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Final

The marginal propensity to consume is:

the change in consumer spending divided by the change in aggregate disposable income.

If the MPS = .1, then the value of the multiplier equals:

10.

Suppose that the marginal propensity to consume is 0.8, and investment spending increases by $100 billion. The increase in aggregate demand is:

$500 billion, composed of $100 billion in investment spending and $400 billion in consumption.

The multiplier is:

1/[1-MPC].

If disposable income increases by $5 billion and consumer spending increases by $4 billion, the marginal propensity to consume is equal to:

0.8.

If your disposable income increases from $10,000 to $15,000 and your consumption increases from $9,000 to $12,000, your MPC is:

0.6.

(Figure: Consumption and Real GDP) The slope of the consumption function is called the:

marginal propensity to consume.

(Figure: Consumption and Real GDP) If real GDP is $4 trillion, consumption is _______ trillion.

$3

(Figure: Consumption and Real GDP) If real GDP is $8 trillion, consumption is _______ trillion and saving is _______ trillion.

$5; $3

The _______ the _______ , the _______ the multiplier.

greater; MPC; greater

According to the table below, the MPC and autonomous consumption are ________ and ________, respectively, for Bob.

0.4; $9,000

The most important factor affecting a household's consumer spending is:

its current disposable income.

If the marginal propensity to consume is 0.5, individual autonomous consumption is $10,000, and disposable income is $40,000, then individual consumption spending is:

$30,000.

For the economy as a whole it holds true that:

C = A + (MPC × YD).

Use the following to answer question 15:
Figure: Consumption Functions

(Figure: Consumption Functions) Curve C' compared with curve C, would most likely result from a(n):

increase in wealth.

If the stock market crashes:

the aggregate consumption function will shift down.

Use the following to answer questions 17-18:

Table: Disposable Income and Consumption

(Table: Disposable Income and Consumption) Referring to the table provided, the autonomous consumer spending is:

100.

(Table: Disposable Income and Consumption) Use the information in the table, the MPC is equal to:

.60.

Consider a simple economy: MPC = 0.75, income =$400 billion and aggregate consumption spending= $400 billion. The autonomous consumption is:

$100 billion.

Planned investment spending depends on all of the following, EXCEPT:

the current level of real GDP.

Which one of the following accurately describes actual investment spending?

Actual Investment = Planned Investment + Unplanned Investment

Inventory investment is:

a part of the unplanned investment spending and may either be positive or negative.

The Federal Reserve, the central bank of the U.S., has been cutting the interest rate in order to stimulate the recessionary economy. Fed's interest cuts are supposed to:

increase the investment spending and thus increase GDP via the multiplier.

Planned investment spending is:

investment spending that businesses plan to undertake during a period.

Most recessions originate from:

a decrease in aggregate demand.

Investment spending:

fluctuates more than consumption.

The current level of productive capacity ________________ investment spending.

is negatively related to

The higher the current production capacity of the economy:

the lower is investment spending.

Use the following to answer questions 29-30:

Table: The Economy of Albernia

(Table: The Economy of Albernia) What is the consumption function for Albernia?

C = 400 + 0.6 × YD

(Table: The Economy of Albernia) What is the income-expenditure equilibrium GDP?

$2,500 billion

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