Macroeconomics Chapter 10

True or False: Real GDP is more volatile (variable) than gross investment.

False

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.

The multiplier effect

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

B. Saving schedule The variable on the vertical (y) axis is (Click to select) the variable on the horizontal (x) axis is (Click to select) These variables are (Click to select) related..

Consumption Disposable income Directly

If the MPS rises, then the MPC will:

Fall

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?

Peal GDP and Disposable Income are higher.

A. Consumption schedule The variable on the vertical (y) axis is (Click to select) and the variable on the horizontal (x) axis is (Click to select) These variables are (Click to select) related.

Saving Disposable income Directly

Which of the following scenarios will shift the investment demand curve right?

The expected return on capital increases Firms as planning on increasing their inventories

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

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

5.0

True or False: Larger MPCs imply larger multipliers.

True

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

all additional income must be spent or saved.

A downshift of the consumption schedule typically involves an equal upshift of the saving schedule except when there is

an increase in personal taxes; then they both shift downward

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

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

The multiplier is

larger, the larger the MPC is and the smaller the MPS is.