Question 1

-In the above table, the marginal propensity to save when disposable income changes from $5,000 to $6,000 is

Accepted Answer

A)  0.1. 
B)  0.2. 
C)  0.8. 
D)  -0.2. 
A)  0.1. 
B)  0.2. 
C)  0.8. 
D)  -0.2.

Question 2

Which of the following is NOT a simplifying assumption in the simple Keynesian model?

Accepted Answer

A)  Net investment and gross investment are equal. 
B)  All profits are distributed to the business owners. 
C)  Real disposable income equals government purchases of goods and services. 
D)  There is no foreign trade. 
A)  Net investment and gross investment are equal. 
B)  All profits are distributed to the business owners. 
C)  Real disposable income equals government purchases of goods and services. 
D)  There is no foreign trade.

Question 3

Which of the following statements is TRUE?

Accepted Answer

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

Question 4

If the MPC = 0.8, and planned autonomous investment increases by $80 billion, then equilibrium real GDP will increase by

Accepted Answer

A)  $64 billion. 
B)  $80 billion. 
C)  $320 billion. 
D)  $400 billion. 
A)  $64 billion. 
B)  $80 billion. 
C)  $320 billion. 
D)  $400 billion.

Question 5

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 6

For an investment to be considered autonomous, it must

Accepted Answer

A)  be negatively related to the interest rate. 
B)  increase as the level of income increases. 
C)  include fixed components. 
D)  be independent of the level of real disposable income. 
A)  be negatively related to the interest rate. 
B)  increase as the level of income increases. 
C)  include fixed components. 
D)  be independent of the level of real disposable income.

Question 7

-In the above diagram, what happens if the real GDP is $3 trillion? $5 trillion? $7 trillion? What is the equilibrium level of real GDP? Why?

Accepted Answer

At real GDP of $3 trillion, planned real

Question 8

-Use the above table. At an income of $50

Accepted Answer

A)  real saving is $20. 
B)  real dissaving is $10. 
C)  real saving is $10. 
D)  real dissaving is $50. 
A)  real saving is $20. 
B)  real dissaving is $10. 
C)  real saving is $10. 
D)  real dissaving is $50.

Question 9

-Refer to the above figure. At an income of $10,000, saving is

Accepted Answer

A)  0. 
B)  $13,000. 
C)  $3,000. 
D)  -$3,000. 
A)  0. 
B)  $13,000. 
C)  $3,000. 
D)  -$3,000.

Question 10

Which one of the following statements is TRUE?

Accepted Answer

A)  The investment function is positively sloped to reflect the fact that higher interest rates cause more people to invest their funds. 
B)  The investment function is positively sloped to reflect the fact that lower interest rates cause more firms to expand their operations. 
C)  Along a given investment function, higher interest rates result in more investment projects being undertaken. 
D)  Along a given investment function, lower interest rates result in more investment projects being undertaken. 
A)  The investment function is positively sloped to reflect the fact that higher interest rates cause more people to invest their funds. 
B)  The investment function is positively sloped to reflect the fact that lower interest rates cause more firms to expand their operations. 
C)  Along a given investment function, higher interest rates result in more investment projects being undertaken. 
D)  Along a given investment function, lower interest rates result in more investment projects being undertaken.

Question 11

Consumption expenditures include all of the following EXCEPT

Accepted Answer

A)  buying a pizza. 
B)  watching a movie. 
C)  having your house cleaned by a cleaning maid. 
D)  purchasing a government bond. 
A)  buying a pizza. 
B)  watching a movie. 
C)  having your house cleaned by a cleaning maid. 
D)  purchasing a government bond.

Question 12

A firm will invest in a project if

Accepted Answer

A)  the interest rate exceeds the opportunity cost of the project. 
B)  the firm's level of capital is at the desired level. 
C)  the firm's level of capital is higher than the desired level. 
D)  the rate of return of the project is greater than the opportunity cost of the investment. 
A)  the interest rate exceeds the opportunity cost of the project. 
B)  the firm's level of capital is at the desired level. 
C)  the firm's level of capital is higher than the desired level. 
D)  the rate of return of the project is greater than the opportunity cost of the investment.

Question 13

The arithmetic value of (1 - MPC) equals

Accepted Answer

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

Question 14

The multiplier is the ratio of the

Accepted Answer

A)  change in the equilibrium level of real GDP to the change in autonomous expenditures. 
B)  equilibrium level of real GDP to the change in induced expenditures. 
C)  change in induced expenditures to the change in autonomous expenditures. 
D)  change in autonomous expenditures to the change in the equilibrium level of real GDP. 
A)  change in the equilibrium level of real GDP to the change in autonomous expenditures. 
B)  equilibrium level of real GDP to the change in induced expenditures. 
C)  change in induced expenditures to the change in autonomous expenditures. 
D)  change in autonomous expenditures to the change in the equilibrium level of real GDP.

Question 15

If the marginal propensity to consume is unchanged and autonomous consumption expenditures increase, then

Accepted Answer

A)  saving at every level of disposable income increases. 
B)  the break-even disposable income decreases. 
C)  the break-even disposable income increases. 
D)  saving is unaffected. 
A)  saving at every level of disposable income increases. 
B)  the break-even disposable income decreases. 
C)  the break-even disposable income increases. 
D)  saving is unaffected.

Question 16

A decrease in the price level causes

Accepted Answer

A)  a decrease in aggregate demand. 
B)  an increase in aggregate demand. 
C)  an increase in total planned real expenditures. 
D)  a decrease in total planned real expenditures. 
A)  a decrease in aggregate demand. 
B)  an increase in aggregate demand. 
C)  an increase in total planned real expenditures. 
D)  a decrease in total planned real expenditures.

Question 17

What is the significance of the multiplier? What causes the multiplier to be larger or smaller?

Accepted Answer

The multiplier is important because it m

Question 18

Consider a closed economy without a government and without international trade. What will be TRUE when this economy is in equilibrium?

Accepted Answer

A)  Total planned real investment spending will exceed total planned real expenditures. 
B)  Planned real investment spending will exceed real planned saving. 
C)  Planned real consumption spending equals real GDP. 
D)  Planned real consumption spending plus planned real investment spending equals real GDP. 
A)  Total planned real investment spending will exceed total planned real expenditures. 
B)  Planned real investment spending will exceed real planned saving. 
C)  Planned real consumption spending equals real GDP. 
D)  Planned real consumption spending plus planned real investment spending equals real GDP.

Question 19

Changes in business inventories are known as

Accepted Answer

A)  consumer durable. 
B)  consumption goods. 
C)  fixed investment. 
D)  inventory investment. 
A)  consumer durable. 
B)  consumption goods. 
C)  fixed investment. 
D)  inventory investment.

Question 20

Suppose the marginal propensity to consume (MPC) is 0.9 and there is a $4,000 increase in planned investment. Given this information, real GDP will increase by

Accepted Answer

A)  $20,000. 
B)  $10,000. 
C)  $40,000. 
D)  $45,000. 
A)  $20,000. 
B)  $10,000. 
C)  $40,000. 
D)  $45,000.

Exam 12: Consumption, Real GDP, and the Multiplier

-In the above table, the marginal propensity to save when disposable income changes from $5,000 to $6,000 is

Which of the following is NOT a simplifying assumption in the simple Keynesian model?

Which of the following statements is TRUE?

If the MPC = 0.8, and planned autonomous investment increases by $80 billion, then equilibrium real GDP will increase by

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

For an investment to be considered autonomous, it must

-In the above diagram, what happens if the real GDP is $3 trillion? $5 trillion? $7 trillion? What is the equilibrium level of real GDP? Why?

-Use the above table. At an income of $50

-Refer to the above figure. At an income of $10,000, saving is

Which one of the following statements is TRUE?

Consumption expenditures include all of the following EXCEPT

A firm will invest in a project if

The arithmetic value of (1 - MPC) equals

The multiplier is the ratio of the

If the marginal propensity to consume is unchanged and autonomous consumption expenditures increase, then

A decrease in the price level causes

What is the significance of the multiplier? What causes the multiplier to be larger or smaller?

Consider a closed economy without a government and without international trade. What will be TRUE when this economy is in equilibrium?

Changes in business inventories are known as

Suppose the marginal propensity to consume (MPC) is 0.9 and there is a $4,000 increase in planned investment. Given this information, real GDP will increase by

The Nature of Economics

Scarcity and the World of Trade-Offs

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