Broward College EC 2013 test 8 Question1)If the marginal propensity to consume is 0

Broward College

EC 2013

test 8

Question1)If the marginal propensity to consume is 0.8, by how much will total income increase after an initial $200 is spent?

Question 1 options:

	$40
	$160
	$200
	$1,000

Question 2 

Which of the following is NOT a determinant of investment?

Question 2 options:

	business expectations
	past stock and bond prices
	technological innovations
	the amount of existing capital goods

Question 3

Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $30 billion. These economists would estimate that the marginal propensity to  is:

Question 3 options:

	0.67.
	0.33.
	0.5.
	20.

Question 4

_____ is the change in consumption associated with a change in income.

Question 4 options:

	The average propensity to consume
	The marginal propensity to consume
	The average propensity to
	The marginal propensity to

Question 5

The multiplier effect shows that a change in aggregate spending:

Question 5 options:

	will cause output to move in the opposite direction.
	causes output to change even more than the change in aggregate spending.
	causes output to change by something less than the change in aggregate spending.
	leaves output unaffected.

Question 6

If AE = $7,600 and Y = $8,000, businesses will produce:

Question 6 options:

	more, raising both employment and income.
	less, lowering both employment and income.
	more, raising employment and lowering income.
	less, lowering employment and raising income.

Question 7

If income grows from $3,000 per month to $3,500 per month and consumption rises from $2,800 per month to $3,200 per month, what is the marginal propensity to consume?

Question 7 options:

	1.25
	0.8
	1.09
	0.91

Question 8

The 45-degree line in the Keynesian model represents a set of points where _____ equals _____.

Question 8 options:

	disposable income; saving
	disposable income; consumption
	saving; consumption
	saving; investment

Question 9

If income is $50,000, consumption is $47,500, and saving is $2,500, then the marginal propensity to consume is:

Question 9 options:

	0.95.
	0.50.
	0.05.
	There is not enough information to answer this question.

Question 10

(Table)

Reference: Ref 8-1

(Table) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to ?

Question 10 options:

	0.5
	−0.5
	1.5
	−1.5

Question 11

When the consumption schedule lies above the 45-degree reference line, consumption spending is ________ than income and saving is ___________.

Question 11 options:

	greater; positive
	less; positive
	greater; negative
	less; negative

Question 12

A depression economy has considerable slack, so:

Question 12 options:

	unemployment is high.
	there is no excess plant capacity.
	all resources are being used efficiently.
	there is an increase in aggregate price levels.

Question 13

If the marginal propensity to consume is 0.85, how much is the spending multiplier?

Question 13 options:

	0.15
	1.17
	5.1
	6.67

Question 14

With respect to income, the investment schedule in the short run is:

Question 14 options:

	perfectly elastic.
	perfectly inelastic.
	relatively elastic.
	relatively inelastic.

Question 15

After the acceptance of Keynesian analysis, government:

Question 15 options:

	played a role in setting the interest rate only.
	actions toward macroeconomic policy grew significantly.
	reduced its role in the operation of the economy.
	turned to communism as the only solution to the Great Depression.

Question 16

Which of the following illustrates the paradox of thrift?

Question 16 options:

	Consumer uncertainty causes people to  less; consumption rises; equilibrium income and production drop; savings drop because income is lower.
	Consumer uncertainty causes people to  more; consumption drops; equilibrium income and production drop; savings drop because income is lower.
	The government encourages saving by raising interest rates; higher interest rates reduce investment spending, which lower equilibrium income and production drop; savings drop because income is lower.
	As businesses  more, interest rates fall, thus reducing household savings.

Question 17

If the marginal propensity to consume is 0.65, the spending multiplier is:

Question 17 options:

	4.
	1.33.
	1.54.
	2.86.

Question 18

Changes in government spending and changes in net exports have __________ multiplier effects than changes in investment spending.

Question 18 options:

	smaller
	larger
	the same
	at first, smaller, but later, larger

Question 19

Approximately what share of U.S. GDP is consumption?

Question 19 options:

	60%
	70%
	80%
	90%

Question 20

Which two countries currently have the highest savings rates?

Question 20 options:

	China and India
	China and Japan
	China and the United States
	Japan and the United States

Question 21

The average propensity to consume is:

Question 21 options:

	always stable.
	equal to consumption divided by income.
	equal to income divided by consumption.
	the increase in consumption derived from an increase in income.

Question 22

(Table)

Reference: Ref 8-1

(Table) When disposable income is $1,200, what is the value of the average propensity to ?

Question 22 options:

	−0.5
	−1.5
	−1.083
	−0.083

Question 23

Exports are ______ of spending into (from) the economy, and imports are ______ of spending into (from) the economy.

Question 23 options:

	injections; withdrawals
	withdrawals; injections
	injections; also injections
	withdrawals; also withdrawals

Question 24

Which one of the following helps determine consumption and saving in the Keynesian model?

Question 24 options:

	wealth
	imports
	technology
	government regulations

Question 25

A luxury car manufacturer is contemplating investing in its assembly plants. It learns that the probability of a recession in the next few years has increased dramatically because of adverse international events. Its investment demand will:

Question 25 options:

	remain unchanged because auto manufacturing is well insulated from global events.
	decrease because lower investment returns are expected.
	increase because lower returns to the investment are expected.
	increase to compensate for the lower expected sales.

Question 26

Spending by federal, state, and local government has grown from ___ of GDP in the 1930s to more than _____ today.

Question 26 options:

	5%; 50%.
	10%; 30%.
	30%; 70%
	5%; 10%.

Question 27

According to Keynes, as income grows:

Question 27 options:

	consumption spending alone grows.
	saving alone grows.
	saving falls.
	both consumption spending and saving grow.

Question 28

Assume that the multiplier is 10. Full employment is considered to be at a GDP level of $500 billion. The current GDP is $400 billion. According to Keynesian macroeconomics, what should the government do to achieve full employment?

Question 28 options:

	increase spending by $25 billion
	increase spending by $10 billion
	reduce spending by $25 billion
	reduce spending by $100 billion

Question 29

As income increases, consumption ______

Question 29 options:

	increases at a slower rate
	increases faster
	decreases at a slower rate
	decreases faster

Question 30 

Disposable income equals:

Question 30 options:

	income minus government spending.
	income minus taxes.
	income plus government spending.
	income plus taxes.

Question 31

Increases in government spending ____ equilibrium income, and increases in taxes ____ equilibrium income.

Question 31 options:

	increase; increase
	increase; decrease
	decrease; increase
	decrease; decrease

Question 32

If the marginal propensity to consume (MPC) rises, the multiplier:

Question 32 options:

	also rises.
	falls.
	stays the same.
	rises or falls, depending on the size of the increase in the MPC.

Question 33

Suppose the government believes consumers should spend $1 billion more to get the economy out of a recession. The government wants to provide income to households by providing them with jobs and paying them directly. If the marginal propensity to consume is 0.8, the government should increase income by:

Question 33 options:

	$0.8 billion
	$1 billion.
L9N	$0.2 billion.
	This cannot be determined with the information given.