TEST 3
Suppose that the marginal propensity to consume (MPC) is .75 and there is an increase in investment spending of $100,000. As a result, equilibrium real Gross Domestic Product (GDP) would increase by
$400,000
Suppose that when disposable income increases by $1,000, consumption spending increases by $750. Given this information, we know that the marginal propensity to consume (MPC) is
.75
If the MPC is 0.8, then the MPS is
0.2
Suppose per capita real GDP grows by 7% per year. Based on the Rule of 70, approximately how many years will it take for the level of per capita real GDP to double?
10 years
Which of the following represents the relationship between disposable income (DI), consumption (C), and saving (S)?
DI = C + S
Thinking as an economist would, which is true of investment?
Investment represents spending on capital goods
Which of the following is true?
Real standards of living can increase without any positive economic growth
Which of the following is NOT a reason for the slope of the aggregate demand curve?
The substitution effect
A small reduction in a country's growth rate is a concern to policy makers because
a small change can have large effects on per capita GDP over time
The total of all planned production for the entire economy is known as
aggregate supply
All of the following would shift the LRAS curve to the right EXCEPT
an increase in the overall price level
When interest rates rise,
borrowing costs increase, and total planned real expenditures decline
Autonomous consumption is
consumption spending that does not depend on the level of income
If the marginal propensity to save (MPS) increases, the multiplier
decreases
Suppose the equilibrium for an economy occurs when C + I + G + X = $14 trillion. If the real Gross Domestic Product (GDP) is $13 trillion, then unplanned inventories are
decreasing, and real Gross Domestic Product (GDP) will expand.
Dissaving occurs when
disposable income is less than consumption
The reason that differences in economic growth rates are important in the long run is that
growth compounds over time
If a nation's production possibilities curve shifts outward, we should expect its long-run aggregate supply curve to
have a rightward shift
If all income is consumed in a year, then
investment spending will be zero
Other things being equal, a higher savings rate
means higher standards of living in the future
A higher rate of saving should lead to
more investment, higher capital growth, and more future consumption
Your real disposable income is your real income after you have paid
net taxes
Which of the following variables is used to measure economic growth?
real GDP per capita
The terms "saving" and "savings" differ in that
savings are in stock, and saving is a flow
An increase in growth rates will cause the production possibilities curve to
shift outward
In the graph for the consumption function, the 45 degree line
shows various combinations where planned consumption equals real disposable income
If the price level increases,
the buying power of your checking account falls
The long run aggregate supply curve (LRAS) also represents
the full-employment level of output
The larger the marginal propensity to consume (MPC),
the larger is the multiplier
Long-run aggregate supply is
the level of output that occurs when the economy is operating on the production possibilities curve
The long-run aggregate supply curve is
vertical at the full-employment level of real Gross Domestic Product (GDP)
When prices increase, the real interest rate
will increase and the total planned spending on goods and services will decrease