TEST 3: Macroeconomics Chap. 10: Basic Macroeconomic Relationships

purchase the machine because the expected rate of return exceeds the interest rate.

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. If the firm finds it can borrow funds at an interest rate of 10 percent, the firm should:

new expectations of higher future income.

Answer the question on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. Refer to the given data. A $2 billion increase in consumption at each level of DI could be caused by:

is highest in economy (2).

Answer the question on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. Refer to the given data. At an income level of $40 billion, the average propensity to consume:

is highest in economy (1)

Answer the question on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. Refer to the given data. The marginal propensity to save:

0.20

Answer the question on the basis of the following data for a hypothetical economy. Refer to the given data. If plotted on a graph, the slope of the saving schedule would be:

And saving both decrease

As disposable income decreases, consumption:

Average propensity to consume increases

As disposable income decreases, the:

average propensity to consume falls.

As disposable income goes up, the:

that households are spending more than their current incomes.

Dissaving means:

Smaller would be the increase in income which results from an increase in consumption spending

Generally speaking, the greater the MPS, the:

an increase in the real rate of interest will reduce the level of investment.

Given the expected rate of return on all possible investment opportunities in the economy:

Average propensity to consume

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

Average propensity to save

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

smaller is the marginal propensity to save

The greater is the marginal propensity to consume, the:

decreases consumption by moving downward along a specific consumption schedule.

A decline in disposable income:

In opposite directions; in the same direction

A change in interest rates would shift the consumption schedule and the saving schedule ______; a change in taxes would shift these two schedules ______.

businesses planning to increase their stock of inventories.

A rightward shift of the investment demand curve might be caused by:

Consumption also increases, though not as much as income

An MPC value of less than 1.0 indicates that as income increases:

Consumption schedule upward and the saving schedule downward

An increase in household wealth that creates a wealth effect would shift the:

True

An increase in taxes will shift both the consumption schedule and the saving schedule down.

15%

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this machine is:

$20 billion

Assume that MPS is 0.4. If spending increases by $8 billion, then real GDP will increase by:

consume is three-fifths

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:

Spending seven-tenths of any increment to its income

If a family's MPC is 0.7, it means that the family is:

False

If households do not spend any extra income they receive but instead save the entire extra amount, then the multiplier will be zero.

Decrease

If households in the economy save more of any extra income that they earn, then the multiplier effect will:

12%

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

r is greater than i.

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when:

There will be a movement upward along the investment demand curve

If the real interest rate increases:

The APC rises and the APS falls

If there is a decrease in disposable income in an economy, then:

Marginal propensity to save is .25

In an economy, for every $1600 decrease in income, spending falls by $1200. It can be concluded that the:

False

Is 1 + MPS = MPC

True

Is 1 - MPC = MPS

multiplying total income by the APC.

One can determine the amount of any level of total income that is consumed by:

Disposable income minus consumption

Personal saving is equal to:

$6,000

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

0.12

Refer to the consumption schedule above. If disposable income were $34,000, then the average propensity to save would be about:

Lower expected rates of return on investment.

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID3?

dissaving is $5.

Refer to the given data. At the $200 level of disposable income:

$305

Refer to the given data. If disposable income was $325, we would expect consumption to be:

20%

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:

the MPC is constant and the APC declines as income rises

The consumption schedule is such that:

there is an inverse relationship between the real rate of interest and the level of investment spending.

The investment demand curve suggests:

change in GDP resulting from a change in spending

The multiplier is useful in determining the:

magnifies initial changes in spending into larger changes in GDP.

The practical significance of the multiplier is that it:

A change in consumer incomes.

Which of the following will not cause the consumption schedule to shift?

The expectation of a future decline in the consumer price index.

Which of the following will not tend to shift the consumption schedule upward?

A decrease in wealth

Which of the following would shift the saving schedule upward?

1 - 0.3

With an MPS of 0.3, the MPC will be: