Deck 10: B: Basic Macroeconomic Relationships

Question 1

A business firm will purchase additional capital goods if the real rate of interest it must pay is less than the expected rate of return from the investment.

Answer 1

True

Question 2

A specific investment will be undertaken if the expected rate of returns, r, exceeds the interest rate, i.

Answer 2

True

Question 3

The multiplier is equal to the reciprocal of the MPC.

Answer 3

False

Question 4

1 + MPS = MPC.

Question 5

The most important determinant of consumer spending is:

A)the level of household debt.
B)consumer expectations.
C)the stock of wealth.
D)the level of disposable income.

Question 6

The slope of the saving schedule measures the size of the multiplier.

Question 7

If the MPC is constant at various levels of income, then the APC must also be constant at all of these income levels.

Question 8

The most important determinant of consumption and saving is the:

A)level of bank credit.
B)level of disposable income.
C)interest rate.
D)price level.

Question 9

The average propensity to consume can be defined as income divided by consumption.

Question 10

The slope of the consumption schedule is equal to the marginal propensity to consume.

Question 11

The wealth effect will tend to decrease consumption and increase saving.

Question 12

If the Brown family's marginal propensity to consume is 0.70, then it will consume seven-tenths of its total income.

Question 13

The reverse wealth effect will tend to decrease consumption and increase saving.

Question 14

The slope of the consumption schedule is measured by the MPC.

Question 15

The initial costs of capital goods, and the estimated costs of operating and maintaining those goods, affect the expected rate of return on investment.

Question 16

The business investment is not based on the expected returns.

Question 17

Economists disagree on the actual size of the multiplier.

Question 18

1 - MPC = MPS.

Question 19

The greater the MPC, the greater the multiplier.

Question 20

If the MPS is 1, the multiplier will be 1.

Question 21

The saving schedule is drawn on the assumption that as income increases:

A)saving will decline absolutely and as a percentage of income.
B)saving will increase absolutely, but remain constant as a percentage of income.
C)saving will increase absolutely, but decline as a percentage of income.
D)saving will increase absolutely and as a percentage of income.

Question 22

The consumption schedule relates:

A)consumption to the level of disposable income.
B)saving to the level of disposable income.
C)disposable income to domestic income.
D)consumption to saving.

Question 23

The consumption schedule is drawn on the assumption that as disposable income increases consumption will:

A)be unaffected.
B)increase absolutely, but remain constant as a percentage of income.
C)increase absolutely, but decline as a percentage of income.
D)increase absolutely and as a percentage of income.

Question 24

Which of the following equations correctly represents the data below?

A)Y_d = 40 + .6C
B)C = 60 + .4Y_d
C)C = 40 + .6Y_d
D)C = .6Y_d

Question 25

If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed:

A)the vertical intercept would be +.6 and the slope would be +20.
B)it would reveal an inverse relationship between consumption and disposable income.
C)the vertical intercept would be negative, but consumption would increase as disposable income rises.
D)the vertical intercept would be +20 and the slope would be +.6.

Question 26

A decline in disposable income:

A)increases consumption by moving upward along a specific consumption schedule.
B)decreases consumption because it shifts the consumption schedule downward.
C)decreases consumption by moving downward along a specific consumption schedule.
D)increases consumption because it shifts the consumption schedule upward.

Question 27

If the consumption schedule is linear, then the:

A)saving schedule will also be linear.
B)MPS will decline as income rises.
C)MPC will decline as income rises.
D)APC will be constant at all levels of income.

Question 28

The 45-degree line on a chart relating consumption and income shows:

A)all points where the MPC is constant.
B)all points at which saving and income are equal.
C)all the points at which consumption and income are equal.
D)the amounts households will plan to save at each possible level of income.

Question 29

The consumption schedule in the diagram below indicates that:

A)consumers will maximize their satisfaction where the consumption schedule and 45 $\degree$ line intersect.
B)up to a point consumption exceeds income, but then falls below income.
C)the MPC falls as income increases.
D)households consume as much as they earn.

Question 30

Refer to the data below.When plotted on a graph, the vertical intercept of the consumption schedule in this economy is _____ and the slope is _____.

A)-2; 1
B)$2; .18
C)$100; .5
D)$2; .9

Question 31

If the MPC is .8 and the disposable income is $200, then

A)consumption and saving cannot be determined from the information given.
B)saving will be $20.
C)personal consumption expenditures will be $80.
D)saving will be $40.

Question 32

The equation C = 35 + .75Y, where C is consumption and Y is disposable income, tells us that:

A)households will consume three-fourths of whatever level of disposable income they receive.
B)households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.
C)there is an inverse relationship between disposable income and consumption.
D)households will save $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.

Question 33

The saving schedule is such that as aggregate income increases by a certain amount, saving:

A)increases by the same amount as the increase in income.
B)does not change.
C)increases.
D)decreases.

Question 34

The consumption schedule shows:

A)that the MPC increases in proportion to GDP.
B)that households consume more when interest rates are low.
C)that consumption depends primarily upon the level of business investment.
D)the amounts households plan or intend to consume at various possible levels of aggregate income.

Question 35

The consumption schedule shows:

A)a direct relationship between aggregate consumption and accumulated wealth.
B)a direct relationship between aggregate consumption and aggregate income.
C)an inverse relationship between aggregate consumption and accumulated financial wealth.
D)an inverse relationship between aggregate consumption and aggregate income.

Question 36

The relationship between consumption and disposable income is such that:

A)an inverse and stable relationship exists between consumption and income.
B)a direct, but very volatile, relationship exists between consumption and income.
C)a direct and quite stable relationship exists between consumption and income.
D)the two are always equal.

Question 37

Dissaving occurs where:

A)income exceeds consumption.
B)saving exceeds consumption.
C)consumption exceeds income.
D)saving exceeds income.

Question 38

Given the consumption schedule, it is possible to graph the relevant saving schedule by:

A)subtracting the MPC from "one" at each level of income.
B)subtracting investment from consumption at each level of GDP.
C)plotting the horizontal differences between the consumption schedule and the 45-degree line.
D)plotting the vertical differences between the consumption schedule and the 45-degree line.

Question 39

As disposable income increases, consumption:

A)and saving both increase.
B)and saving both decrease.
C)decreases and saving increases.
D)increases and saving decreases.

Question 40

Dissaving means:

A)the same thing as disinvesting.
B)that households are spending in excess of their current incomes.
C)that saving and investment are equal.
D)that disposable income is less than zero.

Question 41

Refer to the above diagram.The break-even level of disposable income:

A)is zero.
B)is minus $10.
C)is $100.
D)cannot be determined from the information given.

Question 42

The average propensity to consume indicates the:

A)amount by which income exceeds consumption.
B)relationship between a change in saving and the consequent change in consumption.
C)percentage of total income which will be consumed.
D)percentage of a change in income which will be consumed.

Question 43

Refer to the above diagram.The break-even level of income is:

A)zero.
B)150
C)60
D)120

Question 44

If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when disposable income is:

A)$80
B)$100
C)$120
D)$160

Question 45

The APC can be defined as the fraction of a:

A)change in income which is not spent.
B)change in income which is spent.
C)specific level of total income which is not consumed.
D)specific level of total income which is consumed.

Question 46

Refer to the above diagram.The MPC and APC are both constant as income increases for:

A)none of the consumption schedules shown.
B)C₃ only.
C)C₃ and C₄ only.
D)C₁ and C₂ only.

Question 47

Refer to the above diagram.At disposable income level D, consumption:

A)is equal to CD.
B)is equal to OD minus CD.
C)is equal to CD/OD.
D)is equal to CD plus BD.

Question 48

For all levels of income to the left of the intersection of the 45-degree line and the consumption schedule, the APC is:

A)greater than 100 percent.
B)less than the APS.
C)equal to the MPC.
D)equal to 100 percent.

Question 49

Which of the following equations represents the saving schedule implicit in the data below?

A)S = C - Y_d
B)S = 40 + .4Y_d
C)S = 40 + .6Y_d
D)S = -40 + .4Y_d

Question 50

Refer to the above diagram.The equation for the saving schedule is:

A)S = .6Y.
B)Y = 60 + .6S.
C)S = 60 + .4Y.
D)S = -60 + .4Y.

Question 51

As aggregate income increases, the APC:

A)and APS will both increase.
B)will decrease, but the APS will increase.
C)will increase, but the APS will decrease.
D)and APS will both decrease.

Question 52

One can determine the amount of consumption at any level of total income by:

A)multiplying total income by the slope of the consumption schedule.
B)multiplying total income by the APC.
C)subtracting the MPS from total income.
D)multiplying total income by the MPC.

Question 53

As aggregate income decreases, the APC:

A)and APS will both increase.
B)will decrease, but the APS will increase.
C)will increase, but the APS will decrease.
D)and APS will both decrease.

Question 54

At the point where the consumption schedule intersects the 45-degree line:

A)the MPC is 1.00.
B)the APC is 1.00.
C)saving is equal to consumption.
D)the economy is in equilibrium.

Question 55

At the point where the consumption schedule intersects the 45-degree line:

A)the MPC equals 1.
B)the APC is zero.
C)saving equals income.
D)saving is zero.

Question 56

Refer to the above diagram.At income level F the volume of saving is:

A)BD.
B)AB.
C)CF - BF.
D)DC.

Question 57

The APC can be defined as:

A)change in consumption/change in income
B)consumption/income
C)change in income/change in consumption
D)income/consumption

Question 58

Suppose a family's consumption exceeds its disposable income.This means that its:

A)MPC is greater than 1.
B)MPS is negative.
C)APC is greater than 1.
D)APS is positive.

Question 59

The equation for the above saving schedule is:

A)Y_d = -20 + .8S.
B)Y_d = 20 + .2S.
C)S = 20 + .8Y_d.
D)S = -20 + .2Y_d.

Question 60

As disposable income goes up the:

A)APC falls.
B)APS falls.
C)volume of consumption declines absolutely.
D)volume of investment can be expected to diminish.

Question 61

Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the above data.At an income level of $40 billion, the average propensity to consume:

A)is highest in economy (1).
B)is highest in economy (2).
C)is highest in economy (3).
D)cannot be determined from the data given.

Question 62

Refer to the above data.At the $100 level of income, the average propensity to save is:

A).10.
B).20.
C).25.
D).90.

Question 63

Refer to the above data.The marginal propensity to consume is:

A)0.25
B).75.
C).20.
D).80.

Question 64

If Ben's MPC is .80, this means that he will:

A)spend eight-tenths of any increase in his disposable income.
B)spend eight-tenths of any level of disposable income.
C)break even when his disposable income is $8,000.
D)save eight-tenths of any level of disposable income.

Question 65

Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the above data.The marginal propensity to consume:

A)is highest in economy (1).
B)is highest in economy (3).
C)is highest in economy (2).
D)cannot be calculated from the data given.

Question 66

Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the above data.The marginal propensity to consume in economy (1):

A)is .5.
B)is .3.
C)is .8.
D)is .7.

Question 67

With an MPS of .4, the MPC will be:

A)1.0 minus .4.
B).4 minus 1.0.
C)the reciprocal of the MPS.
D).4.

Question 68

Refer to the above diagram.The APC diminishes as income increases for:

A)none of the consumption schedules shown.
B)C₃ only.
C)C₁, and C₂.
D)C₄ only.

Question 69

Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the above data.The marginal propensity to save:

A)is highest in economy (1).
B)is highest in economy (2).
C)is highest in economy (3).
D)cannot be determined from the data given.

Question 70

Refer to the above data.The slope of the saving schedule is:

A).80.
B).10.
C).20.
D).15.

Question 71

Refer to the above data.At the $200 level of disposable income:

A)the marginal propensity to save is 2¹/₂ percent.
B)dissaving is $5.
C)the average propensity to save is .20.
D)the average propensity to consume is .80.

Question 72

If Smith's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, it may be concluded that her marginal propensity to:

A)save is three-fifths.
B)consume is one-half.
C)consume is three-fifths.
D)consume is one-sixth.

Question 73

Refer to the diagram given below. The diagram given above shows consumption schedules.As income rises, the marginal propensity to consume remains constant for:

A)none of the consumption schedules.
B)only C₃.
C)only C₁, C₂, and C₃.
D)only C₄.

Question 74

Holly's break-even level of income is $10,000 and her MPC is 0.75.If her actual disposable income is $16,000, her level of:

A)consumption spending will be $14,500.
B)consumption spending will be $4,500.
C)consumption spending will be $13,000.
D)saving will be $2,500.

Question 75

Refer to the above diagram.At disposable income level D, the average propensity to save is equal to:

A)CD/BD.
B)CD/0D.
C)0D/CD.
D)0A/0B.

Question 76

Refer to the above diagram.The marginal propensity to save is equal to:

A)CD/0D.
B)0B/0A.
C)0D/0D.
D)CD/BD.

Question 77

The MPC can be defined as the fraction of a:

A)change in income which is not spent.
B)change in income which is spent.
C)given total income which is not consumed.
D)given total income which is consumed.

Question 78

Refer to the above diagram.The marginal propensity to save is:

A)CD/EF.
B)CB/CF.
C)CB/AF.
D)EF/CB.

Question 79

Refer to the above diagram.The marginal propensity to consume is equal to:

A)AE/0E.
B)CB/AB.
C)CF/CD.
D)CD/CF.

Question 80

Refer to the above data.The marginal propensity to consume is:

A).80.
B).75.
C).20.
D).25.