Chapter 10 Smartbook
If marginal propensity to consume equals 0.6 and the change in income is $12 billion, what is the change in consumption?
$7.2 billion
If disposable income increases from $450 to $470 billion and savings increases from $15 to $20 billion, what is the marginal propensity to save (MPS)?
0.25
When the multiplier is 4, the marginal propensity to save (MPS) is ______.
0.25
Disposable income rises by $20 billion to $40 billion. Households consume $15 billion of the increase and save $5 billion of that income. What is the marginal propensity to consume (MPC)?
0.75
The average propensity to consume and the average propensity to save together equal _____
1
The direct relationship between MPC and the multiplier is shown in the following equation:
1/(1-MPC)
If disposable income increases from $410 to $430 billion and savings increases from $5 to _____ billion, the marginal propensity to save is 0.25.
10
According to the table, when disposable income is $470 billion, what is the savings?
20 billion
Economists use what term to mean "total" or "combined"?
Aggregate
What does saving divided by income equal?
Average propensity to save
Which of the following are determinants of household consumption and savings?
Borrowing Wealth Interest rates
What is the primary factor that determines the amounts that households will consume and save?
Disposable income
Real interest rates are rates adjusted for what?
Inflation
Because the fraction of any change in income not consumed is saved, which of the following equations is true?
MPC + MPS = 1
Consumption and disposable income have what kind of relationship?
Positive
Which type of interest rate is used to make investment decisions?
Real
What happens to the investment demand curve when there is an increase in demand?
Shifts to the right
The nominal interest rate minus the rate of inflation equals what?
The real interest rate
The _____propensity to consume is the fraction or percentage of total income that is consumed.
average
The fraction of total income that is saved equals the _____ propensity to save.
average
______propensity to save equals saving divided by income.
average
The fraction or percentage of total income that is consumed is called the:
average propensity to consume
Total consumption divided by total disposable income equals the ______.
average propensity to consume
The fraction of total income that is saved is called the:
average propensity to save
In the figure, an increase in acquisition, maintenance, and operating costs affects the investment demand curve _____.
by shifting it from ID0 to ID2
_____ spending consists of expenditures on new plants, capital equipment, machinery, and inventories.
capital
Average propensity to consume equals total ____ divided by total disposable income
consumption
The _____schedule shows the various amounts that households would plan to spend at each of the various levels of disposable income.
consumption
When real interest rates ______ households tend to borrow more, consume more, and save less
decrease
Any factor that leads businesses to collectively expect lower rates of return on their investments ______ investment demand.
decreases
The relationship between spending and GDP is?
direct
There is a(n) ______ relationship between spending and GDP.
direct
The consumption schedule shows the various amounts that households plan to consume at each level of:
disposable income
Since disposable income is either consumed or saved, the fraction of any disposable income consumed plus the fraction saved must be ______.
equal to 1
Increases in investment demand occur when businesses collectively expect:
greater rates of return on their investments
Consumption is positively related to disposable
income
Any factor that leads businesses collectively to expect greater rates of return on their investments ______ investment demand.
increases
The ____ relationship between interest rates and quantity of investment conforms to the law of demand.
inverse
A change in acquisition, maintenance and operating costs affect the _____ demand curve by shifting it left or right depending on whether the costs go up or down.
investment
A firm's spending on new plants, capital equipment, machinery, and inventory is all considered ______.
investment
In economic terms _____ means "extra" or "a change in".
marginal
The change in consumption divided by the change in income is equal to the _____ propensity to consume.
marginal
The economic term for "extra" or "a change in" is:
marginal
The ratio of a change in consumption to a change in the income that caused the consumption change is called the
marginal propensity to consume.
A change in saving divided by a change in income is equal to the
marginal propensity to save.
The fraction of any change in income not consumed is, by definition, the marginal propensity to save explains why the marginal propensity to consume plus this fraction of any change equals one.
marginal propenstiy to save
When real interest rates fall, households tend to borrow ______, consume ______ and save _______.
more, more, less
1/MPS is the formula for the spending )_____
multiplier
A business purchases a new piece of equipment. Another firm earns income from this sale and with this income builds a new factory. The contractor that built the factory earns income and uses the income to take a vacation. The resort earns income from the contractor. This scenario describes the:
multiplier effect
1/(1-MPC) is what formula?
multiplier formula
When making an investment decision, the inflation rate should be subtracted from the ______interest rate to find the real rate of interest.
nominal
Any factor that leads businesses to collectively expect lower rates of return on their investments _____.
reduces investment demand
In terms of the investment demand curve, an increase in demand is represented by a(n) ______ shift and a decrease in demand is represented by a(n) ______ shift.
rightward; leftward
The marginal propensity to save is equal to a change in _____ divided by a change in income.
savings
according to the table _____ is $30 billion when disposable income is $510 billion.
savings
The economy supports repetitive, continuous flows of ______ and income through which dollars spent by Smith are received as income by Chin and then spent by Chin and received as income by Gonzales, and so on.
spending
The inverse relationship between interest rates and quantity of investment conforms to ______.
the law of demand
1/MPS is the formula for:
the multiplier
To economists, the term "aggregate" means ______.
total; combined