# Eco Exam--Chapter 10

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The most important determinant of consumer spending is:
the level of income
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The most important determinant of consumption and saving is the:
level of income
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If Carol's disposable income increases from 1200 to 1700 and her level of saving increases from minus 100 to plus 100, her marginal propensity to:
consume is 3/5ths
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With marginal propensity to save of .4, the marginal propensity to consume will be:
1.0 minus .4
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The MPC can be defined as the fraction of a:
change in income that is spent.
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The 45-degree line on a graph relating consumption and income shows:
all points at which consumption and income are equal.
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The disposable income goes up, the:
average propensity to consume falls.
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The consumption schedule shows:
the amounts households intend to consume at various possible levels of aggregate income.
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The consumption schedule directly relates:
consumption to the level of disposable income.
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A decline in disposable income:
decreases consumption by moving downward alone a specific consumption schedule.
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The APC is calculated as:
consumption/income.
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The consumption schedule shows: (what type of relationship)
a direct relationship between aggregate consumption and aggregate income.
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The APC can be defined as the fraction of a:
specific level of total income that is consumed.
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The consumption schedule is drawn on the assumption that as income increases, consumption will:
increase absolutely by decline as a percentage of income.
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which of the following is correct?
APC+APS=1.
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The consumption schedule is such that:
the MPC is constant and the APC declines as income rises.
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The consumption and saving schedules reveal that the:
MPC is greater than zero but less than one.
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The size of the MPC is assumed to be:
greater than zero but less than one.
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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.
and saving both increase.
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The relationship between consumption and disposable income is such that:
a direct and relatively stable relationship exists between consumption and income.
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If the MPC is .8 and disposable income is 200 then:
consumption and savings cannot be determined from the given information.
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The MPC for an economy is:
the slope of the consumption schedule or line.
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In contrast to investment, consumption is:
relatively stable.
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Which one of the following will cause a movement down along an economy's consumption schedule?
A decrease in disposable income.
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At the point where the consumption schedule intersects the 45-degree line:
the APC is 1.00.
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Tessa's break-even income is \$10,000 and her MPC is 0.75. If her actual disposable income is \$16,000, her level of:
consumption spending will be \$14,500.
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If Trent's MPC is .80, this means that he will:
spend eight-tenths of any increase in his disposable income.
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Suppose a family's consumption exceeds its disposable income. This means that its:
APC is greater than 1.
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The equation C = 35 + .75Y, where C is consumption and Y is disposable income, shows that:
households will consume \$35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.
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If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed:
the vertical intercept would be +20 and the slope would be +.6.
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One can determine the amount of any level of total income that is consumed by:
multiplying total income by the APC.
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Which of the following is correct? A. MPC + MPS = APC + APS. B. APC + MPS = APS + MPC. C. APC + MPC = APS + MPS. D. APC - APS = MPC - MPS.
MPC + MPS = APC + APS.
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Dissaving means:
that households are spending more than their current incomes.
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Dissaving occurs where:
consumption exceeds income.
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Which of the following relations is not correct? A. 1 - MPC = MPS. B. APS + APC = 1. C. MPS = MPC + 1. D. MPC + MPS = 1.
MPS = MPC + 1.
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The saving schedule is drawn on the assumption that as income increases:
saving will increase absolutely and as a percentage of income.
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At the point where the consumption schedule intersects the 45-degree line: (s is..)
saving is zero.
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The saving schedule is such that as aggregate income increases by a certain amount, saving:
increases, but by a smaller amount.
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If the consumption schedule is linear, then the
saving schedule will also be linear.
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Given the consumption schedule, it is possible to graph the relevant saving schedule by:
plotting the vertical differences between the consumption schedule and the 45-degree line.
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If the marginal propensity to consume is .9, then the marginal propensity to save must be:
.1
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The greater is the marginal propensity to consume, the:
smaller is the marginal propensity to save.
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If the saving schedule is a straight line, the:
MPS must be constant.
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Which one of the following will cause a movement up along an economy's saving schedule?
An increase in disposable income.
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In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the:
wealth effect.
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The wealth effect is shown graphically as a:
shift of the consumption schedule.
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An upward shift of the saving schedule suggests:
that the APC has decreased and the APS has increased at each GDP level.
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Which of the following will not tend to shift the consumption schedule upward? A currently small stock of durable goods in the possession of consumers. B. The expectation of a future decline in the consumer price index. C. A currently low level of household debt. D. The expectation of future shortages of essential consumer goods.
The expectation of a future decline in the consumer price index.
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If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:
will shift downward.
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Which of the following will not cause the consumption schedule to shift?
A change in consumer incomes
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When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift:
both the consumption and saving schedules downward.
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If for some reason households become increasingly thrifty, we could show this by:
an upward shift of the saving schedule.
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Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of:
an increase in personal taxes.
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The investment demand curve portrays an inverse (negative) relationship between:
the real interest rate and investment.
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The investment demand slopes downward and to the right because lower real interest rates:
enable more investment projects to be undertaken profitably.
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Other things equal, a decrease in the real interest rate will:
move the economy downward along its existing investment demand curve.
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Suppose that a new machine tool having a useful life of only one year costs \$80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be \$96,000. The expected rate of return on this tool is:
20 percent.
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The relationship between the real interest rate and investment is shown by the:
investment demand schedule.
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Given the expected rate of return on all possible investment opportunities in the economy:
an increase in the real rate of interest will reduce the level of investment.
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A decline in the real interest rate will:
increase the amount of investment spending.
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The immediate determinants of investment spending are the:
expected rate of return on capital goods and the real interest rate.
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The investment demand curve suggests:
there is an inverse relationship between the real rate of interest and the level of investment spending.
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Investment spending in the United States tends to be unstable because:
profits are highly variable.
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In annual percentage terms, investment spending in the United States is:
more variable than real GDP.
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If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then other things equal:
investment will take place until i and r are equal.
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A high rate of inflation is likely to cause a:
high nominal interest rate.
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If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:
22 percent.
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If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:
12 percent.
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When we draw an investment demand curve, we hold constant all of the following except: A. the expected rate of return on the investment. B. business taxes. C. the interest rate. D. the present stock of capital goods.
the interest rate.
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Capital goods, because their purchases can be postponed like ______ consumer goods, tend to contribute to ________ in investment spending.
durable; instability
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The multiplier effect means that:
an increase in investment can cause GDP to change by a larger amount.
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The multiplier is:
1/MPS.
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The multiplier is useful in determining the:
change in GDP resulting from a change in spending.
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The multiplier is defined as:
change in GDP/initial change in spending.
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If 100 percent of any change in income is spent, the multiplier will be:
infinitely large.
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The multiplier can be calculated as:
1/(1 - MPC).
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The size of the multiplier is equal to the:
reciprocal of the slope of the saving schedule.
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If the MPS is only half as large as the MPC, the multiplier is:
3.
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If the MPC is .70 and investment increases by \$3 billion, the equilibrium GDP will:
increase by \$10 billion.
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The numerical value of the multiplier will be smaller the:
larger the slope of the saving schedule.
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The practical significance of the multiplier is that it:
magnifies initial changes in spending into larger changes in GDP.
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If the MPC is .6, the multiplier will be: