Macroeconomics Test-Macroeconomic Relationships

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

2. 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 on the level of business investment.
D. the amounts households intend to consume at various possible levels of aggregate income.

3. 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.

4. Which of the following is correct?

A. APC + APS = 1.
B. APC + MPS = 1.
C. APS + MPC = 1.
D. APS + MPS = 1.

5. If investors and pensioners see their stock portfolios start to increase, because the stock market prices shoot up quickly, what would happen to the consumption and savings functions?

A. both the consumption and savings functions increase and shift upward.
B. the consumption function increases and the savings function decreases.
C. both the consumption and savings functions decrease and shift downward.
D. the consumption function decreases and the savings function increases.

6. hich institution is extremely important for a society and links borrowers and savers?

A. investment demand function.
B. the U.S. federal government.
C. the central bank.
D. financial intermediaries, like banks.

7. Investment spending in the United States tends to be unstable because:

A. expected profits are highly variable.
B. capital goods are durable.
C. innovation occurs at an irregular pace.
D. all of these contribute to the instability.

8. The multiplier is:

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

9. If the MPC is .70 and gross investment increases by $3 billion, the equilibrium GDP will:

A. increase by $10 billion.
B. increase by $2.10 billion.
C. decrease by $4.29 billion.
D. increase by $4.29 billion.

10. The practical significance of the multiplier is that it:

A. equates the real interest rate and the expected rate of return on investment.
B. magnifies initial changes in spending into larger changes in GDP.
C. keeps inflation within tolerable limits.
D. helps to stabilize the economy.

11. The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because:

A. the real-world MPS is larger than the MPS in the examples.
B. in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.
C. the gap between the nominal interest rate and the real interest rate widens as the economy expands or contracts.
D. the MPC in the United States is greater than 1.

12. The multiplier is useful in determining the:

A. full-employment unemployment rate.
B. level of business inventories.
C. rate of inflation.
D. change in GDP resulting from a change in spending.

13. In annual percentage terms, investment spending in the United States is:

A. less variable than real GDP.
B. less variable than consumption spending.
C. less variable than the price level.
D. more variable than real GDP.

14. When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift:

A. both the consumption and saving schedules downward.
B. both the consumption and saving schedules upward.
C. the consumption schedule upward and the saving schedule downward.
D. the consumption schedule downward and the saving schedule upward.

15. The greater is the marginal propensity to consume, the:

A. smaller is the marginal propensity to save.
B. higher is the interest rate.
C. lower is the average propensity to consume.
D. lower is the price level.

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