AP Econ Fall Final Unit 4

C

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is: A) 8 percent. B) 5 percent. C) 3 percent. D) 2 percent.

B

102. Refer to the above diagram. The average propensity to consume is: A) greater than 1 at all levels of income above $150. B) greater than 1 at all levels of income below $150. C) zero. D) .6.

C

153. The multiplier can be calculated as: A) 1/(MPS+MPC) B) MPC/MPS C) 1/(1-MPC) D) 1-MPC=MPS

D

172. Refer to the above table. The total change in consumption resulting from the initial change in investment will be: A) $100. B) $96. C) $180. D) $80.

A

An increase in personal taxes will shift: A) both the consumption and saving schedules downward. B) both the consumption and saving schedules upward. C) the consumption schedule upward and the saving schedule downward. D) the consumption schedule downward and the saving schedule upward.

C

As aggregate income decreases, the APC: A) and APS will both increase. B) will decrease, but the APS will increase. C) will increase, but the APS will decrease. D) and APS will both decrease.

C

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by: A) $3 billion. B) $2/3 billion. C) $6 billion. D) $2 billion.

C

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

B

Dissaving means: A) the same thing as disinvesting. B) that households are spending more than their current incomes. C) that saving and investment are equal. D) that disposable income is less than zero.

C

Dissaving occurs where: A) income exceeds consumption. B) saving exceeds consumption C) consumption exceeds income. D) saving exceeds income.

C

If the MPC is .6, the multiplier will be: A) 4.0. B) 6.0. C) 2.5. D) 1.67.

A

Holly's break-even level 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) savings will be $2,500

D

If 100 percent of any change in income is spent, the multiplier will be: A) equal to the MPC. B) 1. C) zero. D) infinitely large.

A

If Ben's MPC is .80, this means that he will: A) spend eight-tenths of any increase in his disposable income. B) spend eight-tenths of any level of disposable income. C) break even when his disposable income is $8,000. D) save two-tenths of any level of disposable income.

C

If Smith'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

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round, income will eventually decline by: A) $200 billion. B) $300 billion. C) $400 billion. D) $500 billion.

B

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is: A) 4. B) 5. C) 3.33. D) 2.5

A

If a $50 billion decrease in investment spending causes income to decline by $50 billion in the first round of the multiplier process and by $25 in the second round, the multiplier in the economy is: A) 2. B) 3.33. C) 5. D) 10.

A

If the MPC is .70 and gross investment increases by $3 billion, the equilibrium GDP will: A) increase by $10 billion. B) increase by $2.10 billion. C) decrease by $4.29 billion. D) increase by $4.29 billion.

A

If the MPC is .8 and disposable income is $200, then A) consumption and saving cannot be determined from the information given. B) saving will be $20. C) personal consumption expenditures will be $80. D) saving will be $40.

B

If the MPS is only half as large as the MPC, the multiplier is: A) 2. B) 3. C) 4. D) 5.

B

If the marginal propensity to consume is .9, then the marginal propensity to save must be: A) 1. B) .1. C) 1.1. D) .9.

B

In year 1 the price level is constant and the nominal rate of interest is 6 percent. But in year 2 the inflation rate is 3 percent. If the real rate of interest is to remain at the same level in year 2 as it was in year 1, then in year 2 the nominal interest rate must: A) rise by 9 percentage points. B) rise by 3 percentage points. C) fall by 3 percentage points. D) rise by 6 percentage points.

D

Other things equal, a decrease in the real interest rate will: A) shift the investment demand curve to the right. B) shift the investment demand curve to the left. C) move the economy upward along its existing investment demand curve. D) move the economy downward along its existing investment demand curve.

B

Refer to the above data. At the $200 level of disposable income: A) the marginal propensity to save is 2.5 percent. B) dissaving is $5. C) the average propensity to save is .20. D) the average propensity to consume is .80.

B

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

D

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

B

Refer to the above diagram. The break-even level of income is: A) zero. B) $150. C) $60. D) $120.

B

Refer to the above diagram. The marginal propensity to consume is: A) .4. B) .6. C) .5. D) .8.

D

Refer to the above graph. A movement from a to b along C1 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) increase in income tax rates. D) increase in real GDP.

A

Refer to the above graph. A movement from b to a along C1 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) decrease in income tax rates. D) increase in saving.

B

Refer to the above graph. A shift of the consumption schedule from C1 to C2 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) increase in income tax rates. D) increase in saving.

B

Refer to the above table. The change in income in round two will be: A) $4. B) $16. C) $20. D) $24.

A

Say's law says that: A) supply creates its own demand. B) freely floating exchange rates equate the purchasing power of national currencies. C) high marginal tax rates severely discourage work, saving, and investment. D) producers will offer more of a product at high prices than they will at low prices.

C

Suppose a family's consumption exceeds its disposable income. This means that its: A) MPC is greater than 1. B) MPS is negative. C) APC is greater than 1. D) APS is positive.

B

Suppose that in some year nominal interest rates are less than the rate of inflation. This means that: A) money demand exceeds money supply. B) real interest rates are negative. C) real interest rates are positive and unusually high. D) real interest rates exceed nominal interest rates.

D

Suppose the nominal annual interest rate on a two year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is: A) 6 percent. B) 8 percent. C) 2 percent. D) 3 percent.

D

The APC can be defined as the fraction of a: A) change in income that is not spent. B) change in income that is spent. C) specific level of total income that is not consumed. D) specific level of total income that is consumed.

B

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

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.

A

The MPC is calculated as: A) change in consumption / change in income B) consumption / income C) change in income / change in consumption D) income / consumption

D

The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the highest marginal propensity to consume? A) 1 B) 2 C) 3 D) 4

D

The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the largest multiplier? A) 1 B) 2 C) 3 D) 4

B

The break-even point is where: A) MPC=1 B) APC = 1 C) MPS = 1 D) APS = 1

C

The expenditure multiplier is: A) 1/MPC. B) 1/(1 + MPC). C) 1/MPS. D) 1/(1 - MPS).

A

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

The increase in income that results from an increase in investment spending would be greater the: A) smaller the MPS. B) smaller the APC. C) larger the MPS. D) smaller the MPC.

B

The investment demand curve portrays an inverse (negative) relationship between: A) investment and real GDP. B) the real interest rate and investment. C) the nominal interest rate and investment. D) the price level and investment.

C

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

D

The multiplier effect creates a: A) magnification of the fluctuations in the business cycle B) a larger change in equilibrium GDP from a small change in the investment plans of businesses C) a larger change in equilibrium GDP from a small change in consumption and savings plans of households D) all of the above.

C

The production of goods and services creates an equal demand for those goods and services. This is a statement of: A) Taylor's rule. B) Okun's law. C) Say's law. D) the Coase theorem.

D

The real interest rate can be estimated by: A) subtracting the pure interest rate from the nominal interest rate. B) dividing the nominal interest rate by the consumer price index. C) subtracting the nominal interest rate from the rate of inflation. D) subtracting the rate of inflation from the nominal interest rate.

C

The tax multiplier is defined as: A) 1 - MPS. B) change in GDP × initial change in spending. C) change in GDP/initial change in spending. D) change in GDP - initial change in spending.

A

The wealth effect is shown graphically as a: A) shift of the consumption schedule. B) movement along an existing consumption schedule. C) shift of the investment schedule. D) movement along an existing investment schedule.

A

Which of the following is correct? A) APC+APS=1. B) APC+MPS=1. C) APS+MPC=1. D) APS+MPS=1.

A

Which of the following is correct? A) MPC+MPS=1. B) APC+MPS=1. C) APS+MPC=1. D) APS+MPS=1.

A

Which of the following is correct? A) MPC+MPS=APC+APS B) APC+MPS=APS+MPC C) APC+MPC=APS+MPS D) APC-APS=MPC-MPS

C

Which of the following is incorrect? A) The nominal interest rate is the rate of interest expressed in terms of current dollars. B) The real interest rate is the rate of interest expressed in terms of dollars of constant or inflation-adjusted value. C) The nominal interest rate is the real interest rate less the rate of inflation. D) During periods of inflation the nominal interest rate will exceed the real interest rate.

C

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

D

Which of the following will not cause the consumption schedule to shift? A) a change in household debt or wealth B) a change in consumer expectations C) a change in tax rates D) a change in disposable income

B

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

Which of the following will not tend to shift the consumption schedule upward? A) a currently small stock of durable goods in the possession of consumers B) the expectation of a future decline in the consumer price index C) a currently low level of household debt. D) the expectation of future shortages of essential consumer goods.

D

Which of the following would not shift the investment demand curve? A) a decrease in operating cost or corporate taxes B) technological improvements and optimism about future sales C) an overstock of capital goods D) an increase in interest rates

B

Which of the following would shift the investment demand curve to the left? A) a lower interest rate B) lower expected rates of return on investment C) a higher interest rate D) higher expected rates of return on investment

D

Which of the following would shift the investment demand curve to the right? A) a lower interest rate B) lower expected rates of return on investment C) a higher interest rate D) higher expected rates of return on investment

D

Which one of the following will cause a movement along an economy's consumption schedule? A) an change in stock prices B) a change in stock prices C) an change in consumer indebtedness D) a change in disposable income

A

With an MPS of .4, the MPC will be: A) 1.0 minus .4. B) .4 minus 1.0. C) the reciprocal of the MPS. D) .4.

A

A $1 billion increase in investment will cause a: A) (1/MPS) billion increase in GDP. B) (MPS) billion increase in GDP. C) (1 - MPC) billion increase in GDP. D) (MPC - MPS) billion increase in GDP.

D

A firm reaches a break-even point (normal profit position) where: A) marginal revenue cuts the horizontal axis. B) marginal cost intersects the average variable cost curve. C) total revenue equals total variable cost. D) total revenue and total cost are equal.

D

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

D

If the minimum annual income is $5,000 in a public assistance plan and the benefit-reduction rate is 40 percent, the break-even level of income will be: A) $10,000. B) $2,500. C) $20,000. D) $12,500.

C

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is: A) 18 percent. B) 24 percent. C) 12 percent. D) 6 percent.

A

If a public assistance plan has a benefit-reduction rate of 50 percent and the break-even income is $12,000, the plan's minimum annual income must be: A) $6,000. B) $24,000. C) $10,500. D) $8,000.

A

If both the real interest rate and the nominal interest rate are 3 percent, then the: A) inflation premium is zero. B) real GDP must exceed the nominal GDP. C) nominal GDP must exceed real GDP. D) inflation premium also is 3 percent.

C

If for some reason households become increasingly thrifty, we could show this by: A) a downshift of the saving schedule. B) an upshift of the consumption schedule. C) an upshift of the saving schedule. D) an increase in the equilibrium GDP.

C

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule: A) will not shift. B) may shift either upward or downward. C) will shift downward. D) will also shift upward.

D

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is: A) 2 percent. B) zero percent. C) 10 percent. D) 22 percent.

B

Refer to the above graph. A shift of the consumption schedule from C2 to C1 might be caused by a: A) increase in real GDP. B) reverse wealth effect, caused by a decrease in stock market prices. C) decrease in income tax rates. D) decrease in saving.

C

Refer to the above table. The marginal propensity to consume is: A) .5. B) .75. C) .8. D) .9.

C

Refer to the above table. The marginal propensity to save is: A) .5. B) .25. C) .2. D) .1.

C

Refer to the above table. The multiplier in this economy is: A) 2. B) 4. C) 5. D) 10.

A

Refer to the above table. The total change in income resulting from the initial change in investment will be: A) $100. B) $20. C) $80. D) $200.

C

The average propensity to consume indicates the: A) amount by which income exceeds consumption. B) relationship between a change in saving and the consequent change in consumption. C) percentage of total income that will be consumed. D) percentage of a change in income that will be consumed.

C

The average propensity to save indicates the: A) amount by which income exceeds savings. B) relationship between a change in income and the consequent change in consumption. C) percentage of total income that will be saved. D) percentage of a change in savings that will be consumed.

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.