The 45-degree line on a graph relating consumption and income shows:
  • magnifies initial changes in spending into larger changes in GDP.
  • all points at which consumption and income are equal.
  • change in GDP resulting from a change in spending.
  • saving will increase absolutely and as a percentage of income.
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.
  • saving schedule will also be linear.
  • enable more investment projects to be undertaken profitably.
  • the vertical intercept would be +20 and the slope would be +.6.
The equation C = 35 + .75Y, where C is consumption and Y is disposable income, shows that:
  • a direct relationship between aggregate consumption and aggregate income.
  • the vertical intercept would be +20 and the slope would be +.6.
  • investment demand schedule.
  • households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.
Capital goods, because their purchases can be postponed like ______ consumer goods, tend to contribute to ________ in investment spending.
  • wealth effect.
  • 12 percent.
  • durable; instability
  • A change in consumer incomes
The APC is calculated as:
  • consumption/income.
  • the level of income
  • change in income that is spent.
  • consumption spending will be $14,500.
In annual percentage terms, investment spending in the United States is:
  • an upward shift of the saving schedule.
  • more variable than real GDP.
  • investment demand schedule.
  • infinitely large.
The multiplier is defined as:
  • greater than zero but less than one.
  • smaller is the marginal propensity to save.
  • change in GDP/initial change in spending.
  • change in GDP resulting from a change in spending.
The investment demand slopes downward and to the right because lower real interest rates:
  • magnifies initial changes in spending into larger changes in GDP.
  • a direct relationship between aggregate consumption and aggregate income.
  • enable more investment projects to be undertaken profitably.
  • investment will take place until i and r are equal.
The relationship between consumption and disposable income is such that:
  • magnifies initial changes in spending into larger changes in GDP.
  • a direct and relatively stable relationship exists between consumption and income.
  • the real interest rate and investment.
  • a change in spending will change aggregate income by a larger amount.
When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift:
  • consumption to the level of disposable income.
  • increase absolutely by decline as a percentage of income.
  • the amounts households intend to consume at various possible levels of aggregate income.
  • both the consumption and saving schedules downward.
A high rate of inflation is likely to cause a:
  • A change in consumer incomes
  • high nominal interest rate.
  • MPS = MPC + 1.
  • MPS must be constant.
One can determine the amount of any level of total income that is consumed by:
  • an upward shift of the saving schedule.
  • multiplying total income by the APC.
  • the real interest rate and investment.
  • all points at which consumption and income are equal.
The immediate determinants of investment spending are the:
  • expected rate of return on capital goods and the real interest rate.
  • an increase in investment can cause GDP to change by a larger amount.
  • all points at which consumption and income are equal.
  • magnifies initial changes in spending into larger changes in GDP.
An upward shift of the saving schedule suggests:
  • consumption and savings cannot be determined from the given information.
  • magnifies initial changes in spending into larger changes in GDP.
  • that the APC has decreased and the APS has increased at each GDP level.
  • shift of the consumption schedule.
Which one of the following will cause a movement down along an economy's consumption schedule?
  • increase absolutely by decline as a percentage of income.
  • A decrease in disposable income.
  • A change in consumer incomes
  • the real interest rate and investment.
If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:
  • will shift downward.
  • wealth effect.
  • increase by $10 billion.
  • 12 percent.
At the point where the consumption schedule intersects the 45-degree line:(s is..)
  • saving will increase absolutely and as a percentage of income.
  • 22 percent.
  • saving is zero.
  • 12 percent.
The consumption schedule is drawn on the assumption that as income increases, consumption will:
  • increase absolutely by decline as a percentage of income.
  • a direct relationship between aggregate consumption and aggregate income.
  • the vertical intercept would be +20 and the slope would be +.6.
  • MPC is greater than zero but less than one.
The practical significance of the multiplier is that it:
  • expected rate of return on capital goods and the real interest rate.
  • an increase in investment can cause GDP to change by a larger amount.
  • a direct relationship between aggregate consumption and aggregate income.
  • magnifies initial changes in spending into larger changes in GDP.
The consumption schedule shows:
  • the amounts households intend to consume at various possible levels of aggregate income.
  • a direct relationship between aggregate consumption and aggregate income.
  • there is an inverse relationship between the real rate of interest and the level of investment spending.
  • the MPC is constant and the APC declines as income rises.
If the marginal propensity to consume is .9, then the marginal propensity to save must be:
  • increase by $10 billion.
  • wealth effect.
  • 2.5.
  • .1
A decline in disposable income:
  • decreases consumption by moving downward alone a specific consumption schedule.
  • an increase in investment can cause GDP to change by a larger amount.
  • an increase in the real rate of interest will reduce the level of investment.
  • the MPC is constant and the APC declines as income rises.
The consumption schedule shows: (what type of relationship)
  • a direct relationship between aggregate consumption and aggregate income.
  • expected rate of return on capital goods and the real interest rate.
  • a change in spending will change aggregate income by a larger amount.
  • a direct and relatively stable relationship exists between consumption and income.
The size of the multiplier is equal to the:
  • reciprocal of the slope of the saving schedule.
  • specific level of total income that is consumed.
  • increase the amount of investment spending.
  • the slope of the consumption schedule or line.
Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of:
  • an increase in the real rate of interest will reduce the level of investment.
  • increases, but by a smaller amount.
  • an increase in personal taxes.
  • An increase in disposable income.
Suppose a family's consumption exceeds its disposable income. This means that its:
  • An increase in disposable income.
  • APC is greater than 1.
  • the interest rate.
  • an increase in personal taxes.
The consumption and saving schedules reveal that the:
  • MPC is greater than zero but less than one.
  • increase absolutely by decline as a percentage of income.
  • consumption to the level of disposable income.
  • saving schedule will also be linear.
If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will:
  • the APC is 1.00.
  • infinitely large.
  • investment demand schedule.
  • increase by $10 billion.
The multiplier applies to:
  • investment, net exports, and government spending.
  • an increase in investment can cause GDP to change by a larger amount.
  • change in GDP/initial change in spending.
  • the slope of the consumption schedule or line.
The multiplier can be calculated as:
  • a change in spending will change aggregate income by a larger amount.
  • 1/(1 - MPC).
  • 1/MPS.
  • change in GDP resulting from a change in spending.
If the MPS is only half as large as the MPC, the multiplier is:
  • the APC is 1.00.
  • 12 percent.
  • 3.
  • 2.5.
The investment demand curve portrays an inverse (negative) relationship between:
  • MPC is greater than zero but less than one.
  • the real interest rate and investment.
  • A decrease in disposable income.
  • there is an inverse relationship between the real rate of interest and the level of investment spending.
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:
  • wealth effect.
  • consume is 3/5ths
  • saving is zero.
  • 1.0 minus .4
The wealth effect is shown graphically as a:
  • shift of the consumption schedule.
  • high nominal interest rate.
  • change in GDP/initial change in spending.
  • larger the slope of the saving schedule.
Which one of the following will cause a movement up along an economy's saving schedule?
  • an increase in the real rate of interest will reduce the level of investment.
  • An increase in disposable income.
  • an increase in investment can cause GDP to change by a larger amount.
  • increase by $10 billion.
The greater is the marginal propensity to consume, the:
  • MPC is greater than zero but less than one.
  • magnifies initial changes in spending into larger changes in GDP.
  • all points at which consumption and income are equal.
  • smaller is the marginal propensity to save.
Which of the following will not cause the consumption schedule to shift?
  • A change in consumer incomes
  • An increase in disposable income.
  • change in income that is spent.
  • A decrease in disposable income.
The most important determinant of consumer spending is:
  • relatively stable.
  • the real interest rate and investment.
  • change in income that is spent.
  • the level of income
With marginal propensity to save of .4, the marginal propensity to consume will be:
  • 1.0 minus .4
  • saving is zero.
  • 22 percent.
  • 12 percent.
The saving schedule is drawn on the assumption that as income increases:
  • saving will increase absolutely and as a percentage of income.
  • magnifies initial changes in spending into larger changes in GDP.
  • the vertical intercept would be +20 and the slope would be +.6.
  • move the economy downward along its existing investment demand curve.
The numerical value of the multiplier will be smaller the:
  • MPC is greater than zero but less than one.
  • larger the slope of the saving schedule.
  • expected rate of return on capital goods and the real interest rate.
  • magnifies initial changes in spending into larger changes in GDP.
The APC can be defined as the fraction of a:
  • change in income that is spent.
  • reciprocal of the slope of the saving schedule.
  • MPC is greater than zero but less than one.
  • specific level of total income that is consumed.
If for some reason households become increasingly thrifty, we could show this by:
  • An increase in disposable income.
  • multiplying total income by the APC.
  • an increase in personal taxes.
  • an upward shift of the saving schedule.
The multiplier effect means that:
  • the amounts households intend to consume at various possible levels of aggregate income.
  • the MPC is constant and the APC declines as income rises.
  • an increase in investment can cause GDP to change by a larger amount.
  • investment, net exports, and government spending.
The MPC for an economy is:
  • smaller is the marginal propensity to save.
  • change in GDP/initial change in spending.
  • the slope of the consumption schedule or line.
  • consumption to the level of disposable income.
The most important determinant of consumption and saving is the:
  • level of income
  • 1/(1 - MPC).
  • MPS = MPC + 1.
  • the APC is 1.00.
At the point where the consumption schedule intersects the 45-degree line:
  • level of income
  • the APC is 1.00.
  • the interest rate.
  • MPS = MPC + 1.
If the MPC is .6, the multiplier will be:
  • 1/MPS.
  • 12 percent.
  • 2.5.
  • relatively stable.
The MPC can be defined as the fraction of a:
  • change in income that is spent.
  • level of income
  • A change in consumer incomes
  • change in GDP resulting from a change in spending.
The relationship between the real interest rate and investment is shown by the:
  • An increase in disposable income.
  • a direct and relatively stable relationship exists between consumption and income.
  • the interest rate.
  • investment demand schedule.
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:
  • 22 percent.
  • saving schedule will also be linear.
  • investment will take place until i and r are equal.
  • both the consumption and saving schedules downward.
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.
  • consumption and savings cannot be determined from the given information.
  • a direct and relatively stable relationship exists between consumption and income.
  • an increase in the real rate of interest will reduce the level of investment.
Assume the MPC is 2/If investment spending increases by $2 billion, the level of GDP will increase by:
  • 20 percent.
  • 22 percent.
  • $6 billion.
  • saving is zero.
The size of the MPC is assumed to be:
  • increases, but by a smaller amount.
  • reciprocal of the slope of the saving schedule.
  • greater than zero but less than one.
  • average propensity to consume falls.
If the MPC is .8 and disposable income is 200 then:
  • consumption and savings cannot be determined from the given information.
  • increase by $10 billion.
  • spend eight-tenths of any increase in his disposable income.
  • move the economy downward along its existing investment demand curve.
In contrast to investment, consumption is:
  • relatively stable.
  • MPS = MPC + 1.
  • the level of income
  • and saving both increase.
The disposable income goes up, the:
  • a change in spending will change aggregate income by a larger amount.
  • the slope of the consumption schedule or line.
  • average propensity to consume falls.
  • change in GDP/initial change in spending.
If the saving schedule is a straight line, the:
  • increase by $10 billion.
  • and saving both increase.
  • MPS must be constant.
  • MPC + MPS = APC + APS.
If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:
  • increase by $10 billion.
  • 22 percent.
  • $6 billion.
  • investment will take place until i and r are equal.
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