Questions for Cahpter 27

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Questions for Chapter 27 of Macro Economics

The consumption schedule is:

a direct relationship between consumption and disposable income.

the MPC is .8.

Use the following diagram for this question. Which of the following might have caused the shift from consumption schedule C1 to schedule C2?

An increase in household wealth

\$20 billion

1 / .37

the MPS is .2.

Suppose the MPC is ¾. If investment spending falls by \$10 billion, the level of GDP will:

fall by \$40 billion

If consumption and disposable income are equal at a particular level of income:

saving must be zero at this point.

All else equal, if the interest rate rises:

planned investment spending will decrease

infinitely large

C = 40 + .6Yd

The most important determinant of consumer spending is:

the level of income

False

Other things equal, a decrease in the real interest rate will:

move the economy downward along its existing investment demand curve.

The consumption schedule shows:

the amounts households intend to consume at various possible levels of aggregate income.

In annual percentage terms, investment spending in the United States is:

more variable than real GDP.

The MPC for an economy is:

the slope of the consumption schedule or line

Which of the following would shift the investment demand curve from ID1 to ID3?

lower expected rates of return on investment

Suppose the economy's saving schedule shifts from S1 to S2 as shown in the above diagram. We can say that its:

MPS has increased

As disposable income increases, consumption:

and saving both increase

The MPC can be defined as that fraction of a:

change in income that is spent

The saving schedule shown in the above diagram would shift downward if, all else equal:

consumer wealth rose rapidly because of a significant increase in stock market prices.

Refer to the above diagram. At disposable income level D, consumption is:

equal to D minus CD

True

CD.

Answer the question on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. Refer to the above data. The marginal propensity to save:

is highest in economy (1).

The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because:

in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.

False

.90.

Example: