Macroeconomics Chapter 11 practice/review Part 2
The aggregate consumption function will _____ if the marginal propensity to consume decreases.
become flatter and rotate downward
If expected future GDP is _____, investment spending will _____.
lowered; decrease
An increase in the market interest rate will MOST likely:
make any given investment project less profitable. Hint Remember that increased interest rates affect the cost of firms borrowing funds.
Planned investment spending is _____ the interest rate.
negatively correlated to
If expected future gross domestic product (GDP) rises, then:
planned investment spending increases.
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 consume is 0.6, then an increase in investment of $400 causes an increase in real GDP of:
$1,000 hint m = 1 / (1 - MPC). This part of the larger formula illustrates the relationship between the multiplier and marginal propensity to consume.
If the consumption function is C = 250 + 0.75 x YD, and disposable income is $2,000, then consumption is:
$1,750
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.
Which statement is true regarding expenditure and income?
The marginal propensity to consume in an economy is a positive number.
Which statement is true regarding the consumption function?
The slope of the consumption function is equal to (1 - MPS)
A larger marginal propensity to consume (MPC) causes _____ in real GDP when investment spending changes than a smaller MPC.
a comparatively larger change
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 hint maybe MPC + MPS =1
Given an increase in investment spending by $200 and an increase in GDP of $800, what is the marginal propensity to consume (MPC)?
0.75
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
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
900
According to the graph, if disposable income is $1,000, then consumption is $_____.
0.6
According to the graph, the marginal propensity to consume (MPC) is:
$600
According to the graph, when disposable income increases from $1,000 to $2,000, consumption increases by:
If the multiplier is 4, then a decrease in investment spending of $200 causes a(n) _____ in real GDP of $_____.
decrease; 800
As the marginal propensity to save increases, the multiplier:
decreases
As the marginal propensity to save (MPS) _____, the multiplier _____.
decreases; increases
The marginal propensity to consume is the increase in consumer spending when _____ increase(s) by $1.
disposable income
If interest rates rise, then planned investment spending _____ and residential construction _____.
falls; falls
Negative unplanned inventory investment usually indicates _____ the economy.
growth in
The accelerator principle:
helps to explain investment booms.