Macroeconomics Test 2- Ch 8

If consumption decreases from $600 billion to $575 billion and the marginal propensity to consume is 0.8, then equilibrium income will:

-125

Suppose the government believes consumers should spend $1 billion more to get the economy out of a recession. The government wants to provide income to households by providing them with jobs and paying them directly. If the marginal propensity to consume is 0.8, the government should increase income by:

0.2 billion

If consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is:

0.25

If income grows from $3,000 per month to $3,500 per month and savings rise from $200 per month to $400 per month, what is the marginal propensity to save?

0.4

If you spend $35,000 and your income is $60,000, what is your average propensity to save?

0.42

(Table) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save?

0.5

Table) In the table, the marginal propensity to consume is ________ and the average propensity to consume ________. Income Consumption Spending Saving $30,000 $30,000 $0 40,000 35,000 5,000 50,000 40,000 10,000

0.5 varies with the level of income

If the marginal propensity to consume is 0.8, by how much will total income increase after an initial $200 is spent?

1,000

If the marginal propensity to consume is 0.6, the marginal propensity to save is 0.4, and government spending increases by $2 billion at the same time taxes rise by $2 billion, equilibrium income will:

2 billion

If the marginal propensity to consume is 0.65, the spending multiplier is:

2.86

If disposable income is $3,000 and saving is $1,200, how much is consumption?

3,000-1200=1800

During the millennium scare of 2000, Rufus reduced his monthly spending by $1,000 and buried his money in the backyard. If the marginal propensity to consume is 0.75, by how much did national income fall?

4,000

The following table shows some data on consumption at various levels of income. Income Consumption $0 $200 $1,000 $1,000 $2,000 $1,800 $3,000 $2,600 $4,000 $3,400 $5,000 $4,200 $6,000 $5,000 Investment spending is $600. If there is no government spending or net exports, the equilibrium income level is:

4,000

When withdrawals equal injections, the economy:

is in equilibrium

The balanced budget multiplier is:

equal to 1

Assume that the MPC is 0.75. Full employment is considered to be at a GDP level of $500 billion. The GDP is $600 billion. What should the government do to achieve full employment?

reduce spending by 25 billion

If the marginal propensity to consume is 0.8 and the government reduces taxes by $5 billion, equilibrium income will

rise by 20 billion

Firms decide how much to invest by comparing the rate of return on their projects with:

the interest rate

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

900

Which of the following equations is correct?

AE= C+I+G+(X-M)

The 45-degree line in the Keynesian model represents a set of points where _____ equals

Disposable income equals consumption

Suppose full employment real GDP is $13 trillion, current real GDP is 13.2 trillion, and the marginal propensity to consume is 0.5 the inflationary gap is?

0.1 trillion

Suppose full employment real GDP is $12 trillion, current real GDP is $11 trillion, and the marginal propensity to consume is 0.8. The recessionary gap is:

0.2 trillion

If income grows from $3,000 per month to $3,500 per month and consumption rises from $2,800 per month to $3,200 per month, what is the marginal propensity to consume?

0.80

If the amount of spending in an economy declines by $1,000 and the marginal propensity to consume is 0.8, the effect on the economy is a change of _____ in income or output.

-5,000

If the marginal propensity to save is 0.25 and income increases by $7,540, what is the increase in consumption

5,655

A tax increase has a smaller impact on the economy than does a decrease in government spending of the same magnitude because:

consumers pay for part of the tax increase by reducing their saving

Saving is equal to

disposable income minus consumption S=Y-C

Keynes believed that saving is a function of:

income

Classical economists claim that ______ is the primary determinant of saving, and Keynes claimed that ______ is the primary determinant of saving.

the interest rate; income

In an economy with three sectors (household, business, and government), government spending is $5 billion, taxes are $4 billion, and investment is $4 billion. If the economy is in equilibrium, then saving is:

5 billion

If $1,000 of additional spending occurs (from investment, say) and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.

5,000

If disposable income increases from $250 to $300 and saving increases from $40 to $50, how much is the average propensity to save?

50/300=0.166 = 0.167

If the marginal propensity to consume is 0.85, how much is the spending multiplier?

6.67

According to the simple Keynesian model, which of the following statements is NOT correct?

APC+MPS=1

Which group of economists believed that economic downturns were self-correcting, that is the forces of supply and demand would naturally bring the economy back to equilibrium?

Classical Economists

The spending reduction necessary to bring an overheated economy back to full employment is called the:

Inflationary gap

The idea of the spending multiplier is that:

One persons spending becomes another person's income, which stimulates more spending

The paradox of thrift suggests that when households intend to save more, they will ________ consumption, which will ultimately lead to ____________ actual aggregate saving.

Reduce; lower

Personal consumption expenditures:

can be found by subtracting saving from disposable income

In the Keynesian framework, the way to fight a recession is to:

cut taxes and or increase government spending

Table) When disposable income is $1,200, what is the value of the average propensity to save?

d

Assume that the economy is at equilibrium at $10 trillion, with a marginal propensity to consume of 0.75. If exports rise by $0.5 trillion and imports increase by $0.7 trillion, equilibrium income will:

fall by 0.8 trillion

If the government spends $1 billion to create a wetlands preserve, taxes increase $1 billion to pay for it, and the marginal propensity to consume is 0.75, GDP:

increases by 1 billion

Assume that the MPC is 0.8. Full employment is considered to be at a GDP level of $500 billion. The current GDP is $400 billion. The government is committed to a balanced budget. To achieve full employment, the government should _______ taxes by ____________ and increase government spending by ________.

increases; 100 billion; 100 billion