Students Again

Question 1 (Multiple Choice)

If the MPC is .8 and disposable income is $200, then

A) consumption and saving cannot be determined from the information given.
B) saving will be $20.
C) personal consumption expenditures will be $80.
D) saving will be $40.

Correct Answer: A

Question 2 (Multiple Choice)
If an increase in aggregate expenditures results in no increase in real GDP we can surmise that the:

A) economy is in a deep recession.
B) MPC equals 1.
C) economy is already operating at capacity.
D) price level has fallen.

Correct Answer: C

Question 3 (Multiple Choice)
In a mixed closed economy:

A) government purchases and saving are injections, while investment and taxes are leakages.
B) taxes and government purchases are leakages, while investment and saving are injections.
C) taxes and savings are leakages, while investment and government purchases are injections.
D) taxes and investment are injections, while saving and government purchases are leakages.

Correct Answer: C

Question 4 (Multiple Choice)
In a mixed open economy, where aggregate expenditures exceed GDP:

A) I + EX + G = C.
B) C + I + (EX-IM) + G < domestic output.
C) I > S .
D) I + EX + G > S + IM + T .

Correct Answer: D

Question 5 (Multiple Choice)
Answer the question(s) on the basis of the following consumption and investment data for a private closed economy. Figures are in billions of dollars.

C = 60 + .6Y
I = 30

In equilibrium the level of saving will be

A) 30.
B) 26.
C) 25.
D) 60.

Correct Answer: A

Question 6 (True/False)
The slope of the consumption schedule is measured by the MPC.

True
False

Correct Answer: true

Question 7 (Multiple Choice)
Assume that for the entire business sector of the economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments that will yield an expected rate of return of 20-25 percent;  another $15 with an expected rate of return of 15-20 percent; and similarly an additional $15 of investment projects in each  successive rate of return range down to and including the 0-5 percent range. If the real interest rate is 5 percent, what amount of  investment will be undertaken?

A) $15
B) $30
C) $45
D) $60

Correct Answer: D

Question 8 (Multiple Choice)
On the basis of the following information for a private closed economy, where Ig is gross investment, S is saving, and Y is gross domestic product (GDP).

Ig = 80
S = -80 + .4Y

In equilibrium consumption will be:

A) $400.
B) $280.
C) $320.
D) $360.

Correct Answer: C

Question 9 (Multiple Choice)
If unintended increases in business inventories occur, we can expect:

A) a decline in GDP and rising unemployment.
B) inflation.
C) an increase in consumption.
D) an offsetting increase in planned investment.

Correct Answer: A

Question 10 (True/False)
The balanced-budget multiplier suggests that equal reductions in government spending and tax collections will leave the equilibrium GDP unchanged.

True
False

Correct Answer: false

Question 11 (Multiple Choice)

C = 40 + .8Y
Ig = 40
EX = 20
IM = 30

In equilibrium the level of saving is:

A) $20.
B) $30.
C) $40.
D) $50.

Correct Answer: B

Question 12 (Multiple Choice)
If the MPC is .6, the multiplier will be:

A) 4.0.
B) 6.0.
C) 2.5.
D) 1.67.

Correct Answer: C

Question 13 (Multiple Choice)

C = 40 + .8Y
Ig = 40
EX = 20
IM = 30

International trade:

A) has an expansionary effect on GDP.
B) has a contractionary effect on GDP.
C) has no effect on GDP.
D) is causing inflation in this economy.

Correct Answer: B

Question 14 (Multiple Choice)
If APC = .6 and MPC = .7, the immediate impact of an increase in personal taxes of $20 will be to:

A) have no effect on consumption.
B) decrease consumption by $14.
C) decrease consumption by $12.
D) increase consumption by $14.

Correct Answer: B

Question 15 (Multiple Choice)
The saving schedule is drawn on the assumption that as income increases:

A) saving will decline absolutely and as a percentage of income.
B) saving will increase absolutely, but remain constant as a percentage of income.
C) saving will increase absolutely, but decline as a percentage of income.
D) saving will increase absolutely and as a percentage of income.

Correct Answer: D

Question 16 (Multiple Choice)
Other things equal, serious recession in the economies of U.S. trading partners will:

A) have no perceptible impact on the U.S. economy.
B) cause inflation in the U.S. economy.
C) depress real output and employment in the U.S. economy.
D) stimulate real output and employment in the U.S. economy.

Correct Answer: C

Question 17 (Multiple Choice)
Suppose government finds it can increase the equilibrium real GDP $45 billion by increasing government purchases by $18 billion. On the basis of this information we can say that the:

A) MPS in this economy is .4.
B) MPC in this economy is .4.
C) balanced-budget multiplier does not apply in this economy.
D) multiplier is 3.

Correct Answer: A

Question 18 (Multiple Choice)
If a lump-sum tax of $40 billion is imposed and the MPC is 0.6, the saving schedule will:

A) shift downward by $24 billion.
B) shift upward by $24 billion.
C) shift downward by $16 billion.
D) shift upward by $16 billion.

Correct Answer: C

Question 19 (Multiple Choice)
The multiplier effect means that:

A) consumption is typically several times as large as saving.
B) a small change in consumption can cause a much larger increase in investment.
C) a small increase in investment can cause GDP to change by a larger amount.
D) a small decline in the MPC can cause equilibrium GDP to rise by several times that amount.

Correct Answer: C

Question 20 (Multiple Choice)
The basic consideration that underlies the balanced-budget multiplier is that:

A) tax increases are subject to a larger multiplier effect than are increases in government expenditures.
B) many taxes (for example, payroll taxes) are legally linked to disbursement programs (for example, old age and survivors  insurance).
C) declines in government spending invariably cause increases in private investment spending.
D) individuals and businesses reduce their expenditures by some amount less than any increase in their taxes.

Correct Answer: D

Question 21 (True/False)
If net exports are positive imports must exceed exports.

True
False

Correct Answer: false

Question 22 (True/False)
The slope of the saving schedule measures the size of the multiplier.

True
False

Correct Answer: false

Question 23 (Multiple Choice)
An increase in personal taxes will shift:

A) both the consumption and saving schedules downward.
B) both the consumption and saving schedules upward.
C) the consumption schedule upward and the saving schedule downward.
D) the consumption schedule downward and the saving schedule upward.

Correct Answer: A

Question 24 (True/False)
1 - MPC = MPS

True
False

Correct Answer: true

Question 25 (Multiple Choice)
The wealth effect is shown graphically as a:

A) shift of the consumption schedule.
B) movement along an existing consumption schedule.
C) shift of the investment schedule.
D) movement along an existing investment schedule.

Correct Answer: A

Question 26 (Multiple Choice)
In contrast to the investment schedule, the consumption schedule is:

A) relatively stable.
B) relatively unstable.
C) downsloping.
D) horizontal.

Correct Answer: A

Question 27 (Multiple Choice)
Other things equal, a 10 percent decrease in corporate income taxes will:

A) decrease the market price of real capital goods.
B) have no effect on the location of the investment-demand curve.
C) shift the investment-demand curve to the right.
D) shift the investment-demand curve to the left.

Correct Answer: C

Question 28 (Multiple Choice)
For a private closed economy, an unintended decline in inventories suggests that:

A) aggregate expenditures are less than the business sector expected them to be.
B) aggregate expenditures exceed GDP.
C) actual investment exceeds saving.
D) planned investment is greater than consumption.

Correct Answer: B

Question 29 (Multiple Choice)
According to classical economists:

A) demand creates its own supply.
B) wages and prices are inflexible downward.
C) the market system ensures full employment.
D) Say's law is invalid.

Correct Answer: C

Question 30 (Multiple Choice)
An upward shift of the aggregate expenditures schedule might be caused by:

A) a decrease in exports, with no change in imports.
B) a decrease in imports, with no change in exports.
C) an increase in exports, with an equal decrease in investment spending.
D) an increase in imports, with no change in exports.

Correct Answer: B