Questions in economics?

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QUESTION 1bb.docx 

QUESTION 1

1.  If Carol’s disposable income increases from $1,000 to $1,600 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to:

 

A.

consume is one-sixth.

 

B.

consume is one-half.

 

C.

consume is two-thirds.

 

D.

save is two-thirds.

QUESTION 2

1.  A decline in disposable income:

increases consumption by moving along a specific consumption schedule.

decreases consumption because it shifts the consumption schedule downward.

decreases consumption by moving along a specific consumer schedule.

increases consumption because it shifts the consumption schedule upward.

QUESTION 3

1.  In contrast to investment, consumption is:

relatively unstable.

relatively stable.

measurable.

unmeasurable.

QUESTION 4

1.  At the point where the consumption schedule intersects the 45-degree line:

the APC is 1.00.

the MPC is 1.00.

saving is equal to consumption.

consumption is less than income.

QUESTION 5

1.  The MPC can be defined as the fraction of a:

change in income that is spent.

change in income that is saved.

given total income that is not consumed.

given total income that is consumed.

QUESTION 6

1.  In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the:

wealth effect.

multiplier effect.

interest-rate effect.

none of the above.

QUESTION 7

1.  Which of the following could shift both consumption and saving schedules upward?

a decrease in the personal income tax.

an increase in the personal income tax.

a decrease in the real interest rate.

an increase in stock market prices.

QUESTION 8

1. 

A downward shift of the consumption schedule might be caused by a(an):

increase in income.

wealth effect, caused by an increase in stock market prices.

increase in real interest rate.

decrease in saving.

QUESTION 9

1.  The investment demand slopes downward and to the right because lower real interest rates:

expand consumer borrowing, making investments more profitable.

enable more investment projects to be undertaken profitably.

result in fewer investment projects to be undertaken profitably.

create disincentives to invest.

QUESTION 10

1.  The relationship between the real interest rate and investment is shown by the:

investment demand curve.

investment schedule.

saving schedule.

consumption schedule.

QUESTION 11

1.  When we draw an investment demand curve we hold constant all of the following except:

operating and maintenance costs

business taxes.

the interest rate.

the present stock of capital goods.

QUESTION 12

1.  Capital goods, because their purchases can be postponed like ______ consumer goods, tend to contribute to ________ in investment spending.

durable; instability

nondurable; instability

nondurable; stability

durable; stability

QUESTION 13

1.  If the slope of the consumption schedule is 0.8, MPC must be :

0.2

0.3

0.8

1

QUESTION 14

1.  With an MPS of .3, the MPC will be: 

.3

.7

1.3

none of the above

QUESTION 15

1.  The disposable income (DI) and consumption (C) schedules are for a private, closed economy. All figures are in billions of dollars. If plotted on a graph, the slope of the consumption schedule would be: 

.6

.9

.8

.7

QUESTION 16

1.  If the MPC in an economy is 0.8 and government expenditures increase by $5 billion, then GDP will increase by:

$20 billion.

$25 billion.

$16 billion.

$4 billion.

QUESTION 17

1.  In a private closed economy, saving and investment are, respectively:

an injection and a leakage.

a leakage and an injection.

income and wealth.

none of the above.

QUESTION 18

1.  The multiplier can be calculated by dividing: 

The change in real GDP by the initial change in spending.

The initial change in spending by the change in real GDP.

One by one minus the marginal propensity to save.

One by the marginal propensity to consume.

QUESTION 19

1.  If a lump-sum tax of $40 billion is levied at each level of income and the MPC is 0.75, then the consumption schedule will shift:

upward by $30 billion.

upward by $10 billion.

downward by $10 billion.

downward by $30 billion.

QUESTION 20

1.  If the marginal propensity to consume in this economy is 0.8, a $10 increase in its net exports would increase its real GDP by: 

$50

$25

$75

$200

QUESTION 21

1.  As disposable income decreases, consumption: 

and saving both increase.

and saving both decrease.

increases and saving decreases.

decreases and saving increases

QUESTION 22

1.  Refer to the consumption schedule below. At income level 3, the amount of saving is represented by the line segment: 

FG

FH

FD

GH

QUESTION 23

1.  Refer to the consumption schedule below. At income level 1, the amount of saving is: 

positive.

negative.

zero.

not measurable.

QUESTION 24

1.  If consumers expect prices to rise and shortages to occur in the future, then it will shift:

the consumption schedule upward and the saving schedule downward.

downward both the consumption and saving schedules.

upward both the consumption and saving schedules.

the consumption schedule downward and the saving schedule upward.

QUESTION 25

1.  Planned investment is $30 billion at the $100 billion equilibrium level of output in a closed, private economy. Saving must be:

less than planned investment.

greater than planned investment.

equal to $100 billion.

equal to $30 billion.

QUESTION 26

1.  Two basic determinants of investment spending are: 

consumer spending and government spending.

expected returns and real interest rate.

general price level and the level of output.

domestic trade and international trade.

QUESTION 27

1.  The nominal rate of interest is 8.5 percent and the real rate is 5 percent. The expected rate of return on an investment is 8 percent. The firm should:

undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest.

undertake the investment because the expected rate of return of 8 percent is greater than the difference between the nominal and real interest rates.

not undertake the investment because the expected rate of return of 8 percent is less than the nominal plus the real interest rate.

not undertake the investment because the expected rate of return of 8 percent is less than the nominal interest rate.

QUESTION 28

1.  Which of the following would shift the investment demand curve to the left?

A lower real interest rate.

Rising maintenance costs of investment goods.

Increasing business taxes.

Both B and C.