Macro Economics Study Guide Help!

1)As disposable income increases, consumption
spending
a. increases by the same amount
b. decreases by the same amount
c. increases by less than the increase in disposable
income
d. decreases by less than the increase in disposable
income
e. does not change at all

2) Disposable income is equal to consumption
a. plus investment
b. plus taxes
c. plus saving
d. minus taxes
e. minus saving

3) Sarah moves from Upperland, which has no taxes
or transfer payments, to Lowerland, where she is hit
with taxes of $2,000 and receives transfer
payments of $3,000. She earns the same wage in
both countries, but in Lowerland her disposable
income is
a. $1,000 higher
b. $1,000 lower
c. $5,000 higher
d. $2,000 lower
e. $3,000 higher

4) Induced saving
a. is that part of saving that is inversely related to
the interest rate
b. plus autonomous saving equals disposable
income
c. is that portion of saving that is directly related to
income
d. is less than disposable income at every level of
income
e. equals autonomous saving at every income level

5) Consumption spending depends mainly on the
level of
a. national income
b. disposable income
c. personal income
d. personal income taxes
e. imports

6) If a household's income rises from $46,000 to
$46,700 and its consumption spending rises from
$35,800 to $36,400, then its
a. marginal propensity to consume is 0.86
b. marginal propensity to consume is 0.99
c. marginal propensity to consume is 0.98
d. marginal propensity to save is 0.01
e. marginal propensity to save is 0.86

7) Suppose that when disposable income rises from
$3 trillion to $3.2 trillion, consumption rises from
$2.5 trillion to $2.6 trillion. What is the marginal
propensity to save?
a. 0.1
b. 0.2
c. 0.5
d. 0.8
e. 0.9

8)If income increases by $100 and the MPC is 3/4
(0.75), then consumption increases by
a. $25
b. $66.66
c. $50
d. $33.33
e. $75

9) The slope of the consumption function shows
how
a. consumption changes over time
b. consumption changes as household size changes
c. consumption changes as the price level changes
d. income changes as the level of consumption
changes
e. consumption changes as the level of income
changes

10) An upward shift of the consumption function
might be caused by
a. an increase in disposable income
b. a decrease in disposable income
c. a decrease in the price level
d. a decrease in household wealth
e. an increase in the interest rate

11) A decrease in net wealth will
a. increase consumption and saving at each level of
income
b. increase saving and decrease consumption at
each level of income
c. decrease consumption and saving at each level of
income
d. increase consumption and decrease saving at
each level of income
e. have no effect on consumption, since
consumption is a function of income

12) A decrease in the price level will
a. shift the consumption function upward
b. make the consumption function steeper
c. result in a movement upward along the
consumption function
d. result in a movement downward along the
consumption function
e. have no effect on the consumption function

13) A household that expects a decrease in
disposable income in the future will
a. increase its current consumption spending
b. decrease its current consumption spending
c. maintain its current consumption spending
d. increase its current consumption spending, then
increase spending when income falls
e. decrease its current consumption spending, then
increase spending when income falls

14) According to the life-cycle model,
a. saving increases over the typical individual's
lifetime
b. consumption decreases over the life cycle as
individual save more for retirement
c. people with high incomes save a smaller fraction
of their incomes than do people with low income
d. saving and consumption tend to vary in a
systematic way over an individual's lifetime
e. the saving rate for an economy as a whole
increases over its lifetime

15)Which of the following is not investment
spending?
a. an increase in business inventories
b. the extensive renovation of an old factory
building
c. the purchase of stock in Potomac Electric
Company
d. the construction of a new apartment building
e. the purchase of a new silo for a farm

16) A grocery store manager has $600 in cash with
which to buy a rug cleaner. Rental income from the
cleaner would be about $75 per year. The interest
rate is 11 percent. Should the manager buy the
machine?
a. Yes, since the rate of return is greater than the
rate of interest.
b. Yes, since the manager does not have to borrow
the money the interest rate is irrelevant.
c. No, since the yield of $75 is less than the interest
cost of 11 percent.
d. No, since the rate of return is less than the
interest rate.
e. Yes, since the return of $75 is greater than 11
percent.

17) An increase in the interest rate, other things
equal, would
a. have no effect on investment
b. increase the amount invested since the rate of
return would be lower
c. increase the amount invested because income
would rise
d. reduce the amount invested because the
opportunity costs of investing would be higher
e. increase the amount invested because the rate of
return would be higher

18) Which of the following would tend to shift the
investment function upward?
a. higher interest rates
b. gloomy sales expectations
c. a cut in corporate taxes that raises after-tax
profits
d. a decrease in the marginal propensity to
consume
e. an increase in aggregate income

19)The current level of investment depends on the
current level of income.
a. True
b. False

20) If autonomous investment were measured on
the vertical axis and disposable income were
measured on the horizontal axis, what would the
graph look like?
a. a horizontal line
b. a vertical line
c. an upward-sloping line
d. a downward-sloping line
e. the line would first slope upward and then slope
downward

21)If the interest rate increases, then there will be
a. a rightward movement along the autonomous
investment function
b. a leftward movement along the autonomous
investment function
c. an upward shift of the autonomous investment
function
d. a downward shift of the autonomous investment
function
e. no movement along or shift of the autonomous
investment function

22)Which of the following is the most volatile
component of GDP?
a. investment (I)
b. consumption (C)
c. saving (S)
d. government purchases (G)
e. net exports (X - M)

23) An increase in real disposable income will
a. shift the autonomous net export function upward
b. shift the autonomous net export function
downward
c. cause a rightward movement along the
autonomous net export function
d. cause a leftward movement along the
autonomous net export function
e. show no movement along or shift of the
autonomous net export function

24)If incomes in the United States increase, other
things equal, then U.S.
a. imports increase and exports remain constant
b. exports increase and imports decrease
c. imports decrease and exports decrease
d. imports remain constant and exports increase
e. net exports remain constant

25 )If the U.S. price level increases, other things
equal, U.S. net exports
a. increase
b. decrease
c. remain constant, since net exports are assumed
to be constant
d. increase only if the marginal propensity to import
also increases
e. increase only if there is lower inflation abroad

26) Net wealth is a __________ variable.
Consumption and income are __________ variables.
a. stock, flow
b. stock, stock
c. stock, flat
d. flow, stock
e. flow, flow

27) The United States, with only one __________ of
the world’s population, accounts for about one
__________ of the world’s imports and one
__________ of the world’s exports.
a. twentieth, sixth, ninth
b. sixth, ninth, twentieth
c. ninth, twentieth, sixth
d. twentieth, ninth, sixth
e. ninth, sixth, twentieth