If in an economy a $150 billion increase in investment spending creates $150 billion of new income in the first round of the multiplier process and $105 billion in the second round, the multiplier and the marginal propensity to consume will be, respectively,

If in an economy a $150 billion increase in investment spending creates $150 billion of new income in the first round of the multiplier process and $105 billion in the second round, the multiplier and the marginal propensity to consume will be, respectively,

A) 5.00 and 0.80
B) 4.00 and 0.75
C) 3.33 and 0.70
D) 2.50 and 0.40

Answer: C

If the marginal propensity to consume is 0.67 and initial spending increases by $25, real GDP will

If the marginal propensity to consume is 0.67 and initial spending increases by $25, real GDP will

A) increase by $75
B) decrease by $75
C) increase by $25
D) decrease by $25

Answer: C

If the marginal propensity to consume is 0.6 and real GDP falls by $25, this is caused by a decrease in initial spending of

If the marginal propensity to consume is 0.6 and real GDP falls by $25, this is caused by a decrease in initial spending of

A) $10.00
B) $15.00
C) $16.67
D) $20.00

Answer: A

If there was a change in investment spending of $10 and the marginal propensity to save was .25, then real GDP would increase by

If there was a change in investment spending of $10 and the marginal propensity to save was .25, then real GDP would increase by

A) $10
B) $20
C) $25
D) $40

Answer: D

Which best explains the variability of investment?

Which best explains the variability of investment?

A) the predictable useful life of capital goods
B) constancy or regularities in business innovations
C) instabilities in the level of profits
D) business pessimism about the future

Answer: C

Which would increase investment demand?

Which would increase investment demand?

A) an increase in business taxes
B) an increase in planned inventories
C) a decrease in the rate of technological change
D) an increase in the cost of acquiring capital goods

Answer: B

A decrease in investment demand would be a consequence of a decline in

A decrease in investment demand would be a consequence of a decline in

A) the rate of interest
B) the level of wages paid
C) business taxes
D) expected future sales

Answer: D

Which relationship is an inverse one?

Which relationship is an inverse one?

A) consumption and disposable income
B) investment spending and the rate of interest
C) saving and disposable income
D) investment spending and GDP

Answer: B

An increase in taxes shifts the consumption schedule

An increase in taxes shifts the consumption schedule

A) downward and the saving schedule upward
B) upward and the saving schedule downward
C) downward and the saving schedule downward
D) upward and the saving schedule upward

Answer: C

Higher real interest rates are likely to

Higher real interest rates are likely to

A) increase consumption and saving
B) decrease consumption and saving
C) decrease consumption and increase saving
D) increase consumption and decrease saving

Answer: C

Expectations of a recession are likely to lead households to

Expectations of a recession are likely to lead households to

A) increase consumption and saving
B) decrease consumption and saving
C) decrease consumption and increase saving
D) increase consumption and decrease saving

Answer: C

An increase in wealth shifts the consumption schedule

An increase in wealth shifts the consumption schedule

A) downward and the saving schedule upward
B) upward and the saving schedule downward
C) downward and the saving schedule downward
D) upward and the saving schedule upward

Answer: B

If the slope of a linear saving schedule decreases, then it can be concluded that the

If the slope of a linear saving schedule decreases, then it can be concluded that the

A) MPS has decreased
B) MPC has decreased
C) income has decreased
D) income has increased

Answer: A

As the disposable income of the economy increases,

As the disposable income of the economy increases,

A) both the APC and the APS rise
B) the APC rises and the APS falls
C) the APC falls and the APS rises
D) both the APC and the APS fall

Answer: C

If disposable income is $375 billion when the average propensity to consume is 0.8, it can be concluded that

If disposable income is $375 billion when the average propensity to consume is 0.8, it can be concluded that

A) the marginal propensity to consume is also 0.8
B) the marginal propensity to save is 0.2
C) consumption is $325 billion
D) saving is $75 billion

Answer: D

If consumption spending increases from $358 to $367 billion when disposable income increases from $412 to $427 billion, it can be concluded that the marginal propensity to consume is

If consumption spending increases from $358 to $367 billion when disposable income increases from $412 to $427 billion, it can be concluded that the marginal propensity to consume is

A) 0.4
B) 0.6
C) 0.8
D) 0.9

Answer: B

Households tend to spend a larger portion of

Households tend to spend a larger portion of

A) a small disposable income than a large disposable income
B) a large disposable income than a small disposable income
C) their disposable income on saving when the rate of return is high
D) their saving than their disposable income when the rate of return is low

Answer: A

As disposable income decreases, ceteris paribus,

As disposable income decreases, ceteris paribus,

A) both consumption and saving increase
B) consumption increases and saving decreases
C) consumption decreases and saving increases
D) both consumption and saving decrease

Answer: D

Saving equals

Saving equals

A) investment plus consumption
B) investment minus consumption
C) disposable income minus consumption
D) disposable income plus consumption

Answer: C