Deck 6: Determination of National Income

Question 1

Equilibrium level of GDP can be defined as:

A) savings equal to investment.
B) a level of GDP that is stable inasmuch as there are no conditions present in the economy to move it from this level.
C) a level of GDP at which government spending and tax revenues are in balance.
D) a level of GDP at which consumer savings and government tax revenues are equal.

Answer 1

a level of GDP that is stable inasmuch as there are no conditions present in the economy to move it from this level.

Question 2

Which of the following cannot be considered an injection into the circular flow of money?

A) imports
B) government spending
C) exports
D) investment

Answer 2

imports

Question 3

Which of the following cannot be considered withdrawal from the circular flow of money?

A) imports
B) taxes
C) exports
D) savings

Answer 3

exports

Question 4

Which of the following is not included in aggregate expenditure?

A) investment
B) government spending on goods and services
C) consumption
D) savings

Question 5

Which of the following factors is most likely to influence the amount of consumer spending in our economy?

A) consumer savings
B) consumer income
C) consumer expectations
D) consumer wealth

Question 6

Which of the following is least likely to influence the level of consumer spending in the economy?

A) consumer income
B) interest rates
C) technological change
D) consumer expectations about future prices

Question 7

The relationship between consumption and disposable income:

A) is positive.
B) is non-existent.
C) has a positive elasticity.
D) is negative.

Question 8

The relationship between the marginal propensity to consume and the marginal propensity to save is that:

A) they are equal.
B) the marginal propensity to consume is always greater than the marginal propensity to save.
C) the marginal propensity to save is always greater than the marginal propensity to consume.
D) they add up to 1.0.

Question 9

If your income increased from $30 000 to $40 000 per year, and your consumption increased from $28 000 to $34 000 per year, your MPC is:

A) 0.3.
B) 0.6.
C) 0.4.
D) 0.1.

Question 10

If your income is $40 000 per year and your consumption is $30 000 per year, your average propensity to consume is:

A) 0.75.
B) 0.40.
C) 0.30.
D) impossible to calculate from available information

Question 11

The marginal propensity to consume can be defined as the:

A) percentage of your income used for spending.
B) percentage of any increase in income that you spend.
C) percentage of your income used for spending and saving.
D) percentage of any increase in income that is spent or saved.

Question 12

Typically, as one's income increases, the MPS:

A) increases.
B) decreases.
C) remains constant.
D) there is no set pattern for MPS

Question 13

If the MPC is increasing, the APC must be:

A) remaining constant, since they are not related.
B) increasing.
C) decreasing.
D) impossible to tell

Question 14

If the marginal propensity to consume is 0.8, then:

A) the marginal propensity to save is 0.8.
B) the average propensity to consume is0.8.
C) the marginal propensity to save is 0.2.
D) the average propensity to consume is0.2.

Question 15

Which of the following statements is true about savings in Canada?

A) British Columbia has negative saving rates
B) the savings rates of average Canadians have been increasing over time
C) Newfoundland has the lowest saving rates
D) the average Canadian saves 20% of their after tax income

Question 16

Which of the following factors is least likely to influence the level of investment spending?

A) government regulations on business activity
B) interest rates
C) personal income taxes
D) technological change

Question 17

Which of the following will lead to a decrease in investment spending?

A) an increase in the interest rate
B) the removal of rent controls
C) positive GDP forecasts
D) the introduction of word-processing equipment

Question 18

Which of the following will lead to an increase in investment spending?

A) negative GDP forecasts
B) the introduction of word-processing equipment
C) an increase in the interest rate
D) the introduction of rent controls

Question 19

Real Gross Domestic Product (RGDP) is a better indicator than Gross Domestic Product (GDP) of the amount of goods and services produced in Canada because:

A) GDP does not include transactions that do not have a market price, such as volunteer work.
B) GDP measures production undertaken by Canadians regardless of where they work.
C) RGDP takes into consideration changes in the population.
D) RGDP adjusts GDP for inflation.

Question 20

The paradox of thrift states that:

A) the amount of money that people save need not be the same as the amount of money that businesses invest.
B) higher interest rates encourage saving and lower interest rates discourage saving.
C) an attempt to save more money on behalf of many people can actually lead to a decrease in total savings.
D) by saving more money now we will have greater purchasing power in the future.

Question 21

When the value of MPC = 0.75, the value of the expenditure multiplier is:

A) 3.
B) 4.
C) 2.
D) 7.5.

Question 22

When the value of the MPC = 0.8, the value of the expenditure multiplier is:

A) 5.
B) 10.
C) 4.
D) 8.

Question 23

When the value of the MPC = 0.8, the value of the tax multiplier is:

A) 8.
B) 2.
C) 5.
D) 4.

Question 24

When the value of the MPC = 0.9, the value of the tax multiplier is:

A) 1.
B) 9.
C) 5.
D) 10.

Question 25

According to the multiplier formula, a decrease in the marginal propensity to consume:

A) increases the multiplier.
B) reduces RGDPe.
C) increases autonomous expenditures.
D) reduces aggregate expenditure.

Question 26

According to the multiplier formula, an increase in the marginal propensity to consume:

A) decreases the multiplier.
B) decreases autonomous expenditures.
C) increases RGDPe.
D) increases aggregate expenditure.

Question 27

According to the multiplier formula, an increase in the marginal propensity to save:

A) reduces RGDPe.
B) increases autonomous expenditures.
C) increases the multiplier.
D) reduces aggregate expenditure.

Question 28

According to the multiplier formula, an decrease in the marginal propensity to save:

A) decreases autonomous expenditures.
B) increases aggregate expenditure.
C) increases RGDP_e.
D) decreases the multiplier.

Question 29

If the MPC = 0.8, a $5 million increase in investment will cause GDP to increase by:

A) $40 million.
B) $80 million.
C) $25 million.
D) $5 million.

Question 30

If the MPC = 0.9, a $10 million increase in savings will change GDP in the following manner:

A) decrease GDP by $100 million.
B) decrease GDP by $9 million.
C) increase GDP by $100 million.
D) increase GDP by $10 million.

Question 31

If the MPC = 0.9, a $10 million increase in taxes will change the GDP in the following manner:

A) decrease GDP by $9 million.
B) increase GDP by $10 million.
C) decrease GDP by $90 million.
D) increase GDP by $90 million.

Question 32

If the MPC = 0.8, then a $5 billion increase in taxes and a $5 billion increase in government spending will change GDP in the following manner:

A) increase GDP by $5 billion.
B) decrease GDP by $5 billion.
C) increase GDP by $25 billion.
D) decrease GDP by $25 billion.

Question 33

What impact will a $25 million decrease in taxes have on GDP? (If MPC = 0.75):

A) increase GDP by $100 million.
B) decrease GDP by $75 million.
C) decrease GDP by $100 million.
D) increase GDP by $75 million.

Question 34

Which of the following is most likely to increase GDP?

A) an increase in taxes
B) an increase in savings
C) an increase in investment
D) an increase in imports

Question 35

When the price level increases (everything else remaining the same), the quantity of goods and services demanded, represented by RGDP:

A) increases because people substitute future consumption for present consumption.
B) increases because people reduce their savings to restore their purchasing power.
C) decreases because people substitute present consumption for future consumption.
D) decreases because people increase their savings to restore their wealth.

Question 36

When the price level decreases (everything else remaining the same), the quantity of goods and services demanded, represented by RGDP:

A) increases because people substitute present consumption for future consumption.
B) increases because people increase their savings to restore their purchasing power.
C) decreases because people increase their savings to restore their wealth.
D) decreases because people substitute present consumption for future consumption.

Question 37

All of the following determine the level of aggregate supply in our economy except:

A) individual purchasing power.
B) the amount of minerals, wild animals, vegetation, and water.
C) investment in management techniques.
D) changes in population and labour force participation.

Question 38

All of the following determine the level of aggregate supply in our economy except:

A) government promotions encouraging foreign companies to locate in Canada.
B) investment in factories, machinery and equipment.
C) investment in education and training of the labour force.
D) the real gross domestic product.

Question 39

When aggregate demand is greater than aggregate supply:

A) inventories accumulate and the price level will tend to rise.
B) inventories are depleted and the price level will tend to fall.
C) inventories accumulate and the price level will tend to fall.
D) inventories are depleted and the price level will tend to rise.

Question 40

When aggregate supply is greater than aggregate demand:

A) inventories accumulate and the price level will tend to rise.
B) inventories are depleted and the price level will tend to fall.
C) inventories are depleted and the price level will tend to rise.
D) inventories accumulate and the price level will tend to fall.

Question 41

Which of the following would cause an increase in the equilibrium price level?

A) an increase in the interest rate
B) an increase in imports
C) a decrease in taxes
D) a decrease in government spending

Question 42

Which of the following would cause a decrease in the equilibrium price level?

A) a decrease in taxes
B) an increase in government spending
C) an increase in exports
D) a decrease in the interest rate

Question 43

When the economy is at full-employment:

A) some resources are sitting idle.
B) only structural unemployment exists.
C) all resources are fully utilized.
D) only frictional unemployment exists.

Question 44

The recessionary gap is:

A) the amount by which aggregate demand has to decrease in order to reach full-employment GDP.
B) the amount by which aggregate demand has to increase in order to reach full-employment GDP.
C) the amount by which full-employment GDP exceeds current GDP.
D) the amount by which current GDP exceeds full-employment GDP.

Question 45

The inflationary gap is:

A) the amount by which aggregate demand has to decrease in order to reach full-employment GDP.
B) the amount by which full-employment GDP exceeds current GDP.
C) the amount by which aggregate demand has to increase in order to reach full-employment GDP.
D) the amount by which current GDP exceeds full-employment GDP.

Question 46

Given that the MPC = 0.75, and the recessionary gap is equal to $40 billion, what is the necessary hange in aggregate demand to achieve full-employment?

A) - $10 billion
B) $30 billion
C) - $30 billion
D) $10 billion

Question 47

Given that the MPC = 0.75, and the inflationary gap is qual to $60 billion, what is the necessary change in taxes to achieve full-employment?

A) $20 billion
B) - $20 billion
C) - $15 billion
D) $15 billion

Question 48

Say's Law states that:

A) frictional unemployment will never go away.
B) government intervention is necessary to bring the economy out of recession.
C) supply creates its own demand.
D) increases in supply will lead to lower prices.

Question 49

The economist who wrote about the policy changes required to bring the economy out of a Recession was:

A) Adam Smith.
B) J .M. Keynes.
C) Karl Marx.
D) J .B. Say.

Question 50

The Great Depression occurred during:

A) the 1940s.
B) the 1920s.
C) the 1930s.
D) the 1950s.