module 16

If the marginal propensity to save is 0.3, the size of the multiplier is:

1 / 0.3 = 3.3

If the multiplier equals 4, then the marginal propensity to save must be equal to

1 / 4

If the MPC is 0.8, then the multiplier is

1 / (1 - 0.8) = 5

The multiplier is equal to:

1 / (1 - MPC)

If the MPS = 0.1, then the value of the multiplier equals

1 / 0.1 = 10

Suppose that a financial crisis decreases investment spending by $100 billion and the marginal propensity to consume is 0.80. Assuming no taxes and no trade, by how much will real GDP change? A) $500 billion decrease B) $200 billion decrease C) $800 billion decrease D) $400 billion increase E) $100 billion decrease

A) $500 billion decrease change in GDP = (change in investment) x (multiplier)

If the cost of a market basket is $150 in Year 1 and $200 in Year 2, the price index for Year 1 with a Year 2 base is: A) 75 B) 100 C) 133 D) 150 E) 95

A) 75 (current yr / base yr) x 100

If the consumer price index changes from 120 to 125 between December 2007 and December 2008, the: A) inflation rate for 2008 is 4.2% B) inflation rate for 2008 is 5% C) deflation rate for 2008 is 5% D) deflation rate for 2008 is -4.2% E) inflation rate for 2008 is 10%

A) inflation rate for 2008 is 4.2% (5/120) x 100

The inflation or deflation rate is: A) the change in a price index divided by the initial value of the index B) the change in a price index divided by the new index number C) the difference between the initial price index number and the new price index number D) computed by dividing the old price index number by the new price index number

A) the change in a price index divided by the initial value of the index

Inflation can be measured by: A) the percentage change in the CPI B) the absolute change in the CPI C) the absolute change in the GDP deflator D) the percentage change in nominal GDP E) the percentage change in real GDP

A) the percentage change in the CPI

The _____ is the most widely used measure of inflation in the United States. A) producer price index B) consumer price index C) GDP deflator D) national income account E) growth rate of real GDP

B) consumer price index

The marginal propensity to save is: A) savings divided by aggregate income B) the fraction of an additional dollar of disposable income that is saved C) 1 + MPC D) 1 / MPC E) equals to 1

B) the fraction of an additional dollar of disposable income that is saved

If disposable income increases by $5 billion and consumer spending increases by $4 billion, the marginal propensity to consume is equal to:

C / D = 4 / 5 = 0.8

Suppose the marginal propensity to consume is equal to 0.90 and investment spending increases by $50 billion. Assuming no taxes and no trade, by how much will real GDP change? A) $450 billion increase B) $90 billion increase C) $500 billion increase D) $500 billion decrease E) $900 billion increase

C) $500 billion increase

If the CPI is 120 in Year 1 and 150 in Year 2, then the rate of inflation from Year 1 to Year 2 is A) 10% B) 20% C) 25% D) 50% E) 100%

C) 25% (change in price index / initial value) x 100

The marginal propensity to consume is: A) increasing if the marginal propensity to save is increasing B) the proportion of total disposable income that the average family consumes C) the change in consumer spending divided by the change in aggregate disposable income D) the change in consumer spending less than the change in aggregate disposable income E) equal to 1

C) the change in consumer spending divided by the change in aggregate disposable income

The aggregate price level is: A) the average price of shares on the stock market. B) the average price of commodities. C) the overall level of prices in the economy. D) the average rate of inflation. E) the overall level of wages in the economy.

C) the overall level of prices in the economy.

The MPC is the: A) change in saving divided by the change in disposable income B) change in disposable income divided by the change in consumption C) change in disposable income divided by the change in saving D) change in consumption divided by the change in disposable income E) change in consumption divided by the change in gross domestic product

D) change in consumption divided by the change in disposable income

If the cost of a market basket is $200 in Year 1 and $230 in Year 2, the price index for Year 2 with a Year 1 base is: A) 100 B) 90 C) 130 D) 200 E) 115

E) 115 (current yr / base yr) x 100

The marginal propensity to consume is equal to: A) the proportion of consumer spending as a function of aggregate disposable income B) the change in saving divided by the change in aggregate disposable income C) one D) the change in saving divided by the change in consumer spending E) the change in consumer spending divided by the change in aggregate disposable income

E) the change in consumer spending divided by the change in aggregate disposable income

The MPS plus the MPC must equal

ONE