LC26: LearningCurve - Ch. 26: Income and Expenditure

The marginal propensity to consume (MPC):

can be written as the change in consumer spending divided by the change in disposable income.

The marginal propensity to consume (MPC) refers to the increase in _____ spending when disposable income increases by $1.

consumer

In a closed economy with no government, planned aggregate spending is the sum of:

consumption and planned investment.

Planned investment spending depends primarily on:

interest rates, the expected future level of real GDP, and the current level of production capacity.

According to the accelerator principle, a higher expected future growth rate in GDP leads to a higher growth rate in _____ spending.

investment

The slope of the consumption function:

is equal to the marginal propensity to consume (MPC).

The _____ hypothesis of consumer spending suggests that consumers plan their spending over a life time, not just in response to current disposable income.

life-cycle

The argument that consumers smooth their spending over a lifetime rather than adjusting their consumer spending in response to their current disposable income is referred to as the:

life-cycle hypothesis.

The _____ is the increase in household savings when disposable income rises by $1.

marginal propensity to save

Current productive capacity and investment spending are:

negatively correlated.

The _____ hypothesis of consumer spending suggests that consumers plan their spending based on long-term income rather than on current income.

permanent income

The argument that consumer spending depends primarily on the income people expect to have over the long term rather than on their current income is referred to as the:

permanent income hypothesis.

According to the accelerator principle, expected future gross domestic product (GDP) and investment spending are:

positively correlated.

2. The accelerator principle:

refers to an increase in planned investment spending caused by a higher rate of growth in real GDP.

The economy of Finland, as written in the book, is an example of the impact of_______.

the multiplier effect

If the firm finances investment spending out of retained earnings, then the interest rate is:

the opportunity cost of using those funds for a particular investment project.

If actual sales are greater than businesses expected, then:

unplanned inventory investment decreases.

Byron Publishing expects similar sales to the previous period and prints 19,000 books. If the price of one book is just $1 and they sell 10,000 copies, then:

unplanned inventory investment is $9,000.

A publisher produces 1,000 copies of a philosophy textbook in September. The price of the book is $120. If the publisher sells 1,300 textbooks, then:

unplanned inventory investment is -$36,000.

If the marginal propensity to save is 0.25, then an increase in investment spending of $300 will cause an increase in real GDP of $_____.

1,200

Which is the multiplier if the marginal propensity to save (MPS) is 0.2?

5

Which statement is true regarding income and expenditure?

Investment spending during the Great Depression of the 1930s fell by more than 80% in the United States

_____ is the investment spending that firms intend to undertake.

Planned investment spending

_____ is an equation showing how an individual household's consumer spending varies with the household's current disposable income.

The consumption function

Autonomous consumer spending is the amount that a household would spend if it had _____ disposable income.

$0

According to the table, if planned investment spending is $200, the income-expenditure equilibrium is: A table on Equilibrium shows 7 rows and 2 columns. The column headers are as follows: Real GDP, Consumption. The data read as follows: Real GDP: 0 dollars; Consumption: 200 dollars. Real GDP: 500 dollars; Consumption: 600 dollars. Real GDP: 1,000 dollars; Consumption: 1,000 dollars. Real GDP: 1,500 dollars; Consumption: 1,400 dollars. Real GDP: 2,000 dollars; Consumption: 1,800 dollars. Real GDP: 2,500 dollars; Consumption: 2,200 dollars. Real GDP: 3,000 dollars; Consumption: 2,600 dollars.

$2,000.

In a closed economy with no taxes, if the marginal propensity to consume (MPC) is 0.8, then the marginal propensity to save (MPS) is:

0.2.

If the consumption function is C = 250 + 0.75 x YD, then the marginal propensity to save (MPS) is:

0.25.

In a closed economy with no taxes, if the marginal propensity to consume (MPC) is 0.7, then the marginal propensity to save (MPS) is:

0.3.

If the consumption function is C = 250 + 0.75 x YD, then the marginal propensity to consume (MPC) is:

0.75.

According to the table, autonomous consumption is $_____. A table on Consumption shows 7 rows and 2 columns. The column headers are as follows: Disposable income, Consumption. The data read as follows: Disposable income: 0 dollars; Consumption, 200 dollars. Disposable income: 500 dollars; Consumption: 600 dollars. Disposable income: 1,000 dollars; Consumption: 1,000 dollars. Disposable income: 1,500 dollars; Consumption: 1,400 dollars. Disposable income: 2,000 dollars; Consumption: 1,800 dollars. Disposable income: 2,500 dollars; Consumption: 2,200 dollars. Disposable income: 3,000 dollars; Consumption: 2,600 dollars.

200

If the consumption function is C = 250 + 0.75 x YD, then autonomous consumption is:

250.

If planned investment spending is $3 trillion and unplanned inventory investment is $0.75 trillion, then actual investment is $_____ trillion.

3.75

In a closed economy with no taxes, if the marginal propensity to save is 0.25, then the multiplier is:

4.

According to the table, the multiplier is: A table on Consumption shows 7 rows and 2 columns. The column headers are as follows: Disposable income, Consumption. The data read as follows: Disposable income: 0 dollars; Consumption, 200 dollars. Disposable income: 500 dollars; Consumption: 600 dollars. Disposable income: 1,000 dollars; Consumption: 1,000 dollars. Disposable income: 1,500 dollars; Consumption: 1,400 dollars. Disposable income: 2,000 dollars; Consumption: 1,800 dollars. Disposable income: 2,500 dollars; Consumption: 2,200 dollars. Disposable income: 3,000 dollars; Consumption: 2,600 dollars.

5.

If a company produces 8,000 computers this month and sells 7,500 of them, then unplanned inventory investment is _____ computers.

500

If the rate of return on an investment project is _____% and the interest rate is _____%, then the firm should undertake the project if profit is the only motive.

8; 5

_____ is the amount that a household would spend if it had zero disposable income.

Autonomous consumer spending

If interest rates increase because the credit rating of the U.S. government is downgraded, then investment spending will:

decrease.

As the marginal propensity to consume (MPC) becomes larger, the marginal propensity to save (MPS):

decreases.

The marginal propensity to consume is the increase in consumer spending when _____ increase(s) by $1.

disposable income

Income after taxes are paid and government transfers are received is known as:

disposable income.

If interest rates rise, then planned investment spending _____ and residential construction _____.

falls; falls

The aggregate consumption function will become _____ if the marginal propensity to consume (MPC) _____.

flatter; decreases

1. The accelerator principle:

helps to explain investment booms.

The marginal propensity to save (MPS) is the increase in _____ when disposable income rises by $1.

household savings

If the Federal Reserve uses monetary policy to decrease interest rates, then investment spending should:

increase.