Macro chapter 10

In which direction will a decline in business taxes shift the investment demand curve, other things equal?

Shifts to the right

The difference between the MPC and the APC is that ______.

the MPC is the change in consumption divided by the change in income, whereas the APC is total consumption divided by total income.

Investment spending may increase even in a period when real interest rates rise if _________.

the expected rates of return are rising faster than real interest rates

If the MPS rises, then the MPC will ______.

to fall

n which direction will an increase in unused production capacity shift the investment demand curve, other things equal?

Shift to the left

The owner of a firm is trying to decide whether to borrow funds to invest in new technology. In which of the following cases would the investment make sense?

The expected rate of return is 9 percent a year and the interest rate is 5 percent a year.

If a $50 billion initial increase in spending leads to a $250 billion change in real GDP, how big is the multiplier?

5.0

Which of the following would be likely to increase the amount that a household consumes?

The stock market goes on a streak of rising values.

The sum of the MPC and the MPS must equal 1 because ______.

all additional income must be spent or saved

A reduction in the real interest rate will increase investment spending, other things equal, because firms will make an investment purchase only if the expected return is ______.

greater than or equal to the real interest rate at which it can borrow

multiplier effect

intensifies the effect of a spending change, whether it is an increase or a decrease

A downshift of the consumption schedule typically involves an equal upshift of the saving schedule. The exception to this relationship occurs when

there is an increase in personal taxes, then consumption and saving both shift downward.