in the real interest rate. D. businesses becoming more optimistic about future business conditions.

D

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

D

Which of the following may shift the consumption schedule upward? A. an increase in disposable income B. a decrease in people's ability to borrow C. a significant decrease in stock prices D. a decrease in interest rates

D