Question 1

A high rate of inflation is likely to cause a:

Accepted Answer

A)  high nominal interest rate.
B)  low nominal interest rate.
C)  low rate of growth of nominal GDP.
D)  decrease in nominal wages.E) None of the above
F) A) and B)

Question 2

The size of the simple multiplier is equal to the:

Accepted Answer

A)  slope of the consumption schedule.
B)  reciprocal of the slope of the consumption schedule.
C)  slope of the saving schedule.
D)  reciprocal of the slope of the saving schedule.E) C) and D)
F) None of the above

Question 3

Other things equal, if the real interest rate falls and business taxes rise:

Accepted Answer

A)  investment will rise until it is equal to saving.
B)  we will be uncertain as to the resulting change in investment.
C)  we can be certain that investment will rise.
D)  we can be certain that investment will fall.E) A) and C)
F) C) and D)

Question 4

In comparison with the consumption schedule, the investment schedule is:

Accepted Answer

A)  relatively stable.
B)  relatively unstable.
C)  upsloping.
D)  independent of the price level.E) None of the above
F) C) and D)

Question 5

Which of the following relations is not correct?

Accepted Answer

A)  1 - MPC = MPS
B)  MPS = MPC + 1
C)  APS + APC = 1
D)  MPC + MPS = 1E) A) and B)
F) B) and D)

Question 6

The investment-demand curve will shift to the left as a result of:

Accepted Answer

A)  an increase in the excess productive capacity available in industry.
B)  a decrease in business taxes.
C)  increased business optimism with respect to future economic conditions.
D)  a decrease in labor costs.E) None of the above
F) A) and B)

Question 7

The most important determinant of consumption and saving is the:

Accepted Answer

A)  level of bank credit.
B)  level of disposable income.
C)  interest rate.
D)  price level.E) A) and C)
F) All of the above

Question 8

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

Accepted Answer

A)  the MPC equals 1.
B)  the APC is zero.
C)  saving equals income.
D)  saving is zero.E) B) and D)
F) None of the above

Question 9

Suppose the government finds it can increase equilibrium real GDP by $45 billion by increasing government purchases by $18 billion.On the basis of this information we can say that the:

Accepted Answer

A)  MPS in this economy is .4.
B)  MPC in this economy is .4.
C)  MPC in this economy is .3
D)  multiplier is 3.E) B) and D)
F) B) and C)

Question 10

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

Accepted Answer

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

Question 11

Firms make planned changes to their inventories:

Accepted Answer

A)  if they are expecting either faster or slower sales.
B)  if they are expecting a faster sale.
C)  if they are expecting a slower sale.
D)  if they are expecting a decrease in labor costs.E) A) and B)
F) All of the above

Question 12

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then other things equal:

Accepted Answer

A)  investment will take place until i and r are equal.
B)  investment will take place until r exceeds i by the greatest amount.
C)  r will rise as more investment is undertaken.
D)  i will rise as more investment is undertaken.E) A) and B)
F) A) and C)

Question 13

The business investment is not based on the expected returns.

Accepted Answer

A) True 
 B)False

Question 14

As disposable income increases, consumption:

Accepted Answer

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

Question 15

Suppose the consumption schedule is: C = 20 + .9Y, where C is consumption and Y is disposable income.Refer to the above data.At an $800 level of disposable income, the level of saving is:

Accepted Answer

A)  $180
B)  $740
C)  $60
D)  $18E) A) and B)
F) A) and C)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

The above figure shows the saving schedules for economies 1, 2, 3, and 4.Which economy has the largest multiplier?

Accepted Answer

A)  1
B)  2
C)  3
D)  4E) A) and B)
F) All of the above

Question 18

The real interest rate is:

Accepted Answer

A)  the percentage increase in money that the lender receives on a loan.
B)  the nominal rate less the rate of inflation.
C)  also called the after-tax interest rate.
D)  usually higher than the nominal interest rate.E) A) and B)
F) A) and C)

Question 19

Assume the economy's consumption and saving schedules simultaneously shift downward.This must be the result of:

Accepted Answer

A)  an increase in disposable income.
B)  an increase in household wealth.
C)  the expectation of a recession.
D)  an increase in personal taxesE) A) and C)
F) B) and C)

Question 20

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

Accepted Answer

A)  0.25
B)  .75.
C)  .20.
D)  .80.E) A) and B)
F) B) and C)

Exam 10: B: Basic Macroeconomic Relationships

The real interest rate is:

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If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then other things equal:

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The size of the simple multiplier is equal to the:

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The business investment is not based on the expected returns.

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Which of the following relations is not correct?

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

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Other things equal, if the real interest rate falls and business taxes rise:

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Suppose the consumption schedule is: C = 20 + .9Y, where C is consumption and Y is disposable income.Refer to the above data.At an $800 level of disposable income, the level of saving is:

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

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As disposable income increases, consumption:

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In comparison with the consumption schedule, the investment schedule is:

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The most important determinant of consumption and saving is the:

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

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A high rate of inflation is likely to cause a:

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Firms make planned changes to their inventories:

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The investment-demand curve will shift to the left as a result of:

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The above figure shows the saving schedules for economies 1, 2, 3, and 4.Which economy has the largest multiplier?

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Assume the economy's consumption and saving schedules simultaneously shift downward.This must be the result of:

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

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Suppose the government finds it can increase equilibrium real GDP by $45 billion by increasing government purchases by $18 billion.On the basis of this information we can say that the:

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