Chapter 10 Assignment

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.

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

5.0

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

A sharp, sustained increase in stock prices. The consumption schedule will shift__________ The saving schedule will shift__________

upward downward

A substantial increase in household borrowing to finance auto purchases. The consumption schedule will shift ___________ The saving schedule will shift ___________

upward downward

An economywide expectation that a recession is over and that a robust expansion will occur. The consumption schedule will shift ___________ The saving schedule will shift _____________

upward downward

In year 1, Adam earns $1,000 and saves $100. In year 2, Adam gets a $500 raise so that he earns a total of $1,500. Out of that $1,500, he saves $200. What is Adam's MPC out of his $500 raise?

0.80

Which of the following scenarios will shift the investment demand curve right? 1. Business taxes increase. 2. The expected return on capital increases 3. Firms have a lot of unused production capacity 4. Firms are planning on increasing their inventories.

2. The Expected Rate of Return on Capital Increases 4. Firms are planning on increasing their inventories

Assume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose there are $10 billion of investment projects yielding expected returns of between 20 and 25 percent; another $10 billion yielding between 15 and 20 percent; another $10 billion yielding between 10 and 15 percent; and so forth. a. Cumulate these data and present them graphically using the graph below, putting the expected rate of return (and the real interest rate) on the vertical axis and the amount of investment on the horizontal axis.

Draw this relationship between the expected rate of return and the amount of investment expenditure. Plot points 0,25 10,20 20,15 30,10 40,55 0,0 What will be the equilibrium level of aggregate investment if the real interest rate is as follows: 15 percent: 20 Billion 10 percent: 30 Billion 5 percent: 40 Billion

The consumption schedule for a country is shown on the diagram below. Suppose there is an upcoming election in this country. Show what will happen to the consumption schedule if the results of the election make the general population feel more optimistic about the country's economic prospects.

IDK lmk if you get it

What is the fundamental reason that the levels of consumption and saving in the United States are each higher today than they were a decade ago?

Real GDP and disposable income are higher.

Irving owns a chain of movie theaters. He is considering whether he should build a new theater downtown. The expected rate of return is 15 percent per year. He can borrow money at a 12 percent interest rate to finance the project. Should Irving proceed with this project?

Yes

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

all additional income must be spent or saved.

A 5-year increase in the minimum age for collecting Social Security benefits. The consumption schedule will shift_________ The saving schedule will shift ____________

downward upward

A large decrease in real estate values, including private homes The consumption schedule will shift ____ The saving schedule will shift ______

downward upward

If the MPS rises, then the MPC will:

fall

The multiplier effect

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

The multiplier will be

larger, the larger the MPC and the smaller the MPS

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.