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Homework answers / question archive / 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

Economics

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)

Disposable Income

Consumption

$1,000

$1,200

$1,200

$1,300

$1,400

$1,400

$1,600

$1,500

$1,800

$1,600

 

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)

Disposable Income

Consumption

$1,000

$1,200

$1,200

$1,300

$1,400

$1,400

$1,600

$1,500

$1,800

$1,600

 

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.

 

 

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