Deck 11: Income and Expenditure

Question 1

The multiplier is:

A) 1 / (1 - MPC).
B) MPS / MPC.
C) 1 / (MPC).
D) 1 (1 + MPC).

Answer 1

1 / (1 - MPC).

Question 2

The changes in the economy of Finland in 2016 provide an example of:

A) the risk associated with an agricultural economy.
B) illustrating the way booms and busts happen for the economy as a whole.
C) how public assistance programs can stimulate the economy.
D) the benefits of government budget surpluses.

Answer 2

illustrating the way booms and busts happen for the economy as a whole.

Question 3

The marginal propensity to save plus the marginal propensity to consume must equal:

A) zero.
B) one.
C) income.
D) savings.

Answer 3

one.

Question 4

Suppose that the marginal propensity to consume is 0.8 and investment spending increases by $100 billion.The increase in real GDP is:

A) $100 billion,the same amount as investment spending.
B) $125 billion,composed of $100 billion in investment spending and $25 billion in consumption.
C) $80 billion,composed of $100 billion in investment spending and a decrease in consumption of $20 billion.
D) $500 billion,composed of $100 billion in investment spending and $400 billion in consumption.

Question 5

Suppose that investment spending increases by $50 billion,and as a result the equilibrium income increases by $200 billion.The value of the marginal propensity to consume is:

A) 0.8.
B) 0.4.
C) 0.75.
D) 4.

Question 6

If the multiplier equals 4,then the marginal propensity to save must be equal to:

A) 0.25.
B) 0.5.
C) 0.75.
D) the marginal propensity to consume.

Question 7

The marginal propensity to consume equals the:

A) proportion of consumer spending as a function of aggregate disposable income.
B) change in savings divided by the change in aggregate disposable income.
C) ratio of the change in consumer spending to the change in aggregate disposable income.
D) change in savings divided by the change in consumer spending.

Question 8

If the marginal propensity to save is 0.3,the size of the multiplier is:

A) 3.3.
B) 2.3.
C) 1.3.
D) 0.7.

Question 9

The economy of Finland experienced a setback in 2016 because of:

A) the advent of digital technology.
B) a drop in the price of oil.
C) poor business practices at Nokia.
D) climate change.

Question 10

The main reasons that retail sales fell in Finland during 2016 were:

A) a decrease in imports and declining sales at Nokia,which led to reduced household incomes.
B) an increase in imports and declining sales at Nokia,which led to reduced household incomes.
C) an increase in exports and rising sales at Nokia,which led to reduced household incomes.
D) a decrease in exports and declining sales at Nokia,which led to reduced household incomes.

Question 11

The marginal propensity to save is:

A) savings divided by aggregate income.
B) the fraction of an additional dollar of disposable income that is saved.
C) 1 + MPC.
D) savings divided by aggregate income,or 1 + MPC.

Question 12

The decline in the Finnish economy of 2016 is primarily an example of how:

A) too much government regulation is harmful to the economy.
B) changes in consumer spending can be multiplied through the entire economy.
C) immigration affects local economies.
D) high tax rates can decrease the economic activity in an area.

Question 13

The marginal propensity to save is the increase in household savings when _____ increase(s)by $1.

A) investment spending
B) taxes
C) consumption
D) disposable income

Question 14

Suppose that the government increases spending by $100 billion as a stimulus package.If the marginal propensity to consume is 0.6,then real GDP will:

A) decrease by $250 billion.
B) increase by $250 billion.
C) increase by $600 billion.
D) decrease by $400 billion.

Question 15

The marginal propensity to consume is the increase in consumer spending when _____ increase(s)by $1.

A) investment spending
B) taxes
C) disposable income
D) savings

Question 16

The marginal propensity to consume is:

A) increasing if the marginal propensity to save is increasing.
B) the proportion of total disposable income that the average family saves.
C) the change in consumer spending divided by the change in aggregate disposable income.
D) the change in consumer spending minus the change in aggregate disposable income.

Question 17

In a simple,closed economy (no government or foreign sector),if disposable income increases by $100 and $70 is consumed,_____ is saved.

A) $30
B) $70
C) $100
D) $170

Question 18

If the marginal propensity to save is small,it will:

A) make the multiplier smaller.
B) make the multiplier larger.
C) not affect the value of the multiplier.
D) increase the interest rate.

Question 19

If the multiplier is 4 and investment spending falls by $100 billion,the change in real GDP will be:

A) -$400 billion.
B) $400 billion.
C) $25 billion.
D) -$25 billion.

Question 20

Suppose that the Canadian economy is in a severe recession.Most households are trying to save more of their income than before.This increase in private savings will lead to:

A) an increase in real GDP,as more savings means more funds for business investment.
B) a fall in real GDP,as more savings means people will spend less.
C) no change in real GDP,because there is no savings multiplier.
D) an increase in real GDP,as an increase in savings will make people wealthier.

Question 21

In a simple,closed economy (no government or foreign sector),if disposable income increases by $1 000 and consumption increases by $600,the marginal propensity to consume is:

A) $600.
B) $400.
C) 1.67.
D) 0.60.

Question 22

In a simple,closed economy (no government or foreign sector),if the marginal propensity to save decreases,the marginal propensity to consume will:

A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly.

Question 23

In a simple,closed economy (no government or foreign sector),if the marginal propensity to consume increases,the marginal propensity to save will:

A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly.

Question 24

Use the following to answer questions:
(Figure: Planned Aggregate Expenditures Curve II)Use Figure: Planned Aggregate Expenditures Curve II.Suppose that the consumption function in this figure rises by $100.The planned aggregate expenditures curve would shift upwards by:

A) $100.
B) $250.
C) $100 times the multiplier.
D) $150.

Question 25

In a simple,closed economy (no government or foreign sector),if the marginal propensity to consume is 0.7,the marginal propensity to save must be:

A) 1.7.
B) 0.7.
C) 0.3.
D) 0.21.

Question 26

In a simple,closed economy (no government or foreign sector),disposable income increases from $2 000 to $3 000.If consumption increases from $1 500 to $2 100,the marginal propensity to consume is:

A) $600.
B) 0.71.
C) 0.60.
D) 0.50.

Question 27

Use the following to answer questions:
(Figure: Planned Aggregate Expenditures Curve II)Use Figure: Planned Aggregate Expenditures Curve II.The slope of the planned aggregate expenditures curve is:

A) 0.25.
B) 0.5.
C) 0.6.
D) 45 degrees.

Question 28

A $70 million decrease in investment spending will cause real GDP to:

A) decrease by $70 million.
B) increase by $70 million.
C) decrease by less than $70 million.
D) decrease by more than $70 million.

Question 29

Use the following to answer questions:
(Figure: Planned Aggregate Expenditures Curve II)Use Figure: Planned Aggregate Expenditures Curve II.Suppose that the consumption function in this economy rises by $200.Equilibrium real GDP would rise by:

A) $100.
B) $200.
C) $250.
D) $500.

Question 30

An initial change in the desired level of spending by firms,households,or government at a given level of real GDP is a(n):

A) autonomous change in aggregate expenditure.
B) multiplier-induced change in spending.
C) endogenous spending.
D) budget surplus.

Question 31

Use the following to answer questions:
(Figure: Planned Aggregate Expenditures Curve II)Use Figure: Planned Aggregate Expenditures Curve II.Suppose that the consumption function rises by $100.The equilibrium level of real GDP would rise by:

A) $100.
B) $200.
C) $250.
D) $50.

Question 32

A $50 million increase in investment spending will eventually cause equilibrium real GDP to:

A) decrease by $50 million.
B) increase by $50 million.
C) increase by more than $50 million.
D) increase by less than $50 million.

Question 33

In a simple,closed economy (no government or foreign sector),if disposable income increases by $100 and $30 is saved,_____ is consumed.

A) $30
B) $70
C) $100
D) $170

Question 34

In a simple,closed economy (no government or foreign sector),if disposable income increases by $1000 and consumption increases by $600,the marginal propensity to save is:

A) $600.
B) $400.
C) 2.5.
D) 0.40.

Question 35

In a simple,closed economy (no government or foreign sector),if the marginal propensity to save is 0.2,the marginal propensity to consume must be:

A) 0.2.
B) 0.8.
C) 1.2.
D) 0.16.

Question 36

Use the following to answer questions:
(Figure: Planned Aggregate Expenditures Curve II)Use Figure: Planned Aggregate Expenditures Curve II.The multiplier is:

A) 1.0.
B) 2.0.
C) 2.5.
D) 5.0.

Question 37

Use the following to answer questions:
(Figure: Planned Aggregate Expenditures Curve II)Use Figure: Planned Aggregate Expenditures Curve II.The equilibrium level of real GDP in the planned aggregate expenditure model shown in this figure is:

A) $800.
B) $1 000.
C) $2 000.
D) $4 000.

Question 38

In a simple,closed economy (no government or foreign sector),disposable income increases from $2 000 to $3 000.If consumption increases from $1 500 to $2 100,the marginal propensity to save is:

A) $600.
B) $400.
C) 0.80.
D) 0.40.

Question 39

In a simple,closed economy (no government or foreign sector),if disposable income increases by $1 000 and consumption increases by $600,the multiplier is:

A) $600.
B) 0.6.
C) 2.5.
D) 0.40.

Question 40

Use the following to answer questions:
(Figure: Planned Aggregate Expenditures Curve III)Use Figure: Planned Aggregate Expenditures Curve III.Suppose that the consumption function in this figure rises by $100.The planned aggregate expenditures curve will shift upwards by:

A) $100.
B) $400.
C) $100 times the multiplier.
D) $200 times the multiplier.

Question 41

Use the following to answer questions:
(Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure)Use Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure.If expected disposable income increases,then the:

A) planned aggregate expenditure curve will shift up.
B) planned aggregate expenditure curve will shift down.
C) economy will move upwards along the planned aggregate expenditure curve.
D) economy will move downwards along the planned aggregate expenditure curve.

Question 42

In a simple,closed economy (no government or foreign sector),any disposable income that is not consumed is saved.

Question 43

In a simple,closed economy (no government or foreign sector),if disposable income increases by $500 and $450 is consumed,$950 is saved.

Question 44

Use the following to answer questions:
(Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure)Use Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure.If aggregate wealth increases,the:

A) planned aggregate expenditure curve will shift up.
B) planned aggregate expenditure curve will shift down.
C) economy will move upwards along the planned aggregate expenditure curve.
D) economy will move downwards along the planned aggregate expenditure curve.

Question 45

A $200 million increase in investment spending will increase real GDP by more than $200 million.

Question 46

A $200 million increase in investment spending will increase real GDP by exactly $200 million.

Question 47

Use the following to answer questions:
(Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure)Use Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure.If disposable income decreases,then the:

A) planned aggregate expenditure curve will shift up.
B) planned aggregate expenditure curve will shift down.
C) economy will move upwards along the planned aggregate expenditure curve.
D) economy will move downwards along the planned aggregate expenditure curve.

Question 48

Use the following to answer questions:
(Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure)Use Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure.If current disposable income increases in this economy,then the:

A) planned aggregate expenditure curve will shift up.
B) planned aggregate expenditure curve will shift down.
C) economy will move upwards along the planned aggregate expenditure curve.
D) economy will move downwards along the planned aggregate expenditure curve.

Question 49

From 2010 to 2012,Alberta's economy grew at an annual growth rate of 17%,more than 5 times the growth of the Canadian economy as a whole,due to rapid growth in its biotechnology sector.

Question 50

Use the following to answer questions:
The digital revolution led to a decline in Finnish paper exports.

Question 51

The marginal propensity to save is the increase in household savings when investment spending increases by $1.

Question 52

A $600 million decrease in investment spending will decrease real GDP by more than $600 million.

Question 53

Use the following to answer questions:
(Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure)Use Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure.If expected disposable income decreases in this economy,then the:

A) planned aggregate expenditure curve will shift up.
B) planned aggregate expenditure curve will shift down.
C) economy will move upwards along the planned aggregate expenditure curve.
D) economy will move downwards along the planned aggregate expenditure curve.

Question 54

A $300 million decrease in investment spending will increase real GDP by more than $300 million.

Question 55

Use the following to answer questions:
(Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure)Use Figure: The Aggregate Consumption Function and Planned Aggregate Expenditure.If aggregate wealth decreases,then the:

A) planned aggregate expenditure curve will shift up.
B) planned aggregate expenditure curve will shift down.
C) economy will move upwards along the planned aggregate expenditure curve.
D) economy will move downwards along the planned aggregate expenditure curve.

Question 56

From 2010 to 2012,Alberta's economy grew at an annual growth rate of 22%,more than 5 times the growth of the Canadian economy as a whole due to the mining of shale.

Question 57

Use the following to answer questions:
(Figure: Planned Aggregate Expenditures Curve III)Use Figure: Planned Aggregate Expenditures Curve III.Suppose that the consumption function shifts upwards by $100.Equilibrium real GDP will rise by:

A) $100.
B) $400.
C) $800.
D) $3 200.

Question 58

Finland's real GDP per capita grew rapidly in 2008 due to Nokia's ability to innovate and stay ahead of its competition.

Question 59

In a simple,closed economy (no government or foreign sector),if disposable income increases by $500 and $450 is consumed,$50 is saved.

Question 60

The marginal propensity to consume is the increase in consumer spending when disposable income increases by $1.

Question 61

If the marginal propensity to consume is 0.9,the multiplier will be 0.1.

Question 62

If the marginal propensity to save decreases,the multiplier will increase.

Question 63

If the marginal propensity to save is 0.25 in an economy with no taxes and no imports,the marginal propensity to consume is 0.75.

Question 64

In an economy with no taxes and no imports,disposable income increases from $1 000 to $2 000.If consumption increases from $800 to $1 500,the marginal propensity to save is 0.3.

Question 65

If the marginal propensity to consume is 0.9 and investment spending increases by $50 billion,the change in real GDP will be $5 billion.

Question 66

Autonomous expenditure occurs in the second round of expenditure increases caused by the multiplier.

Question 67

In an economy with no taxes or imports,if disposable income decreases by $2 000 and consumption decreases by $1 400,the multiplier is 7.

Question 68

In an economy with no taxes and no imports,disposable income increases from $1 000 to $2 000.If consumption increases from $800 to $1 500,the multiplier is 3.33.

Question 69

In an economy with no taxes and no imports,disposable income increases from $1 000 to $2 000.If consumption increases from $800 to $1 500,the marginal propensity to save is 0.25.

Question 70

If the marginal propensity to save is 0.25 in an economy with no taxes and no imports,the marginal propensity to consume is 1.25.

Question 71

In an economy with no taxes or imports,if disposable income decreases by $2 000 and consumption decreases by $1 500,the multiplier is -4.

Question 72

In an economy with no taxes or imports,if disposable income increases by $2 000 and consumption increases by $1 400,the marginal propensity to save is 0.21.

Question 73

Autonomous expenditure is an initial change in the desired level of expenditure by firms,households,or government at a given level of real GDP.

Question 74

In an economy with no taxes or imports,if disposable income decreases by $2 000 and consumption decreases by $1 400,the marginal propensity to save is 0.3.

Question 75

In an economy with no taxes or imports,if the marginal propensity to consume increases,the marginal propensity to save will also increase.

Question 76

In an economy with no taxes and no imports,disposable income increases from $1 000 to $2 000.If consumption increases from $800 to $1 500,the marginal propensity to consume is 0.7.

Question 77

In an economy with no taxes or imports,if disposable income decreases by $2 000 and consumption decreases by $1 500,the marginal propensity to consume is -0.25.

Question 78

If the marginal propensity to consume decreases,the multiplier will increase.

Question 79

If the marginal propensity to save is 0.2,the multiplier will be 5.

Question 80

In an economy with no taxes or imports,if the marginal propensity to consume increases,the marginal propensity to save will decrease.