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 wealth. D. the level of income. 2. As disposable income goes up the: A. APC falls. B. APS falls. C. volume of consumption declines absolutely. D. volume of investment diminishes. 3. The consumption schedule shows: A. a direct relationship between aggregate consumption and accumulated wealth. B. a direct relationship between aggregate consumption and aggregate income. C. an inverse relationship between aggregate consumption and accumulated financial wealth. D. an inverse relationship between aggregate consumption and aggregate income. 4. For all levels of income to the left of the intersection of the 45-degree line and the consumption schedule, the APC is: A. greater than 100 percent. B. less than the APS. C. equal to the MPC. D. equal to 100 percent. 5. The consumption and saving schedules reveal that the: A. MPC is greater than zero, but less than one. B. MPC and APC are equal at the point where the consumption schedule intersects the 45-degree line. C. APS is positive at all income levels. D. MPC is equal to or greater than one at all income levels. Answer the next question(s) on the basis of the following consumption schedule: C = 20 +.9Y, where C is consumption and Y is disposable income. 6. Refer to the above data. The MPC is: A..45. B..20. C..50. D..90. 1

7. Refer to the above data. At an $800 level of disposable income, the level of saving is: A. $180. B. $740. C. $60. D. $18. 8. At the point where the consumption schedule intersects the 45-degree line: A. the MPC is 1.00. B. the APC is 1.00. C. saving is equal to consumption. D. the economy is in equilibrium. 9. If the equation C = 20 +.6Y, where C is consumption and Y is disposable income, were graphed: A. the vertical intercept would be +.6 and the slope would be +20. B. it would reveal an inverse relationship between consumption and disposable income. C. the vertical intercept would be negative, but consumption would increase as disposable income rises. D. the vertical intercept would be +20 and the slope would be +.6. 10. Which of the following is correct? A. MPC + MPS = APC + APS B. APC + MPS = APS + MPC C. APC + MPC = APS + MPS D. APC APS = MPC MPS Answer the next question(s) on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. 11. Refer to the above data. The marginal propensity to consume in economy (1) is: A..5. B..3. C..8. D..7. 12. Refer to the above data. The marginal propensity to consume: A. is highest in economy (1). B. is highest in economy (2). C. is highest in economy (3). D. cannot be calculated from the data given. 2

13. Refer to the above data. The marginal propensity to save: A. is highest in economy (1). B. is highest in economy (2). C. is highest in economy (3). D. cannot be determined from the data given. 14. Refer to the above data. At an income level of $40 billion, the average propensity to consume: A. is highest in economy (1). B. is highest in economy (2). C. is highest in economy (3). D. cannot be determined from the data given. 15. Refer to the above data. At an income level of $400 billion, the average propensity to save in economy (2) is: A..9125. B..0725. C..0875. D..9305. 16. A decline in the real interest rate will: A. increase the amount of investment spending. B. shift the investment schedule downward. C. shift the investment demand curve to the right. D. shift the investment demand curve to the left. 17. A rightward shift of the investment demand curve might be caused by: A. an increase in the price level. B. a decline in the real interest rate. C. an increase in the expected rate of return on investment. D. an increase in business taxes. 18. The multiplier is: A. 1/MPC. B. 1/(1 + MPC). C. 1/MPS. D. 1/(1 MPS). 3

19. The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the highest marginal propensity to consume? A. 1 B. 2 C. 3 D. 4 20. The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the largest multiplier? A. 1 B. 2 C. 3 D. 4 21. Assume that in a private closed economy consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. Thus: A. saving is $10 billion. B. unplanned decreases in inventories of $10 billion will occur. C. the MPC is.80. D. unplanned increases in inventories of $10 billion will occur. 22. Refer to the above diagram for a private closed economy. The equilibrium GDP is: A. $60 billion. B. $180 billion. C. between $60 and $180 billion. D. $60 billion at all levels of GDP. 4

23. Refer to the above diagram for a private closed economy. In this economy investment: A. decreases as GDP increases. B. increases as GDP increases. C. is $40 billion at all levels of GDP. D. is $60 billion at all levels of GDP. 24. Refer to the above diagram for a private closed economy. In this economy aggregate expenditures: A. do not change as GDP increases. B. increase by $2 for every $5 increase in GDP. C. increase by $2 for every $4 increase in GDP. D. increase by $2 for every $3 increase in GDP. 25. Refer to the above diagram for a private closed economy. Aggregate saving in this economy will be zero when: A. C + I g cuts the 45-degree line. B. GDP is $180 billion. C. GDP is $60 billion. D. GDP is also zero. 26. In the aggregate expenditures model, equilibrium GDP in a private closed economy is indicated by: A. the equality of saving and planned investment. B. the intersection of aggregate expenditures and the 45-degree line. C. the absence of unplanned changes in inventories. D. all of these. 27. Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by: A. $100 billion. B. $50 billion. C. $500 billion. D. $5 billion. Complete the following table and answer the next question(s) on the basis of the resulting data. All figures are in billions of dollars. 5

28. If the above economy was closed to international trade, the equilibrium GDP and the multiplier would be: A. $300 and 5. B. $350 and 4. C. $400 and 4. D. $350 and 5. 29. Refer to the above table. For the open economy the equilibrium GDP and the multiplier are: A. $300 and 2.5. B. $450 and 5. C. $400 and 4. D. $400 and 5. 30. If the multiplier in an economy is 5, a $20 billion increase in net exports will: A. increase GDP by $100 billion. B. reduce GDP by $20 billion. C. decrease GDP by $100 billion. D. increase GDP by $20 billion. 31. In the private closed economy, equilibrium GDP occurs where C + I g = GDP. 32. When C + I g = GDP in a private closed economy, S = I and there are no unplanned changes in inventories. 33. If the MPC is.8 in a private closed economy, a $30 billion increase in planned investment will increase equilibrium real GDP by $120 billion. 34. Equal increases in government expenditures and tax collections will leave the equilibrium GDP unchanged. 35. A $10 billion decrease in taxes will increase the equilibrium GDP by more than would a $10 billion increase in government expenditures. 36. If the MPC is.9, a $20 billion increase in a lump-sum tax will reduce GDP by $200 billion. 37. The aggregate expenditures schedule in the mixed open economy has a negative slope. 6

38. The interest-rate effect suggests that: A. a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. B. an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. C. an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. D. an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending. 39. The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will: A. shift the aggregate demand curve leftward. B. shift the aggregate supply curve leftward. C. decrease U.S. exports and increase U.S. imports. D. increase U.S. exports and decrease U.S. imports. 40. The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the: A. real-balances, interest-rate, and foreign purchases effects. B. determinants of aggregate supply. C. determinants of aggregate demand. D. sole determinants of the equilibrium price level and the equilibrium real output. 41. If investment increases by $10 billion and the economy's MPC is.8, the aggregate demand curve will shift: A. leftward by $50 billion at each price level. B. rightward by $10 billion at each price level. C. rightward by $50 billion at each price level. D. leftward by $40 billion at each price level. 42. If investment decreases by $20 billion and the economy's MPC is.5, the aggregate demand curve will shift: A. leftward by $40 billion at each price level. B. rightward by $20 billion at each price level. C. rightward by $40 billion at each price level. D. leftward by $20 billion at each price level. 7

43. In the above diagram, the economy's long-run aggregate supply curve is shown by line: A. 1. B. 2. C. 3. D. 4. 44. In the above diagram, the economy's relevant aggregate demand and long-run aggregate supply curves, respectively, are lines: A. 4 and 2. B. 4 and 1. C. 2 and 4. D. 2 and 3. 45. In the above diagram, the economy's short-run AS curve is line and its long-run AS curve is line. A. 1; 3 B. 2; 4 C. 3; 4 D. 2; 1 46. In the above diagram, the most favorable shift of the aggregate supply curve for the economy would be from: A. AS 1 to AS 2. B. AS 1 to AS 3. C. AS 2 to AS 3. D. AS 3 to AS 2. Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question(s) on the basis of this information. 8

47. Refer to the above information. The level of productivity is: A. 20. B. 10. C. 5. D. 2. 48. The per unit cost of production in the economy described above is: A. $.50. B. $1. C. $2. D. $5. Answer the next question(s) on the basis of the following table for a particular country in which C is consumption expenditures, I g is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. Each question is independent of the other questions. 49. Refer to the above table. If the equilibrium level of real GDP is $43 billion, its level of consumption will be: A. $20 billion. B. $22 billion. C. $24 billion. D. $26 billion. 50. An increase in net exports will shift the: A. aggregate expenditures curve upward and the aggregate demand curve rightward. B. aggregate expenditures curve upward and the aggregate demand curve leftward. C. aggregate expenditures curve downward and the aggregate demand curve rightward. D. aggregate expenditures curve downward and the aggregate demand curve leftward. 9