Question 1

If the marginal propensity to consume (MPC) is 0.8, the multiplier is

Accepted Answer

A)  5.0. 
B)  1.2. 
C)  0.2. 
D)  0.8. 
A)  5.0. 
B)  1.2. 
C)  0.2. 
D)  0.8.

Question 2

-Refer to the above figure. The equilibrium level of real GDP occurs

Accepted Answer

A)  at point A. 
B)  to the right of point A. 
C)  to the left of point A. 
D)  at the undetermined point on the graph depending upon the level of investment. 
A)  at point A. 
B)  to the right of point A. 
C)  to the left of point A. 
D)  at the undetermined point on the graph depending upon the level of investment.

Question 3

If the marginal propensity to consume (MPC) is 0.8, the multiplier will be

Accepted Answer

A)  0.8. 
B)  1. 
C)  4. 
D)  5. 
A)  0.8. 
B)  1. 
C)  4. 
D)  5.

Question 4

-Consider the above figure. At an income of $60 we would expect saving to be equal to

Accepted Answer

A)  $60. 
B)  $40. 
C)  $10. 
D)  $0. 
A)  $60. 
B)  $40. 
C)  $10. 
D)  $0.

Question 5

If real Gross Domestic Product (GDP) is at an equilibrium level in a closed economy,

Accepted Answer

A)  C + I + G = real GDP. 
B)  saving will be less than planned investment. 
C)  unplanned inventory accumulation will equal planned inventory accumulation. 
D)  C + T - G = real GDP. 
A)  C + I + G = real GDP. 
B)  saving will be less than planned investment. 
C)  unplanned inventory accumulation will equal planned inventory accumulation. 
D)  C + T - G = real GDP.

Question 6

The investment function tells us, at any given interest rate,

Accepted Answer

A)  how many funds people will invest in the stock market. 
B)  how many funds people will earn on their stock market investments. 
C)  how profitable it will be for firms to expand. 
D)  how much businesses will spend on adding to the capital stock. 
A)  how many funds people will invest in the stock market. 
B)  how many funds people will earn on their stock market investments. 
C)  how profitable it will be for firms to expand. 
D)  how much businesses will spend on adding to the capital stock.

Question 7

Which of the following is a true statement relative to retained earnings and investment?

Accepted Answer

A)  Lower interest rates stimulate borrowing for investment, but have no effect on the use of retained earnings for investment spending. 
B)  Lower interest rates stimulate borrowing for investment, but discourage the use of retained earnings for investment. 
C)  Lower interest rates reduce the opportunity cost of retained earnings, stimulating the use of these funds in investment. 
D)  Lower interest rates have no effect on investment spending at all because investment spending is autonomous. 
A)  Lower interest rates stimulate borrowing for investment, but have no effect on the use of retained earnings for investment spending. 
B)  Lower interest rates stimulate borrowing for investment, but discourage the use of retained earnings for investment. 
C)  Lower interest rates reduce the opportunity cost of retained earnings, stimulating the use of these funds in investment. 
D)  Lower interest rates have no effect on investment spending at all because investment spending is autonomous.

Question 8

A permanent reduction in net exports leads to

Accepted Answer

A)  a more than proportional decrease in real Gross Domestic Product (GDP). 
B)  a less than proportional decrease in real Gross Domestic Product (GDP). 
C)  a proportional increase in real Gross Domestic Product (GDP). 
D)  a reduction in taxes, autonomous government spending, and a fall in real Gross Domestic Product (GDP). 
A)  a more than proportional decrease in real Gross Domestic Product (GDP). 
B)  a less than proportional decrease in real Gross Domestic Product (GDP). 
C)  a proportional increase in real Gross Domestic Product (GDP). 
D)  a reduction in taxes, autonomous government spending, and a fall in real Gross Domestic Product (GDP).

Question 9

A higher price level causes

Accepted Answer

A)  the aggregate demand curve to shift to the left. 
B)  the aggregate demand curve to shift to the right. 
C)  the C + I + G + X curve to shift down. 
D)  the C + I + G + X curve to shift up. 
A)  the aggregate demand curve to shift to the left. 
B)  the aggregate demand curve to shift to the right. 
C)  the C + I + G + X curve to shift down. 
D)  the C + I + G + X curve to shift up.

Question 10

The planned investment function shows that

Accepted Answer

A)  real gross investment falls as real NNP increases. 
B)  a negative relationship exists between the level of planned investment and the interest rate. 
C)  a positive relationship exists between planned consumption and planned investment. 
D)  at higher levels of planned saving, planned investment increases. 
A)  real gross investment falls as real NNP increases. 
B)  a negative relationship exists between the level of planned investment and the interest rate. 
C)  a positive relationship exists between planned consumption and planned investment. 
D)  at higher levels of planned saving, planned investment increases.

Question 11

-Refer to the above figure. Line EBD is called

Accepted Answer

A)  the 45-degree line. 
B)  the consumption function. 
C)  the saving function. 
D)  aggregate demand. 
A)  the 45-degree line. 
B)  the consumption function. 
C)  the saving function. 
D)  aggregate demand.

Question 12

When real Gross Domestic Product (GDP) exceeds total planned real expenditures,

Accepted Answer

A)  there will be unplanned decreases in inventories. 
B)  the circular flow will increase. 
C)  a lower level of equilibrium real Gross Domestic Product (GDP) will result. 
D)  a higher level of equilibrium real Gross Domestic Product (GDP) will prevail. 
A)  there will be unplanned decreases in inventories. 
B)  the circular flow will increase. 
C)  a lower level of equilibrium real Gross Domestic Product (GDP) will result. 
D)  a higher level of equilibrium real Gross Domestic Product (GDP) will prevail.

Question 13

Which one of the following is true in an open economy with a government sector?

Accepted Answer

A)  The equilibrium level of real GDP occurs when real net export spending equals zero. 
B)  The equilibrium level of real GDP occurs when planned real saving equals government spending. 
C)  The equilibrium level of real GDP occurs when total planned real expenditures equal real GDP. 
D)  The equilibrium level of real GDP occurs when planned real investment spending is zero. 
A)  The equilibrium level of real GDP occurs when real net export spending equals zero. 
B)  The equilibrium level of real GDP occurs when planned real saving equals government spending. 
C)  The equilibrium level of real GDP occurs when total planned real expenditures equal real GDP. 
D)  The equilibrium level of real GDP occurs when planned real investment spending is zero.

Question 14

-According to the above table, if real Gross Domestic Product (GDP) equals $30,000, what is the average propensity to consume?

Accepted Answer

A)  0.67 
B)  0.75 
C)  0.8 
D)  0.87 
A)  0.67 
B)  0.75 
C)  0.8 
D)  0.87

Question 15

Ignoring the government and foreign sectors, if planned investment spending is $500 billion, planned saving is $800 billion, and real Gross Domestic Product (GDP) is $13 trillion, then unplanned inventories will

Accepted Answer

A)  decrease $300 billion. 
B)  increase $300 billion. 
C)  increase $800 billion. 
D)  not change. 
A)  decrease $300 billion. 
B)  increase $300 billion. 
C)  increase $800 billion. 
D)  not change.

Question 16

Autonomous consumption is

Accepted Answer

A)  consumption spending that is earned rather than transferred from the government. 
B)  consumption spending that does not depend on the level of income. 
C)  the amount spent on consumption when saving equals zero. 
D)  consumption spending when the marginal propensity to consume is 1. 
A)  consumption spending that is earned rather than transferred from the government. 
B)  consumption spending that does not depend on the level of income. 
C)  the amount spent on consumption when saving equals zero. 
D)  consumption spending when the marginal propensity to consume is 1.

Question 17

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the marginal propensity to consume?

Accepted Answer

A)  0 
B)  0.3 
C)  0.7 
D)  1 
A)  0 
B)  0.3 
C)  0.7 
D)  1

Question 18

Suppose real disposable income increases by $1,000. Given this information, we know that

Accepted Answer

A)  consumption will generally increase by exactly $1,000. 
B)  consumption will generally increase by less than $1,000. 
C)  consumption will generally increase by more than $1,000. 
D)  saving will generally increase by exactly $1,000. 
A)  consumption will generally increase by exactly $1,000. 
B)  consumption will generally increase by less than $1,000. 
C)  consumption will generally increase by more than $1,000. 
D)  saving will generally increase by exactly $1,000.

Question 19

Suppose that when disposable income decreases by $2,000, consumption spending increases by $1500. Given this information, we know that the marginal propensity to consume (MPC) is

Accepted Answer

A)  )25. 
B)  )75. 
C)  $1,000/$750 = 1.33. 
D)  1/.25 = 4. 
A)  )25. 
B)  )75. 
C)  $1,000/$750 = 1.33. 
D)  1/.25 = 4.

Question 20

Suppose that there is no government and no international trade. When C + I is less than the level of real GDP,

Accepted Answer

A)  unplanned inventories decrease, and real GDP expands. 
B)  unplanned inventories increase, and real GDP contracts. 
C)  unplanned inventories equal zero, and there is no change in the level of real GDP. 
D)  real planned investment spending equals real planned saving. 
A)  unplanned inventories decrease, and real GDP expands. 
B)  unplanned inventories increase, and real GDP contracts. 
C)  unplanned inventories equal zero, and there is no change in the level of real GDP. 
D)  real planned investment spending equals real planned saving.

Exam 12: Consumption, Real GDP, and the Multiplier

If the marginal propensity to consume (MPC) is 0.8, the multiplier is

-Refer to the above figure. The equilibrium level of real GDP occurs

If the marginal propensity to consume (MPC) is 0.8, the multiplier will be

-Consider the above figure. At an income of $60 we would expect saving to be equal to

If real Gross Domestic Product (GDP) is at an equilibrium level in a closed economy,

The investment function tells us, at any given interest rate,

Which of the following is a true statement relative to retained earnings and investment?

A permanent reduction in net exports leads to

A higher price level causes

The planned investment function shows that

-Refer to the above figure. Line EBD is called

When real Gross Domestic Product (GDP) exceeds total planned real expenditures,

Which one of the following is true in an open economy with a government sector?

-According to the above table, if real Gross Domestic Product (GDP) equals $30,000, what is the average propensity to consume?

Ignoring the government and foreign sectors, if planned investment spending is $500 billion, planned saving is $800 billion, and real Gross Domestic Product (GDP) is $13 trillion, then unplanned inventories will

Autonomous consumption is

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the marginal propensity to consume?

Suppose real disposable income increases by $1,000. Given this information, we know that

Suppose that when disposable income decreases by $2,000, consumption spending increases by $1500. Given this information, we know that the marginal propensity to consume (MPC) is

Suppose that there is no government and no international trade. When C + I is less than the level of real GDP,

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

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The Macroeconomy: Unemployment, Inflation, and Deflation

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Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

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Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

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Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

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Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

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Environmental Economics

Comparative Advantage and the Open Economy

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