# Module 8

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ECO/EMCC William Ashley

### The saving schedule is drawn on the assumption that as income increases: Answer

￼ saving will increase absolutely and as a percentage of income.

### If 100 percent of any change in income is spent, the multiplier will be: Answer

￼ infinitely large.

### (Last Word) Art Buchwald's article "Squaring the Economic Circle" humorously describes how: Answer

￼ a person's decision not to buy an automobile eventually reduces many people's incomes, including that of the person making the original decision.

### The consumption schedule is such that: Answer

￼ the MPC is constant and the APC declines as income rises.

### The multiplier effect indicates that: Answer

￼ a change in spending will change aggregate income by a larger amount.

### The relationship between the real interest rate and investment is shown by the: Answer

￼ investment demand schedule.

### An upward shift of the saving schedule suggests: Answer

￼ that the APC has decreased and the APS has increased at each GDP level.

### The investment demand slopes downward and to the right because lower real interest rates: Answer

￼ enable more investment projects to be undertaken profitably.

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

￼ move the economy downward along its existing investment demand curve.

### The size of the MPC is assumed to be: Answer

￼ greater than zero, but less than one.

### Refer to the above diagram. The average propensity to consume: Answer

￼ is greater than 1 at all levels of disposable income below \$100.

### The numerical value of the multiplier will be smaller the: Answer

￼ larger the slope of the saving schedule.

### The real interest rate is: Answer

￼ the percentage increase in purchasing power that the lender receives on a loan.

### A decline in disposable income: Answer

￼ decreases consumption by moving downward along a specific consumption schedule.

￼ \$60

￼ 5.

￼ 22 percent.

### A decline in the real interest rate will: Answer

￼ increase the amount of investment spending.

### If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when: Answer

￼ r is greater than i.

### Which one of the following will cause a movement up along an economy's saving schedule? Answer

￼ an increase in disposable income

￼ .1.

### Which of the following will not tend to shift the consumption schedule upward? Answer

￼ the expectation of a future decline in the consumer price index

### Refer to the above graph. A movement from a to b along C1 might be caused by a: Answer

￼ increase in real GDP.

### The immediate determinants of investment spending are the: Answer

￼ expected rate of return on capital goods and the real interest rate.

### If Carol's disposable income increases from \$1,200 to \$1,700 and her level of saving increases from minus \$100 to a plus \$100, her marginal propensity to: Answer

￼ consume is three-fifths.

Example: