MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

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Hubert Jones
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1 Problem Set Econ 2013: Chapter 10 :Basic Macroeconomic Relationships Name ID: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The most important determinant of consumption and saving is the: A) price level. B) level of income. C) interest rate. D) level of bank credit. 2) The MPC can be defined as that fraction of a: A) change in income that is spent. B) given total income that is consumed. C) change in income that is not spent. D) given total income that is not consumed. 3) As disposable income goes up, the: A) average propensity to consume falls. B) volume of investment diminishes. C) average propensity to save falls. D) volume of consumption declines absolutely. 4) The consumption schedule shows: A) an inverse relationship between aggregate consumption and the price level. B) an inverse relationship between aggregate consumption and accumulated financial wealth. C) a direct relationship between aggregate consumption and accumulated wealth. D) a direct relationship between aggregate consumption and aggregate income. 5) The consumption schedule is drawn on the assumption that as income increases, consumption will: A) increase absolutely but remain constant as a percentage of income. B) increase both absolutely and as a percentage of income. C) increase absolutely but decline as a percentage of income. D) be unaffected. 6) The APC can be defined as the fraction of a: A) specific level of total income that is not consumed. B) specific level of total income that is consumed. C) change in income that is spent. D) change in income that is not spent. 1) 2) 3) 4) 5) 6) 1

2 7) 7) Refer to the figure. The consumption schedule indicates that: A) the MPC falls as income increases. B) households consume as much as they earn. C) up to a point consumption exceeds income but then falls below income. D) consumers will maximize their satisfaction where the consumption schedule and 45 line intersect. 8) The consumption schedule is such that: A) the APC is constant and the MPC declines as income rises. B) both the APC and the MPC increase as income rises. C) the MPC is constant and the APC declines as income rises. D) the MPC and the APC must be equal at all levels of income. 9) As disposable income increases, consumption: A) decreases and saving increases. B) increases and saving decreases. C) and saving both increase. D) and saving both decrease. 10) If the MPC is.8 and disposable income is $200, then: A) saving will be $40. B) personal consumption expenditures will be $80. C) consumption and saving cannot be determined from the information given. D) saving will be $20. 11) The MPC for an economy is: A) the slope of the savings schedule or line. B) the slope of the consumption schedule or line. C) 1 divided by the slope of the consumption schedule or line. D) 1 divided by the slope of the savings schedule or line. 8) 9) 10) 11) 2

3 12) Suppose a family's consumption exceeds its disposable income. This means that its: A) MPS is negative. B) MPC is greater than 1. C) APC is greater than 1. D) APS is positive. 13) Dissaving means: A) that households are spending more than their current incomes. B) the same thing as disinvesting. C) that saving and investment are equal. D) that disposable income is less than zero. 14) Which one of the following will cause a movement up along an economy's saving schedule? A) An increase in interest rates. B) An increase in household borrowing. C) An increase in disposable income. D) An increase in stock prices. 15) If for some reason households become increasingly thrifty, we could show this by: A) an upward shift of the consumption schedule. B) an upward shift of the saving schedule. C) a movement down along a stable consumption function. D) a downshift of the saving schedule. 16) Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of: A) the expectation of a recession. B) an increase in disposable income. C) an increase in personal taxes. D) an increase in household wealth. 17) 12) 13) 14) 15) 16) 17) Refer to the given data. The marginal propensity to consume is: A).75. B).80. C).25. D).20. 3

4 18) 18) Refer to the given diagram. The marginal propensity to consume is equal to: A) CB/AB. B) AE/0E. C) CF/CD. D) CD/CF. 19) 19) Refer to the diagram. Consumption equals disposable income when: A) disposable income is B. B) disposable income is D. C) B equals CD. D) CD equals A. 4

5 20) The investment demand slopes downward and to the right because lower real interest rates: A) boost expected rates of returns on investment. B) create tax incentives to invest. C) enable more investment projects to be undertaken profitably. D) expand consumer borrowing, making investments more profitable. 21) Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this machine is: A) 10 percent. B) 20 percent. C) 7.5 percent. D) 15 percent. 22) A decline in the real interest rate will: A) shift the investment schedule downward. B) increase the amount of investment spending. C) shift the investment demand curve to the left. D) shift the investment demand curve to the right. 23) The investment demand curve will shift to the right as the result of: A) the availability of excess production capacity. B) businesses becoming more optimistic about future business conditions. C) an increase in the real interest rate. D) an increase in business taxes. 24) The investment demand curve suggests: A) that changes in the real interest rate will not affect the amount invested. B) there is a direct relationship between the real rate of interest and the level of investment spending. C) that an increase in business taxes will tend to stimulate investment spending. D) there is an inverse relationship between the real rate of interest and the level of investment spending. 25) Other things equal, if the real interest rate falls and business taxes rise: A) we can be certain that investment will rise. B) investment will rise until it is equal to saving. C) we can be certain that investment will fall. D) we will be uncertain as to the resulting change in investment. 20) 21) 22) 23) 24) 25) 5

6 Answer Key Testname: CH10 1) B 2) A 3) A 4) D 5) C 6) B 7) C 8) C 9) C 10) C 11) B 12) C 13) A 14) C 15) B 16) C 17) B 18) A 19) A 20) C 21) D 22) B 23) B 24) D 25) D 6

ECO 2013: Macroeconomics Valencia Community College

ECO 2013: Macroeconomics Valencia Community College Exam 3 Fall 2008 1. The most important determinant of consumer spending is: A. the level of household debt. B. consumer expectations. C. the stock of