homework 5

The disposable income (DI) and consumption (C) schedules are for a private, closed economy. All figures are in billions of dollars. Picture Refer to the data above. At the $320 billion level of disposable income, the average propensity to save is: .015 .075 .335 .925

.075

The disposable income (DI) and consumption (C) schedules are for a private, closed economy. All figures are in billions of dollars. Picture Refer to the data above. The marginal propensity to save in this economy is: .1 .72 .8 .9

.1

Assume that MPS is 0.4. If spending increases by $8 billion, then real GDP will increase by: $8 billion $13.3 billion $15 billion $20 billion

$20 billion

Refer to the given data. If disposable income was $325, we would expect consumption to be: $315. $305. $20. $290.

$305.

The table shows a consumption schedule. Refer to the data above. If disposable income is $550, we would expect consumption to be: $430 $450 $460 $470

$460

Refer to the given data. The marginal propensity to consume is: .25. .75. .20. .80.

.80

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

APC is greater than 1.

If the consumption schedule is a straight line, it can be concluded that the: APC is necessarily constant MPC is zero MPC is constant at various levels of income APC is equal to the MPC

MPC is constant at various levels of income

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will: Increase by $100 billion Decrease by $100 billion Increase by $16 billion Will not change

Increase by $100 billion

If disposable income is $900 billion when the average propensity to consume is 0.9, it can be concluded that: The marginal propensity to consume is also 0.9 The marginal propensity to save is 0.1 Consumption is $900 billion Saving is $90 billion

Saving is $90 billion

Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the: Slope of the consumption schedule is .75 Average propensity to consume is .75 Marginal propensity to save is .20 Marginal propensity to consume is .6

Slope of the consumption schedule is .75

As disposable income goes up, the: average propensity to consume falls. average prosensity to save falls. volume of consumption declines absolutely. volume of investment diminishes.

average propensity to consume falls.

Dissaving occurs where: income exceeds consumption. saving exceeds consumption. consumption exceeds income. saving exceeds income.

consumption exceeds income.

A decline in disposable income: increases consumption by moving upward along a specific consumption schedule. decreases consumption because it shifts the consumption schedule downward. decreases consumption by moving downward along a specific consumption schedule. increases consumption because it shifts the consumption schedule upward.

decreases consumption by moving downward along a specific consumption schedule.

Refer to the given data. At the $200 level of disposable income: the marginal propensity to save is 2½ percent. dissaving is $5. the average propensity to save is .20. the average propensity to consume is .80.

dissaving is $5.

If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will: increase by $10 billion. increase by $2.10 billion. decrease by $4.29 billion. increase by $4.29 billion.

increase by $10 billion.

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

infinitely large.

The relationship between the real interest rate and investment is shown by the: investment demand schedule. consumption of fixed capital schedule. saving schedule. aggregate supply curve.

investment demand schedule.

The size of the multiplier is equal to the: slope of the consumption schedule. reciprocal of the slope of the consumption schedule. slope of the saving schedule. reciprocal of the slope of the saving schedule.

reciprocal of the slope of the saving schedule.

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

spend eight-tenths of any increase in his disposable income.

The investment demand curve will shift to the right as a result of: an increase in the excess production capacity available in industry. an increase in business taxes. technological progress. an increase in the acquisition and maintenance cost of capital goods.

technological progress.

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

the MPC is constant and the APC declines as income rises.

The disposable income (DI) and consumption (C) schedules are for a private, closed economy. All figures are in billions of dollars. Picture Refer to the data above. If plotted on a graph, the slope of the consumption schedule would be: .6 .7 .8 .9

.9

If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively: 0.8 and 5.0 0.4 and 2.5 0.4 and 1.67 0.2 and 1.25

0.8 and 5.0

With a marginal propensity to save of .4, the marginal propensity to consume will be: 1.0 minus .4. .4 minus 1.0. the reciprocal of the MPS. .4.

1.0 minus .4.