Question 1

If autonomous investment increases by $200 billion and the marginal propensity to consume (MPC) is 0.5, then

Accepted Answer

A)  real Gross Domestic Product (GDP) will rise by $400 billion. 
B)  real Gross Domestic Product (GDP) will rise by $200 billion. 
C)  real Gross Domestic Product (GDP) will rise by $100 billion. 
D)  real Gross Domestic Product (GDP) will decrease by $100 billion. 
A)  real Gross Domestic Product (GDP) will rise by $400 billion. 
B)  real Gross Domestic Product (GDP) will rise by $200 billion. 
C)  real Gross Domestic Product (GDP) will rise by $100 billion. 
D)  real Gross Domestic Product (GDP) will decrease by $100 billion.

Question 2

According to Keynes, real saving and real consumption spending are functions of

Accepted Answer

A)  economic expectations. 
B)  an individual's future earning potential. 
C)  current educational attainment. 
D)  current real disposable income. 
A)  economic expectations. 
B)  an individual's future earning potential. 
C)  current educational attainment. 
D)  current real disposable income.

Question 3

-Use the above table. The autonomous consumption in this table is

Accepted Answer

A)  $140. 
B)  $20. 
C)  $0. 
D)  $50. 
A)  $140. 
B)  $20. 
C)  $0. 
D)  $50.

Question 4

-According to the above figure, the average propensity to save (APS) is zero at point

Accepted Answer

A)  D. 
B)  F. 
C)  I. 
D)  J. 
A)  D. 
B)  F. 
C)  I. 
D)  J.

Question 5

If the average propensity to consume is 0.8, then the average propensity to save is

Accepted Answer

A)  0. 
B)  0.2. 
C)  0.8. 
D)  1. 
A)  0. 
B)  0.2. 
C)  0.8. 
D)  1.

Question 6

The fraction of a change in real disposable income that is spent is referred to as the

Accepted Answer

A)  APC. 
B)  MPC. 
C)  MPS. 
D)  APS. 
A)  APC. 
B)  MPC. 
C)  MPS. 
D)  APS.

Question 7

What is the multiplier? How is it calculated? Why is the multiplier related only to consumption spending?

Accepted Answer

The multiplier is the number by which a

Question 8

-Refer to the above figure. If real disposable income is less than $5,000, then saving is

Accepted Answer

A)  0. 
B)  negative. 
C)  positive. 
D)  none of the above: cannot be determined with the given information. 
A)  0. 
B)  negative. 
C)  positive. 
D)  none of the above: cannot be determined with the given information.

Question 9

Which of the following statements is true?

Accepted Answer

A)  consumption + saving = disposable income 
B)  consumption + saving = personal income 
C)  consumption - investment = disposable income 
D)  consumption - saving = personal income 
A)  consumption + saving = disposable income 
B)  consumption + saving = personal income 
C)  consumption - investment = disposable income 
D)  consumption - saving = personal income

Question 10

The multiplier effect tends to

Accepted Answer

A)  generate instability. 
B)  promote stability of the general price level. 
C)  magnify small changes in spending into much larger changes in real Gross Domestic Product (GDP). 
D)  increase the MPC. 
A)  generate instability. 
B)  promote stability of the general price level. 
C)  magnify small changes in spending into much larger changes in real Gross Domestic Product (GDP). 
D)  increase the MPC.

Question 11

Compared to consumption spending, investment historically has tended to be

Accepted Answer

A)  greater. 
B)  more stable. 
C)  stagnant. 
D)  more variable. 
A)  greater. 
B)  more stable. 
C)  stagnant. 
D)  more variable.

Question 12

-Refer to the above figure. If real GDP is $4 trillion, then

Accepted Answer

A)  consumption expenditures are too low. 
B)  unplanned inventories will decrease. 
C)  unplanned inventories will increase. 
D)  actual investment spending equals $1 trillion as planned investment spending plus unplanned inventory increases equal $1 trillion. 
A)  consumption expenditures are too low. 
B)  unplanned inventories will decrease. 
C)  unplanned inventories will increase. 
D)  actual investment spending equals $1 trillion as planned investment spending plus unplanned inventory increases equal $1 trillion.

Question 13

As real disposable income increases, consumption expenditures

Accepted Answer

A)  increase by the same amount. 
B)  increase by a smaller amount. 
C)  increase by a larger amount. 
D)  remain constant. 
A)  increase by the same amount. 
B)  increase by a smaller amount. 
C)  increase by a larger amount. 
D)  remain constant.

Question 14

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

Accepted Answer

A)  0.2. 
B)  1.25. 
C)  4.0. 
D)  5.0. 
A)  0.2. 
B)  1.25. 
C)  4.0. 
D)  5.0.

Question 15

Investment includes spending on

Accepted Answer

A)  capital goods, buildings, and consumer durable goods. 
B)  capital goods, buildings, and changes in business inventories. 
C)  capital goods, consumer durable goods, and changes in business inventories. 
D)  capital goods, buildings, and changes in business savings. 
A)  capital goods, buildings, and consumer durable goods. 
B)  capital goods, buildings, and changes in business inventories. 
C)  capital goods, consumer durable goods, and changes in business inventories. 
D)  capital goods, buildings, and changes in business savings.

Question 16

According to Keynes, the most important determinant of an individual's real saving is

Accepted Answer

A)  interest rates. 
B)  the foreign exchange rate. 
C)  the individual's real disposable income. 
D)  the level of investment. 
A)  interest rates. 
B)  the foreign exchange rate. 
C)  the individual's real disposable income. 
D)  the level of investment.

Question 17

At a level of real disposable income of $0, suppose consumption is $2,000. Given this information, we know with certainty that saving equals

Accepted Answer

A)  $0. 
B)  $2,000. 
C)  -$2,000. 
D)  -$1,000. 
A)  $0. 
B)  $2,000. 
C)  -$2,000. 
D)  -$1,000.

Question 18

-In the above figure, point E represents the level of real GDP at which planned saving equals planned investment. At point A,

Accepted Answer

A)  unplanned inventories increase. 
B)  changes in inventories cannot be determined. 
C)  unused industrial capacity exists in the economy. 
D)  unplanned inventories decrease. 
A)  unplanned inventories increase. 
B)  changes in inventories cannot be determined. 
C)  unused industrial capacity exists in the economy. 
D)  unplanned inventories decrease.

Question 19

The part of consumption that is independent of disposable income is called

Accepted Answer

A)  automatic consumption. 
B)  fixed consumption. 
C)  personal consumption. 
D)  autonomous consumption. 
A)  automatic consumption. 
B)  fixed consumption. 
C)  personal consumption. 
D)  autonomous consumption.

Question 20

-According to the above table, if real Gross Domestic Product (GDP) is $30,000, planned saving equals

Accepted Answer

A)  $2,000. 
B)  $3,000. 
C)  $4,000. 
D)  $5,000. 
A)  $2,000. 
B)  $3,000. 
C)  $4,000. 
D)  $5,000.

Exam 12: Consumption, Real GDP, and the Multiplier

If autonomous investment increases by $200 billion and the marginal propensity to consume (MPC) is 0.5, then

According to Keynes, real saving and real consumption spending are functions of

-Use the above table. The autonomous consumption in this table is

-According to the above figure, the average propensity to save (APS) is zero at point

If the average propensity to consume is 0.8, then the average propensity to save is

The fraction of a change in real disposable income that is spent is referred to as the

What is the multiplier? How is it calculated? Why is the multiplier related only to consumption spending?

-Refer to the above figure. If real disposable income is less than $5,000, then saving is

Which of the following statements is true?

The multiplier effect tends to

Compared to consumption spending, investment historically has tended to be

-Refer to the above figure. If real GDP is $4 trillion, then

As real disposable income increases, consumption expenditures

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

Investment includes spending on

According to Keynes, the most important determinant of an individual's real saving is

At a level of real disposable income of $0, suppose consumption is $2,000. Given this information, we know with certainty that saving equals

-In the above figure, point E represents the level of real GDP at which planned saving equals planned investment. At point A,

The part of consumption that is independent of disposable income is called

-According to the above table, if real Gross Domestic Product (GDP) is $30,000, planned saving equals

The Nature of Economics

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